AlzeCure Pharma — Evolving into a mid-stage biotech

ACD440 is a topical vanilloid receptor 1 (VR-1) antagonist currently in a Phase Ib trial. The VR-1, more commonly known as TRPV1 or the capsaicin receptor, has been a well-established target for the treatment of pain and has been implicated in the transduction of pain (nociceptive, inflammatory or neuropathic). The discovery of this mechanism by professor David Julius was awarded the 2021 Nobel Prize in Physiology or Medicine at University of California, San Francisco, United States. His fundamental research led to the identification of the specific protein responsible for the sensation of burning pain, TRPV1, in 1997.

As we explained in our initiation of coverage report, oral TRPV1 antagonists have been extensively investigated in clinical trials in various pain indications by multiple large pharma companies (Amgen, Abbott, GSK, Merck/NeuroGen, Glenmark/Eli Lilly). Such strong interest from large pharma is a result of the lucrative and broad range of pain indications (osteoarthritis, dental pain, migraine), where there is a need for non-opioid pain killers. However, all oral TRPV1 antagonists have been accompanied by undesirable side effects. Namely, hyperthermia and impairment of noxious heat sensation. ACD440 is a topical formulation of a TRPV1 antagonist, which we believe could be a solution to the undesirable side effects, while retaining the efficacy seen in the oral formulation trials.

In June 2021, AlzeCure presented the newest available data from its projects in pain at the IASP 2021 World Congress on Pain. This included final results from the Phase Ib study, which investigated the safety profile of ACD440.

This was a double-blind, randomized, placebo-controlled Phase Ib trial (24 healthy volunteers; split body design) to explore the effects of topically administered ACD440 on evoked pain stimuli. To gather further insight, ACD440 was applied on three types of skin condition: intact, UVB irradiated (erythema) and mechanically stripped skin (compromised barrier function).

The safety/tolerability profile of ACD440 was very good, causing no topical (erythema, desquamation, pruritus) or systemic adverse reactions on any of the three skin conditions. The efficacy outcome measures showed that ACD440 gel had a highly significant analgesic effect both on laser-evoked pain and mechanical sensitivity. This effect was seen in all three skin conditions indicating the broad potential use of the product.

Peripheral neuropathic pain is a symptom of a broad group of different, underlying conditions such as diabetic nephropathy, chemotherapy-induced pain or herpetic neuralgia. Given the potentially large patient heterogeneity across this indication, we believe management will likely investigate ACD440 in specific sub-populations of patients. No specific guidance has been provided yet on Phase II trial design, but we expect this is likely to be communicated in the near future (the company has requested a pre-IND meeting with the FDA) and should give a better sense of the forms of neuropathic pain it will target.

At the moment, we use a top-down approach in our valuation model to estimate peak sales. However, neither the existing topical pain relief products nor oral neuropathic pain killers are good comparator drugs. ACD440 could potentially be ‘the best of both worlds’, ie safe and tolerable as a topical product, but more effective than typical topical non-steroidal anti-inflammatory drugs (NSAIDs). Once AlzeCure has defined precise settings for the Phase II trial, we will look to develop a bottom-up project model to fine-tune our valuation.

The latest preclinical data from AlzeCure’s TrkA-NAM project were also presented at the IASP Congress in June 2021. This project investigates a small molecule negative allosteric modulator targeting the TrkA receptor. This is a novel analgesic mechanism that involves blocking the activity of the pain mediator nerve growth factor (NGF) or its receptor TrkA.

The strategy with this project is somewhat similar to ACD440. Large pharma companies have explored this pathway extensively using NGF targeting antibodies. For example, Pfizer/Lilly’s anti-NGF antibody tanezumab has been investigated in Phase III trials in osteoarthritic pain and showed efficacy in pain management. However, although proven to be effective, in a small group of patients it caused rapidly progressing osteoarthritis, which ultimately stalled its approval this year (the FDA advisory committee voted against in March 2021, while the EU panel rejected it in September 2021). Without the safety issues, this drug could have been a novel blockbuster pain killer, in our view, given the scale of the problem (pain in osteodegenerative conditions).

AlzeCure’s TrkA-NAM approach is differentiated from the NGF targeting antibodies. TrkA-NAM could offer a safety improvement over anti-NGF antibodies through selectively attenuating NGF/TrkA signalling, while sparing NGF/p75NTR signalling (please see our initiation report for a more detailed explanation of the mechanism of action). In addition, AlzeCure’s TrkA-NAM compounds are small molecules, which have several advantages over antibodies including more convenient administration and lower cost of goods.

So far, AlzeCure’s lead optimisation efforts in the Trk-NAM project have identified potent and selective potential TrkA-NAM drug candidates. These molecules demonstrated pain relief in preclinical in vivo models, both in neuropathic pain and arthritis, suggesting broad indication potential. AlzeCure expects to select and announce a drug candidate in the coming weeks. We do not yet include Trk-NAM in our model, but will reconsider this project once a drug candidate is selected and proceeds to clinical testing.

In terms of a directly comparable programme, we note that Asahi Kasei is investigating its TrkA inhibitor, AK1830, in a Phase II stage for pain associated with osteoarthritic pain. It is particularly notable that this was in-licensed as a preclinical asset from Array BioPharma in March 2016, in a deal worth c $75m ($12m upfront, $64m in milestone plus royalties) for commercial rights in Asia, highlighting the near-term value which could be crystallised from the AlzeCure’s TrkA-NAM programme.

AlzeCure has two distinct approaches when it comes to tackling AD. The NeuroRestore platform is focused on novel symptomatic treatment of AD (lead compound ACD856 is in Phase I). The Alzstatin platform (preclinical) is specifically aimed at modifying the course of AD and has a differentiated mechanism of action from the anti-Aβ antibodies.

In August 2021, AlzeCure provided an update on the Phase I trial investigating its first-in-class cognitive enhancer ACD856 from the NeuroRestore platform. Safety/tolerability data from the single ascending dose (SAD) part of the study were good. The company also announced that the SAD part of the study will be expanded to investigate higher doses as the drug’s therapeutic window might be larger than initially expected. In parallel, AlzeCure also initiated the next step, multiple ascending dose (MAD) part, in October 2021. The results from this part are expected in H122, which then would lead to a Phase II study. ACD856 targets improves the signalling of neurotrophins, including nerve growth factor and brain-derived neurotrophic factor, through positive modulation of the TrkA and TrkB receptors, and is expected to improve cognitive function and memory. So it is expected to be a symptomatic treatment, although there is a scientific rationale for disease modification potential as well.

AlzeCure’s second platform focused on AD is called Alzstatin and is dedicated to the development of disease-modifying drug candidates. These are small molecules capable of modulating γ-secretase, a target involved upstream in the production cascade of toxic Aβ-aggregates. Modulation of γ-secretase produces shorter, less toxic Aβ-peptides while not changing overall levels of Aβ. This is a novel approach where modulation rather than full inhibition of γ-secretase is expected to circumvent the safety issues previously found by large pharma with γ-secretase. Both assets from this platform are in preclinical development.

Detailed descriptions of the NeuroRestore and Alzstatin platforms and underlying technologies can be found in our initiation report. In addition, AlzeCure held an R&D event on 1 September 2021 focused on the NeuroRestore platform.

The management of AD saw significant changes this year. The FDA approved the first-ever disease-modifying drug Aduhelm on 7 June 2021 (anti-Aβ antibody, aducanumab, Biogen). The final data set that supported the approval was rather controversial (one Phase III was considered successful, the second Phase III trial failed). This meant that although much needed, the launch of this drug was troublesome: several of the FDA advisory committee members resigned, Biogen had to voluntarily narrow the label, initial sales did not meet expectations, insurance reimbursement is still not clear and the EMA recommended that the European Commission reject Aduhelm. All this led Biogen to cut the initial price tag of $56k in half.

Both AlzeCure’s platforms aimed at AD are very differentiated from classic anti-Aβ antibodies. So, although there is no read-across from Aduhelm’s story from a technology perspective, we believe the controversial approval from the FDA is a strong indication that regulators are keen to make novel AD treatments available as quickly as possible. For example, one of the arguments the FDA made was that even though Aduhelm’s cognitive decline data were contradictory, the antibody was shown to reduce Aβ plaques, which can be used as benchmark for cognitive decline. Until now, there has been an understanding that the FDA would want to see a proven clinical benefit for any disease-modifying AD drug. However, the FDA’s latest wording that Aβ plaque reduction can be used as a biomarker reignited interest in this area, with other large pharma companies rushing to submit their datasets (Eli Lilly is using the accelerated pathway to file for approval of donanemab in Q122 and Roche expects to have the data for approval of gantenerumab in H222).

Given the complicated launch of Aduhelm, we believe that the clinical benefit of an AD drug will still need to be demonstrated for it to be widely accepted, in conjunction with positive effects on biomarkers. It is worth noting that AlzeCure had previously mentioned that in preclinical studies its Alzstatin compounds reduced Aβ plaques by 50%. Also, because AD is a vast indication, novel effective symptomatic treatments will also be welcomed. We therefore find the strategy of targeting both settings in AD, symptomatic and disease-modifying treatments, to be a rational approach given the complex history of drug development in this indication.

Our updated risk-adjusted NPV of AlzeCure is marginally higher at SEK847m or SEK22.4 per share from SEK826m or SEK21.9 per share previously, as rolling forward our model offset the lower cash position. We keep our other assumptions unchanged as we had already increased the success probability for ACD440 in our last update following Phase Ib data. A full breakdown of our valuation and underlying assumptions can be found in our initiation report.

AlzeCure’s latest results (9M21) showed operating spending of SEK55.3m, flat y-o-y. Cash was SEK62.7m at end-Q321. In fine-tuning our estimates, we have slightly reduced our operating loss expectations to SEK76.0m and SEK79.8m in FY21 and FY22, respectively, from SEK82.0m and SEK86.1m previously. Existing cash is sufficient to fund the operations well into 2022. We assume an illustrative long-term liability of SEK45m in 2022 in lieu of equity funding, as per our research principles.