The cannabis space has been one of the most closely watched, and the most active, sectors across the last twelve months. The Viridian Cannabis Stock Index, one of the leading indices of cannabis stocks, has outperformed the NASDAQ, the S&P 500 and the Dow Jones year to date, up just short of 20% for 2017 so far at the beginning of this month.
Just as with any space, the spectrum of stocks that comprise the cannabis sector varies from large to mid to small, and there are examples of companies in each of these categories that have outperformed comparably sized companies in other sectors.
In the large cap arena, GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) is probably the most well known, and most widely covered, cannabis stock. GW is applying cannabis science to the pharmaceutical space, and its focus on carrying cannabinoid assets through the traditional FDA approval pathway has helped it to develop a strong reputation. The company is up close to 7% year to date.
Looking at mid caps, Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) is one to keep an eye on. The company is working to bring synthetic cannabinoid therapies to market in indications such as epilepsy and osteoarthritis, and has just completed enrollment in two phase II studies for these indications. The company is up 22% year to date.
In the small cap space, we just got a fresh IPO, from a company that is taking a similar, albeit slightly altered, approach to that of the two companies above – GW and Zynerba. It’s taking synthetic cannabinoids and applying them to potentially blockbuster indications, and carrying them to market by way of clinical trials and FDA submission. It’s doing so, however, with an approach that could see it bring treatments to the market far quicker than the above to can, and this sets it apart from not just GW and Zynerba, but also from a large number of its peers in the small cap cannabis space.
We’re talking about Therapix BioSciences (NASDAQ:TRPX).
The company is an Israel based biotechnology company, which was founded in 2004 and listed on the Tel Aviv Stock Exchange at the start of 2014. It’s been traded OTC in the US since then, but the NASDAQ listing marks the company’s first major exchange position, and comes just ahead of what could be a pivotal few quarters for Therapix, and its lead development assets.
While it does fit into the category of a pot stock, that’s not an entirely accurate. The company develops drugs using various formulations of cannabinoid molecules, and its lead asset is a drug called THX-TSO1.
Before we get into TSO1, however, it’s first important to understand the concept that underpins the company’s approach to development – something called the Entourage Effect. This concept, which was first described by Professor Raphael Mechoulam back in 1998, describes how a combination of two cannabinoids can serve up an enhanced impact that goes above and beyond the separate impacts the two cannabinoids might have on their own in a particular indication.
To create TSO1, Therapix has used dronabinol and what’s called Palmitoylethanolamide (PEA).
Dronabinol, or THC, is the name of the psychoactive compound in cannabis, and synthetic versions of it are what is used in currently approved cannabis based treatments – Marinol, for example, which is used in things like pain management, chemotherapy nausea, and inflammatory conditions. This is the element of the drug with which we expect people will likely already be familiar.
PEA is probably new to many investors in this space. It’s a fatty acid amide, and it has affinity for a couple of cannabinoid like receptors called GPR55 and GPR119, but it doesn’t bind to receptors CB2 and CB2, which are the primary receptors that make up the endocannabinoid system. Because of this latter point, it can’t be called an endocannabinoid, but for all intents and purposes (and when combined with dronabinol to produce the Entourage Effect) it has the same impact as a cannabinoid might on the body.
So, the idea is that by combining PEA and dronabinol, and applying this combination to a therapeutic indication, a company can either bring a drug to market that requires less THC than current standard of care THC-based therapies need to be effective (because the Entourage Effect enhances the effect of the THC that is there) or can bring a THC drug to market in an indication in which THC cannot currently be used, because it lacks the potency necessary to have an impact.
And that’s what Therapix is doing.
The company has a few programs ongoing, and has plans to apply this concept to everything from Alzheimer’s disease to pain management and oncology, but the lead indication right now, and the one on which the majority of Therapix’s valuation rests, is a Tourette’s Syndrome program.
Many reading will likely already be familiar with Tourette’s, as it has a bit of a pop culture status. It’s actually a relatively common neuropsychiatric disorder (though still an Orphan indication) that generally onsets in childhood, and is characterized by tics – twitching, involuntary movement, shouting, cursing, blinking, that sort of thing. There are a couple of treatments on the market right now, but they are rarely used because the side effects associated with them outweigh the benefits of eased symptoms.
With its TSO1 asset, Therapix is trying to bring these benefits more to the point where they outweigh the associated side effects.
Which brings us to one of the most attractive features of this approach, and by proxy, Therapix itself.
There exists plenty of evidence to suggest that cannabis and THC are effective in the treatment of Tourette’s. However, not all Tourette’s sufferers want to have to experience the cognitive alteration brought about by smoking cannabis, or through eating cannabis laced food, and so they aren’t able to medicate their condition. Therapix is taking this evidence, and using it to create a platform from which it can create a drug that falls in line with the first of the two above described benefits of this approach – create a drug that doesn’t require as much psychoactive compound as would otherwise be necessary, because the psychoactive compound, in this instance the THC, is amplified in impact without the associated high by the Entourage Effect caused by the PEA.
So that’s the program, and where is it in terms of timeline?
This brings us to another attractive feature of this company’s approach. Because Therapix is using dronabinol and PEA, it’s basically just repurposing old already-approved drugs. These ‘old drugs’ are drugs that are already recognized as safe, and this dramatically reduces the cost and time associated with bringing one of these repurposed assets to market. Take the drug in question, TS01, for example. Because it’s based on dronabinol, Therapix can completely skip Phase I testing altogether, and only needs to conduct a phase IIa study before carrying the drug forward into a pivotal phase IIb/III.
The phase IIa is underway right now, having kicked off in December 2016 at Yale Medical Center, and management expects to read out top line from the study at some point during the middle of this year. The pivotal should kick off shortly after (definitely before 2017 draws to a close), and the pathway is further shortened by the potential for Orphan Designation and Accelerated Approval based on the fact that these are already approved active ingredients.
Cash on hand post IPO comes in at around $14 million, which gives the company a runway through to near end 2018, so dilution isn’t a concern near term. If the Tourette’s program runs smoothly, Therapix could have its drug on the shelves (and remember, this is a market with practically no widely used treatments) in 2019.
Beyond the Tourette’s program, catalysts also derive from a mild cognitive impairment (MCI) program, which is built around the concept that ultra low doses of THC can serve to prevent and reverse cognitive decline. This seems counterintuitive, as long term cannabis use has long been associated with cognitive impairment, but there’s evidence in place to back up the suggestion, and Therapix is running with this evidence to try and take advantage of a quick route to a large market with practically no effective standard of care treatments.
This concept hit press recently, with the suggestion that cannabis use can be adopted by NFL players to help avoid chronic traumatic encephalopathy, a neurodegenerative condition associated with playing football (and the repeat trauma it causes). Cannabis use is banned in the NFL of course, but if a company can bring a pharmaceutical grade synthetic alternative to market, there could be a large potential demand waiting for it.
A proof of concept study (phase IIa, similar to the ongoing study discussed above in the Tourette’s program) should kick off during the second half of this year investigating a drug called THX-ULD01 in MCI. This puts the secondary program around twelve months behind the lead, but this gap could close because the company is now a NASDAQ list, and is likely to draw increased speculative attention as its programs mature.
To bring this all together, then, we’ve got a company that has been around long enough to be considered established but that is a fresh face on the NASDAQ. It’s taking a novel route to market with a lead Tourette’s asset; a route that could see it start collecting revenues on its product within the next twenty-four months. It’s well capitalized with a runway through end next year, and it’s got a secondary asset that promises to provide catalyst over the coming twelve months as it matures towards its own commercialization.
GW Pharmaceuticals and Zynerba have proven rewarding exposures in the large cap and the mid cap sectors of the cannabis space year to date, and with programs ongoing in their respective pharmaceutical indications, there’s a good chance both will continue to reward shareholders as 2017 matures. As a small cap alternative, however, and in a similar space and with a similar strategy as the two above mentioned, Therapix could also be a rewarding 2017 exposure.