Raymond James analyst Rahul Sarugaser has confidence in biotech name Alpha Cognition (Alpha Cognition Stock Quote, Charts, News, Analysts, Financials TSXV:ACOG), which is already up sharply after debuting on the TSX Venture Exchange earlier this year. In an update to clients on September 7, Sarugaser reiterated his “Outperform 2” rating while raising his target price from $2.50 to $3.50 per share.
Alpha Cognition is developing a treatment for severe neurodegenerative disorders including Alzheimer’s disease (AD) and has lead candidate Alpha-1062, which recently had its Investigational New Drug (IND) application accepted by the US FDA. Alpha Cognition is now moving onto a Pivotal trial with Alpha-1062.
“This first IND for Alpha Cognition represents a significant milestone for us as we transition to a clinical-stage organization,” said Dr. Frederick Sancilio, President and Head of Clinical Development, Alpha Cognition, in a September 7 press release.
Galantamine is an acetylcholinesterase inhibitor (AChEI) which has been show to work in reducing cognitive decline in AD patients and improve capacity for independent living post-diagnosis. But the drug has GI-related side effects such as nausea, vomiting and diarrhea that can lead to patient non-adherence and treatment failure.
Alpha-1062, Alpha Cognition’s proprietary molecule, is a galatamine pro-drug, with a chemical bond that prevents it from interacting with the small intestine and instead is metabolized by the liver for activation and circulation to the brain.
“It is well known that acetylcholine esterase inhibitors hold significant clinical potential; however, treatment with these therapies has been limited because of challenging GI tolerability issues. We have engineered ALPHA-1062 with the goal of enhancing the desirable features of an AChEI while limiting the known liabilities,” Dr. Sancilio said in the press release.
Sarugaser said Alpha-1062’s regulatory path is derisked due to safety and efficacy data generated by galantamine’s original developers.
“With [the company’s IND announcement], ACOG has initiated this derisked pivotal trial, on time and as expected—a rarity in drug development—which lends us further confidence in management’s ability to meet its upcoming milestones,” Sarugaser wrote.
On further milestones, the analyst pointed to the enrolment of 80 patients for the Pivotal trial, with the first patient expected to be enrolled in early to mid-October, followed by four weeks for treatment and the estimated trial conclusion by the end of November/early December, with topline data expected before the end of the calendar year.
“The quality of this data will be critical to our estimate of Alpha-1062’s likelihood of FDA approval,” Sarugaser said. “Thereafter, we anticipate ACOG submitting its NDA to FDA in Jul./Aug. ‘22, followed by a 12-month review, and if successful, FDA marketing clearance in ~2Q23.”
Still in a pre-revenue stage, Sarugaser is expecting zero in revenue for 2021 and 2022 from ACOG, with EBITDA losses of $11 million and $7 million, respectively. For the previous 2020 year, the company had zero revenue and an EBITDA loss of $7 million. Sarugaser said he expects ACOG will require additional financing, although share dilution could be the path the company takes if its programs are delayed or a launch proves unsuccessful, Sarugaser said.
“We value ACOG using a risk-adjusted NPV (rNPV) analysis of its AD clinical asset, Alpha-1062, deriving an updated rNPV of $420 million (was $350 million), escalating to ~$750 million should Alpha-1062 make it to market in the US in 2023. Adding assumed dilution from ~$25 million in equity raises—which, given the recent escalation in ACOG’s stock value, would be less dilutive than we’d originally anticipated—we now calculate a per share valuation of $3.37. We round this, and update our target price to $3.50/share (was $2.50). With our new target remaining a >200 per cent premium to the company’s share price of $1.60 (was ~$0.80 at our initiation of coverage), we maintain our rating at Outperform (2),” he wrote.
At the time of publication, Sarugaser’s new $3.50 target represented a projected one-year return of 118.6 per cent.
Alpha Cognition reported its second quarter 2021 financials on September 3, showing a net loss of $1.8 million including non-cash expenses or a loss of $0.04 per share. The company finished the quarter with cash and equivalents of $5.6 million, while R&D expenses for the quarter were $1.5 million and G&A costs were $100,000. OpEx was $2.3 million.
Over the quarter, Alpha Cognition said it formed its scientific advisory board, composed of top neuroscientists in the US to advise the company on scientific programs and clinical trials.
“The company is entering an exciting time, with the ALPHA-1062 pivotal trial for Alzheimer’s disease expected to start in the third quarter and ALPHA- 0602 early-stage trial expected to begin in the fourth quarter. Data from both trials is targeted for release Q1-2022,” said CEO Michael McFadden in a press release.
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