Depression is big business, and treatment resistant depression (TRD) is becoming even bigger business still. The most recent example can be seen with Alkermes PLC (NASDAQ:ALKS) which succeeded in late Phase III trials last October with its TRD drug ALKS 5461. The stock’s market cap jumped by an astounding $2.8B overnight on the announcement.
In fact, the Alkermes stock jump has not faded even now months since the initial data announcement on ALKS 5461.
While it may be too late to get in on the Alkermes revaluation, there is another biotech company working on a TRD drug that is similarly positioned to ALKS-5461, but with a current market cap of only $17M. That company is Vistagen, and if its own TRD program succeeds, the valuation could eventually overtake Alkermes. Here’s how, and why.
Alkermes A Blueprint for VistaGen
The two companies have widely divergent market caps. Alkermes is valued above $8.6B, and Vistagen at just $17M. Both, however, are working on an oral drug for TRD with the same mechanism of action and similar clinical trial designs.
Look at the chart above, and this is how investors can pretty accurately gauge the capital value of an oral TRD drug that succeeds in Phase III trials. It’s about $2.8B, more or less.
This number makes sense in the context of the TRD market and known statistics. Some basic numbers: 350 million people worldwide suffer from depression according to the World Health Organization, with 11.6 (in the US.) million treated with drugs, and two thirds of those treated not receiving adequate benefit from initial treatments. This is the TRD market. It is estimated to be worth $12 billion by 2021.
Mechanism of Action
Private from Naurex developed a drug called rapastinel, a TRD drug acquired by Allergan PLC (NYSE:AGN) for $571M. The acquisition was much less than the $2.8B estimated capital value of ALKS-5461 because rapastinel is an intravenous rather than oral drug, which severely limits its usability and market scope. Rapastinel’s mechanism of action is believed to involve the indirect modulation of the glycine site of the NMDA receptor. That’s a mouthful, but it can be simplified conceptually in the following way. Ketamine, an established anesthetic only recently discovered to reverse treatment-resistant depression (TRD) in low doses, works by completely blocking the NMDA receptor. Why this reverses TRD is not completely understood, but it does work. The problem is, this leads to dissociative side effects and dependence.
Rapastinel is believed to work by indirectly binding to the glycine site that modulates rather than blocks the NMDA receptor, like a dimmer rather than the on-off switch of ketamine. Despite the obvious problems with ketamine, it was the mechanism of action that opened the door to new possibilities for treating TRD.
Since it does not completely block the receptor, the side effect profile and propensity towards dependence for rapastinel is much less. To have a drug that can treat TRD without significant side effects, in Big Pharma’s eyes, is therefore worth over half a billion up front for an intravenous formulation.
Here we come to VistaGen and its flagship pipeline oral TRD drug AV-101. AV-101, just like rapastinel, binds to the same glycine site of the NMDA receptor, theoretically accomplishing the same “dimming” function. But unlike rapastinel and like ALKS-5461, AV-101 can be taken orally. Rapastinel was already acquired for $571M, and ALKS-5461 has a market value of about $2.8B. VistaGen is worth below $20M. There is a major disconnect here.
Phase II Underway
A Phase II study of AV-101 monotherapy on 25 TRD patients is currently underway, headed by the same pioneer of this entire niche Dr. Carlos Zarate, whose name you will find associated in some way with every company in this field. Completion of the study is expected by the end of the year. A Phase II study of AV-101 adjunctive treatment in MDD is expected to release data by next year. Keep in mind that the Phase IIb results ultimately got Naurex acquired.
Blueprint Helps Avoid Previous Pitfalls
There are other advantages to following two major successes. VistaGen’s predecessors, particularly Alkermes, have already encountered many pitfalls in clinical development. ALKS-5461 was brought through 3 separate Phase III trials, two of which failed due to trial design and placebo responders. Placebo responders dull the effect of the active arm by making placebo and active arm look statistically similar, and placebo responders are a major problem in depression studies. Even though the company was technically prepared for the problem of placebo responders by setting up a sequential parallel comparison design (SPCD) for filtering them out of the first round, it still wasn’t prepared enough.
In one Phase III for example, the study didn’t successfully filter out placebo responders because the active arm receiving the drug was too small in retrospect, lowering patients’ expectations of receiving drug in round 1 but raising them in round 2 when their chances of receiving the drug were higher. This magnified the placebo effect after the first filtering out of placebo responders, ruining the SPCD design and making the comparison between placebo and active arms unable to be accurately interpreted.
This is a mistake a company can only see in hindsight. Needless to say, Alkermes corrected this error in its final Phase III and the trial succeeded. VistaGen can now easily avoid this mistake by setting up its trials accordingly.
A Very Tight Niche
While the MOA similarities to rapastinel and route of administration comparison to ALKS-5461 are paramount to the comparison here, another critical piece of the puzzle is that the number of people involved in TRD advances is very small. They all know one another and are involved in similar projects, meaning that the experts in this field are all aware of what VistaGen is doing even if the markets are not. It may not be headlining anywhere, but Allergan as well as any other Big Pharma interested in this space can be assumed to be following VistaGen’s progress even if they are doing so discreetly.
With Dr. Zarate in charge of the VistaGen’s Phase II study and Dr. Maurizio Fava of Harvard Medical School leading the Phase II adjunctive therapy study, VistaGen has the top men in the field manning the front lines. Dr. Fava was a co-Principal Investigator of the largest clinical trial in depression ever conducted, known as STAR*D, which established much of the current statistical guidelines for the disease in the first place. He also ran Alkermes’ Phase II study for ALKS-5461.
Additionally making this increasingly attractive is that VistaGen has Dr. Laughren, who personally oversaw the review of all psychiatric drug development activities for the FDA for many years.
The Missing Piece
With VistaGen, there is an oral formulation of a drug with the same mechanism of action as rapastinel, with the former head of the FDA’s psychiatric drugs division guiding VistaGen’s own Phase IIb, headed by the same doctor who co-headed the largest clinical trial in depression ever conducted, as well as Alkermes’ successful Phase II program in depression.
Will the AV-101 Phase II trial succeed? Since it shares a common antidepressant pathway as a drug that already has been acquired for more than half a billion dollars in this phase, chances are high that it will. If it does, and Vistagen has an oral pill to treat TRD like Alkermes, the real question is who will make an offer and for how much?
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