Meme stocks like GameStop (NASDAQ: GME) exploded up the charts and lit the message boards on fire as investors became ravenous to skewer any shorts. Right now most of the action is around fan favorites like AMC Entertainment (NYSE: AMC), Koss Corporation (NASDAQ: KOSS), Novavax (NASDAQ: NVAX), and FingerMotion Inc. (NASDAQ: FNGR), but it's just a matter of time before this expands beyond the core stocks. What we learned from the past meme stock mania is that meme stock players love to stick it to the shorts and one of the most target rich industries is biotech. There’s no shortage of biotechs with large short positions but the best one’s have a tight share structure. Look what happened to NVAX. We wanted to highlight a biotech with a short float of 25.97% that the shorts have to keep down. They are in bed with big pharma and doing everything in their power to keep a viable solution for Alzheimer's Disease (AD) off the market by messing with the stock price.
The reason meme players care about AD is due the toll that has been placed on society measures in the hundred of billions when you factor in the indirect costs of caretaking. There are about 16 million unpaid caregivers in the US taking care of their loved ones with AD. Now think about the 50 million people living with AD or other forms of dementia globally. This is a huge looming problem that projects 152 million AD patients by 2050. The Alzheimer's Association estimates that $3.7 billion is spent annually on research and it's no surprise that the lion's share is from big pharma. With this huge demand for a treatment option, the second drug approved for AD after a 20 year drought has notched an unimpressive 2,000 patients despite 7 months of a full tilt big pharma marketing campaign likey measured in hundreds of millions with a bottom line of $7 million in sales. If this statistic leaves you dumbfounded, then it's not a stretch to realize that the newest drug Leqembi simply doesn't work and we should swipe right and look at what is next.
Blarcasemine - a small pharma innovation by Anavax Life Sciences (NASDAQ: AVXL) is what the doctor will be ordering in the future.
Big Pharma Alzheimer Failures
Despite this growing AD populace over the past 20 years there haven’t been any advances in Alzheimer's disease until the past 3 years after the approval of Aduhelm, a very controversial drug by Biogen (NASDAQ: BIIB) that was voluntarily removed only to be replaced by an even more controversial drug Leqembi which is made by Eisai. Both of these antibody powered therapies have issues and it's much more of an issue than the marginal efficacy.
Focusing on Leqembi, it's an antibody and therefore needs to be administered biweekly via a one hour intravenous infusion. Primary care providers simply aren’t set up for this. Before treatment is started, the AD patient must show amyloid-beta (Aβ) plaque in the brain with a PET scan. Once treatment is started PET scans are continued to monitor for efficacy and brain swelling resulting from microbleeding in the brain which is the black box warning for the drug. In the clinical trial 12.6% of patients that got the drug experienced brain swelling versus only 1.7% in the placebo arm.
What happens in AD is that amyloid plaques, which are misfolded proteins, form and disrupt the spacing between nerve cells leading to a disruption of cognition and ultimately cell death. Removing the plaque has been the approach by big pharma for decades and the scientific community has concluded that targeting plaques is ineffective because it targets a product of the disease instead of the root cause of mitochondrial dysfunction.
Pipeline of Existing AD Drugs
The universe of AD drugs is broken into 2 categories, the drugs that treat symptoms and disease modifying drugs that protect the neurons. The drugs getting FDA approval like Biogen's Aduhelm and Eisai Pharmaceuticals Leqembi are targeting amyloid-beta deposition which is designed to be a symptomatic drug taken early in the disease progression of AD. Next in the regulatory pipeline is Eli Lilly’s (NYSE: LLY) is drug donanemab which is expecting approval in Q1 2024.
It’s not too difficult to compare the drugs even though there is no head to head comparison of Leqembi and donanemab. The drugs are both monoclonal antibodies that target the amyloid-beta plaque but that do it at different stages as it accumulates in the brain. Leqembi targets the Aβ plaque as it forms the fibers while the donanemab binds to the plaque clusters once they are formed. The results showed that Lequembi reduced the rates of AD by 27% while donanemab slowed the cognitive decline by 35%. The bottom line is the target is the same, the efficacy is about the same and the uptake is likely to be the same.
FDA Guidance - Game Changer
In March 2024 the FDA released new industry guidance for early Alzheimer’s Disease. Before this guidance, early AD required a study designed with dual endpoints tied to cognition and function. In the newly released guidance the FDA indicated that one cognitive measure alone like ADAS-Cog13 was sufficient. They basically tossed out measuring function for good reason. In early AD function is not impaired or declining in that stage of the disease so the tests offer no insight into the efficacy of the drug at that stage by measuring function. The guidance also noted that biomarker evidence that defines a population like SIG-1a should be codeveloped as a companion diagnostic.
Drugs That Treats the Underlying Cause
Most of the drugs in development today address only the symptomatology of the disease instead of the root cause. Barcamesine seems to target one of the root causes of AD commonly referred to as mitochondrial dysfunction. The drug works by stabilizing the Ca+ signaling in the mitochondria. This stabilization prevents the mitochondria from signaling self destruction of the cell known as apoptosis. The direct impact of the drug is on maintaining the mitochondrial function by keeping the Ca+ channel in balance averting any signals from the mitochondria to throttle down its production of cellular energy which would ultimately lead to cellular stress and eventually cellular death. Restoring homeostasis to nerve cells that are under stress essentially halts the degeneration of the disease.
One of the hallmarks of the disease is known as brain shrinking. Studies of Blarcamesine have shown that the drug stops the brain shrinking with p<.0001.
Financial Analysis - 4 yrs of Funding
As of the latest quarterly report, AVXL has $139.4 million cash which works out to $1.67/share in cash. Based on their conservative cash burn rate of $27.8 million annually and sources of non-dilutive funding they could fund operations for the next 4 years without having to raise equity. There has been minimal dilution with only 83.6 million shares outstanding in comparison to 82 million from the prior quarter.
Investment Summary
The primary investment thesis for investing in AVXL is that there are no effective drugs for Alzheimer’s that are patient friendly like the once day oral pill blarcamesine. While the current drugs may have FDA approval, the medical community is not backing them as they are waiting for a better solution and AVXL’s blarcamesine is next. Instead of relieving some of the symptoms, blarcamesine appears to have disease modifying properties that treat the underlying disease. The stabilization of brain mass is just one of a number of datapoints that demonstrate why this drug is a game changer in Alzheimer’s with additional potential in, Parkinsons, Schizophrenia, and Retts syndrome. There is very little risk of the science failing as a number of studies demonstrate the efficacy of the drug as well as the companion diagnostic that shows blocking of the SIG-1 receptor. The regulatory climate is thawing in favor of the company's regulatory strategy that spans in Europe with the EMA and the United States FDA. This reduces their regulatory risk.
It really hasn’t registered with investors that the EMA actually told AVXL to file for regulatory approval without the need for additional study. This pretty much means that either by the end of this year or early next the drug could have filed for its regulatory approval in the EMA. This is a major value inflection point for the company that could be worth billions. Investors with a short to medium term investment time horizon should consider AVXL as it appears to be the most advanced Alzheimer’s that could see approval in the coming year.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.
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