Buy Acasti Pharma for a double, Echelon says

Echelon Wealth Partners analyst Douglas Loe is staying bullish on cardiovascular drug developer Acasti Pharma (Acasti Pharma Stock Quote, Chart, News TSX:ACST) after the company’s latest financial report, saying the all-important clinical data to its TRILOGY-2 trial won’t be coming until mid-Q2 2021.

In an update to clients on Tuesday, Loe reaffirmed his “Speculative Buy” rating and $1.40 target, which at press time represented a projected 12-month return of 116 per cent.

Acasti saw its share price take off last year on the promise of its omega-3 formulation CaPre, which is in Phase III testing. Yet results in January on CaPre’s TRILOGY-1 test pulled the stock down again, with the culprit being an unexplained high placebo effect in the trial.

On Monday, Acasti reported its quarterly and fiscal 2020 year-end results, showing a loss from operations for the year ended March 31, 2020, of $24.4 million compared to a loss of $34.4 million a year earlier, with the difference being attributed to a reduction in research expenses. The company reported cash and equivalents at year-end of $14.2 million compared with $25.8 million a year earlier, with management saying existing cash should fund operations into the first calendar quarter of 2021. If CaPre gains
regulatory approval, however, the company says it will need more cash in the future to prepare for commercialization.

President and CEO Jan D’Alvise said in the press release that while disappointing, the TRILOGY 1 results have given his team “a better understanding of the unusual ‘Pre-Randomization TG Normalization effect’ that contributed significantly to the TRILOGY 1 outcome. We are carefully considering the FDA’s comments on the TRILOGY 1 data, and are conducting further post-hoc analysis based on their feedback.”

With TRILOGY 2 topline results expected in calendar Q3 of this year, Loe says there is reason to believe those results won’t be as compromised by aberrant patient data as the TRILOGY 1 data were and he is standing by his view that CaPre “can successfully navigate the clinical and regulatory challenges before it.”

“We remain positive about CaPre’s medical prospects as a next-generation (and comparatively bioavailable) omega-3 formulation, admittedly in an environment where one peer drug (Amarin’s Vascepa) has five-year cardiovascular event rate risk mitigation data already in hand from the REDUCE-IT trial (including in diabetic patients, as updated earlier this month; FQ120 sales US$155 million),” Loe wrote.

“We do not need TRILOGY-2 data to convince us that CaPre can be FDA-approved once advanced through suitable Phase III testing (prior Phase II/III history and TRILOGY-1 subgroup analysis shows us that, mindful of TRILOGY-1’s limitations). But with the FDA requiring that pending TRILOGY-2 data analysis be conducted on an intent-to-treat basis (that is, all randomized patients included in final 26-week analysis, with no patient subgroup analysis allowed), and with TRILOGY-1’s unusually high placebo rate still largely unexplained physiologically, we believe that CaPre development risk remains at moderate levels and thus supporting our current valuation and investment thesis as a consequence,” Loe added.