NervGen Pharma has a huge upside, Industrial Alliance says

A Vancouver-based pharmaceutical company dedicated to the treatment of nervous system damage, NervGen is in the process of developing NVG-291, a clinical stage candidate to potentially treat spinal cord injuries, multiple sclerosis, and Alzheimer’s disease, with compelling preclinical functional data in many disease models based on mechanisms including nervous system regeneration, remyelination, plasticity, as well as autophagy and innate immune modulation.
Stellick points to NVG-291’s development and progress as a highlight in her initial analysis of the company, though it’s a cautious investment as clinical trials continue.

“This investment is the epitome of a high risk, high reward investment, which by 2031 will likely be either a home run or a near total loss, depending on how NVG-291 performs in the clinic,” she said. “We believe the current valuation is much more attractive for bulls than for bears, and see the valuation moving toward our target as data accumulates and clinical programs progress.”

Stellick puts a 10x EV/EBITDA multiple on the company in her analysis, and the company’s EBITDA is forecast to shift dramatically in both directions over the coming decade, with forecasts going as low as -$80.9 million in 2026, then projecting to rise as high as $475.9 million by 2030.

NGEN operates as a virtual model, where a small 10-20-person executive staff are employed to minimize overhead and all the R&D is contracted out to contract research organizations, removing some of the risk associated with the scale-up of a small organization.

While the company primarily relies on equity funding to develop its biopharmaceutical assets, Stellick notes that NGEN is particularly focused on maximizing grant-funding opportunities, which could help the company expand its offerings.

“The valuation of a drug development company is based on the value of future cash flows once the drug is approved and commercialized, discounted by time to approval and probability of approval,” she said. “NervGen’s market capitalization can increase in the coming years as NVG-291 is de-risked by preclinical and clinical studies that demonstrate safety and efficacy. This will allow NervGen to benefit from a virtuous cycle, wherein successful completion of each development milestone, such as a Phase 1 trial, provides a valuation uplift by improving the probability of approval and bridging the development steps required for approval, which in turn enables the financing of the next development round.”

Though Stellick is somewhat bullish on NGEN, she does note many potential risks with the company and its progress, including pre-revenue from commercialization, a partial clinical hold from the Food and Drug Administration in the U.S. and associated risks with future clinical trials, the possibility of breached license agreements, along with competition and third-party risks, to name just a few.

Stellick is ultimately upbeat about NVG-291 and its capabilities as it moves through the various phases of clinical trials.

“A large body of research, including independent publications, demonstrate the mechanisms of action of NVG-291 and compelling functional data across several disease models including an unprecedented magnitude of response in SCI, making this asset uniquely prepared for clinical development,” she said.
“We assume clinical trials for AD and MS will take until 2026 to be complete since these indications will require large trials and may choose to use a new formulation of NVG-291 better suited to chronic administration, which would take time to optimize, although management may prefer to use the current formulation in chronic as well as acute conditions to prioritize expeditious development,” she said.

In tandem with NVG-291’s development and imminent advancement to Phase 1B of trials in 2022, NGEN has also expanded its Alzheimer’s Disease Scientific Advisory board, adding Drs. Martin Farlow, Reisa Sperling and Michael Weiner to a group that already includes Drs. Jeffrey Cummings, Bruce Lamb, George Perry and Henrik Zetterberg.

“The expansion of our Alzheimer’s Disease Scientific Advisory Board with such impressive scientific and clinical leaders in the field speaks to the opportunity that our drug provides,” stated Dr. Daniel Mikol, NervGen’s Chief Medical Officer, in a July 12 press release. “Given our NVG-291’s multi-modal mechanism of action, including promotion of axonal regeneration, plasticity, remyelination, autophagy and an anti-inflammatory microglial phenotype, we have the opportunity to create a completely new treatment paradigm as a neurorestorative therapy for Alzheimer’s disease. Whilst most therapies in development aim to slow progression of the disease, NVG-291 provides the potential to improve cognitive deficits by enhancing the nervous system’s natural repair mechanisms.”

In affirming the Speculative Buy, Stellick identifies a clear path to value creation, along with its potential to take up a market share nearing $434 billion, as factors in her positivity toward the company.

“NervGen is a promising clinical-stage biotech firm developing a differentiated, potent, patented drug candidate with a novel target, multiple mechanisms of action, and several potential indications, each with significant unmet need and substantial commercial opportunity,” she said.

NervGen closed Monday down $0.07 to $1.89.