NervGen has an 89 per cent upside, says Paradigm

Paradigm Capital analyst Scott McAuley is staying bullish on NervGen Pharma (NervGen Pharma Stock Quote, Chart, News TSXV:NGEN), maintaining a “Speculative Buy” rating and target price of $5.05/share for a projected return of 89 per cent in an update to clients on Monday.

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 preclinical functional data in many disease models based on mechanisms including nervous system regeneration, remyelination, plasticity, as well as autophagy and innate immune modulation.

McAuley’s latest update comes after Vigil Neuroscience, a company at an equivalent stage of clinical development to NervGen, recently completed a US$98 million initial public offering, bringing the company’s enterprise value to approximately US$159 million after its first day of trading, about double NervGen’s current EV.

“VIGL provides two datapoints for NGEN: an early-stage neurodegenerative disease valuation comparable and a read-through for NGEN’s planned major U.S. listing later this year,” McAuley said. “While biotech in general has had a bumpy start to the year and VIGL’s stock traded down 9.6 per cent on the first day of trading (versus XBI down 2.1 per cent), the fact that this and two other biotech deals were completed last week shows that the U.S. biotech financing window is still open.”

Much like NervGen’s NVG-291, Vigil Neuroscience’s lead product, VGL101, is in a Phase 1 safety study. VGL101 is a monoclonal antibody TREM2 agonist for a rare, genetic neurodegenerative disease called Adult-Onset Leukoencephalopathy with Axonal Spheroids and Pigmented Glia (ALSP), with the potential to test the drug’s efficacy in specific Alzheimer’s patients with the R47H TREM2 mutation. Top-line results for VGL101 are expected in the first half of 2022.

By contrast, the initial data from the NVG-291 study, with the aim of confirming the safety profile of the drug in humans, was released in November, with the full top-line data expected midway through 2022.

According to McAuley, potentially playing in NervGen’s favour is the fact that, despite the potential for an increased rate of success, Vigil is targeting a smaller group of patients with VGL101 at approximately 10,000, with the R47H TREM2 mutation estimated to be found in only two to three per cent of Alzheimer’s patients.

By contrast, NervGen is focused on treating symptomatic MS and Alzheimer’s as well as spinal cord injury patients, each of which alone is a significant market, according to McAuley.

Recently, NervGen reported getting a boost to begin the new year after President Joe Biden signed the Fiscal Year 2022 National Defense Authorization Act into law on December 27, which included specific encouragement to the Department of Defense to fund traumatic brain injury research related to neuroplasticity therapeutics.

“We are very excited about the potential applicability of NVG-291 to service-related conditions, including traumatic brain injury,” said Paul Brennan, President and Chief Executive Officer of NervGen in the company’s January 4 press release. “We believe that collaborations with the DoD will be an important part of our success. The signing of this act is an important step in enabling the programs that we have been developing with the DoD over the last year to be able to be funded if approved. We look forward to working with the DoD on TBI research and other neurological conditions. This is a very encouraging sign as we set our course for an exciting 2022 for NervGen.”

As the company is still in its clinical stage, it does not have reported revenue, nor does McAuley provide a revenue forecast for the company through the 2022 fiscal year, unchanged from his previous analysis. However, McAuley does project an EBITDA loss of $8.1 million in 2021 after reporting a $7.7 million loss in 2020, with a further $33.5 million loss projected in 2022.

Meanwhile, McAuley projects further loss in the company’s earnings per share after reporting a $0.35/share loss in 2020, with projected losses of $0.31/share and $0.83/share in play for 2021 and 2022, respectively.

McAuley points to a number of potential catalysts for NervGen going forward, including the launch of the MAD section of Phase 1, the release of pre-clinical NVG-291 Alzheimer’s data, and the peer-reviewed publication of NVG-291 in pre-clinical models of stroke in the first quarter.

Looking into the first half of 2022, McAuley expects MAD results from the Phase 1 study, as well as the uplisting to a major stock exchange, then initiating Phase 1b/2 studies in MS, Alzheimer’s and spinal cord injury in the second half of the year.

NervGen’s stock price has nudged upward over the last 12 months, yielding a return of 24.5 per cent in that time with a 52-week high of $3.14/share on November 15.