Cortexyme: Valued On Skepticism

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About: Cortexyme, Inc. (CRTX)
by: Energy HC Investor
Summary

Cortexyme's current share price of $26 is high given the firm has only finished Phase 1 trials and still lacks sufficient research on its Mechanism of Action.

The company has introduced a new "Gingipain hypothesis" into the Alzheimer's disease space, shifting away from the Amyloid-Beta hypothesis.

Cortexyme has the potential to be a blockbuster, but the Phase 2/3 trials have proved to be the biggest test among Alzheimer's clinical trials.

Company Overview

Cortexyme (CRTX) is a clinical-stage biopharmaceutical company pioneering a new disease-modifying therapeutic approach to treating Alzheimer’s disease and other neuro-degenerative diseases. The company is targeting a specific pathogen found in the brain of Alzheimer’s patients that causes neurodegeneration and other pathology. Cortexyme’s lead small molecule, COR388, has advanced through a Phase 1 trial and is currently the subject of a Phase 2/3 clinical trial in mild-to-moderate Alzheimer’s disease.

Investment Thesis

Cortexyme has been working to develop its lead Alzheimer's candidate, COR388. The drug is not based on the classical amyloid-beta hypothesis, making it more promising than a lot of other candidates after Biogen's (BIIB) failure. However, I believe its current share price of $26 is higher than justified, especially with the amount of research published behind the pathogens in the brain. COR388 has yet to release any statistically significant data, and its low probability of success leads me to believe investors are not using logic to value this company.

Scientific Discussion

The Rationale

Cortexyme’s therapeutic rationale revolves around the discovery of a bacteria known as P. gingivalis and its secreted proteases called gingipains. The company claims that the bacteria and gingipains can be found in the brains of Alzheimer’s disease patients post-mortem. Furthermore, it found that high oral doses of P. gingivalis led to Alzheimer’s pathology in mice. Thus, the firm's hypotheses and clinical trials revolve around this so-called "Gingipain hypothesis," a novel therapeutic approach.

Although this can be considered a novel approach, I believe it's too early to buy into this Gingipain hypothesis. While Cortexyme cites a study that found gingipains in the brain of AD patients, there have also been studies that show a smaller percentage (40% as opposed to 90%) of AD patients had gingipain in their brain. Furthermore, there are many pathogens found in the brain, which means it's difficult to conclude that P. gingivalis is the sole cause of the disease. A majority of Cortexyme's studies were also done in mice, and researchers and doctors alike would be more comfortable if the same causative relationship is demonstrated in larger animal models. Thus, I believe the research is quite lacking, and investors should wait until more research on gingipains and AD is published.

COR388

Cortexyme’s COR388 is an orally administered, brain-penetrating small molecule designed to inhibit both known types of gingipains. The drug is designed to halt the progression of Alzheimer's disease.

COR388 has completed Phase 1 clinical trials in healthy volunteers using ascending doses of 5, 25, 50, 150, and 250 mg. Phase 1 clinical trials are designed to test the safety of drugs, and this study found COR388 to be well-tolerated. There was only 1 drug-related adverse event, which is quite promising. A Phase 1b trial was also conducted, this time including 9 patients with Alzheimer's disease. The Phase 1b trial saw non-statistically significant improvements on standard mental examinations, including the MMSE.

COR388 has gone on to Phase 2/3 clinical trials, being one of the few AD assets in the market to have done this. However, there are some things to note. Cortexyme passed through Phase 1 studies with a small sample of 9 patients with Alzheimer's disease, which means the responses from this sample may not be representative of the whole AD landscape. Similar to all Phase 2/3 studies for AD, the primary endpoint will be the average change in ADAS-Cog11. I believe the current share price assumes that COR388 has a similar probability of success to other drugs that have reached Phase 2/3. However, many AD clinical trials have historically failed in Phase 2/3, which means the likelihood for COR388 to make it through is also quite low. Thus, I believe the firm is overvalued in the short term given the lack of publications and research into this new therapeutic target. But with any drug within the AD space, the upside is tremendous. I look forward to seeing more data published and viewing the interim results.

Financial Overview

Cortexyme closed its IPO in May 2019 with a public offering price of $17 per share. Since then, the stock price has gone up by over 50% with no data or papers published. Consequently, it seems this growth stems from investors beginning to notice the AD research, especially since it's not the classic hypothesis that has shown consistent failures.

By looking at the firm's 10-Q for this first quarter of 2019, Cortexyme has started to utilize more capital for R&D, which makes sense, as the firm is proceeding into its most crucial clinical trials. R&D expenses have doubled year over year to $4.8 million this past quarter, and this number will continue to increase every quarter. Cortexyme will most likely have no revenue for at least another 4-5 years, as Phase 2/3 trials often take more than 2-3 years. Furthermore, increasing the amount of capital spent on the trials may not necessarily improve the probability of success, especially since the final outcome will be based on the mechanism. Thus, I believe it's best to wait until interim data and papers have been published to gain a better understanding of the mechanism. By waiting for more information, a more accurate probability and market penetration rate can be implied for valuation purposes.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.