Description

This writeup will be short as this is a timely idea that I want to get out ASAP.

SNPX is a tiny company with a 28M market cap at $8 per share, so this will not be suitable for larger funds – the trading volume is decent though – I believe the stock could go up more than 20x over the next year and is worth more than 7x the current price today.

The company just up listed to NASDAQ a few days ago and I do not believe the current ridiculously low share price will last for long – which is why I say this is timely.

This is not your typical margin of safety idea but the risk reward here is extremely skewed.

The company and Opportunity

SNPX is a biotech company which focuses on developing a drug candidate called Bryostatin for the treatment of Alzheimer's disease (AD). The company is also evaluating therapeutic applications of Bryostatin for other neurodegenerative or cognitive diseases and dysfunctions.

The company is currently enrolling 100 patients for a phase 2 trial in AD. Phase 2 is where the value inflection usually happens – ANVS, ATHA and SAVA all released phase 2 data and have market caps of $630M, $740M and $2.7B, accordingly. Biogen recently received FDA approval for a very controversial AD drug and saw its market cap increase by $19B (!!!) on the announcement. Meanwhile, SNPX sits at a $28M valuation – this makes no sense and I do not think this will last.

Drug History

The big elephant in the room is how likely is Bryostatin to work? No one really knows, but I think it is more likely to succeed in the trial than it is to fail it. Bryostatin has somewhat of a checkered past (which I don’t think reflects on its future), so it is worth the time to review the history here to gain a better understanding.

In November 2015, the company started a phase 2 trial enrolling 147 patients with moderate to severe AD. Patients were randomized to 20 or 40 μg Bryostatin or placebo. The primary endpoints were safety and an efficacy measure defined by change on the severe impairment battery (SIB). The 20 μg had the same adverse events prevalence as placebo. Neither dose showed efficacy in the full study group. When the investigators analyzed only those who completed the entire dosing regimen, they found an increase on the SIB for the 20 μg dose in patients that did not use Memantine / Namenda.

 These results are visible in the following graph and are also explained in more details by the company’s president in this recent video.

Accordingly, in June 2018 a second phase 2 trial began in 108 AD patients who were not taking memantine. Results again did not show statistically significant improvement over placebo in the full trial population. In a January 2020 press release, the company explained that there was a significant imbalance in baseline SIB between the active and control arms that happened by coincidence. An analysis performed on the data showed that if instead of comparing to placebo, each patient was only compared to her baseline, then in the active arm there was a statistically significant improvement (p<0.0076). However, the same baseline analysis was performed on the control arm and showed a smaller improvement, but still statistically significant (p<0.0144). This was consistent with placebo effect of previous trials. Importantly, as a further test of the robustness of this benefit signal, a pre-specified trend analysis (measuring increase of SIB improvement as a function of successive drug doses) was performed on the repeated SIB measures over time. These trend analyses showed a significant positive slope of improvement for the treatment groups in the 203 study that was significantly greater than for the placebo group (p<.01) – so even though both the active arm and control arm showed statistically significant improvement, the rate of improvement in the active arm was statistically significant better.

The company also announced it received a grant from the NIH to fully fund a third phase 2 with the following changes:

•          Trial that will avoid a baseline imbalance.

•          Longer trial period to minimize the placebo effect (6 months study vs 13 weeks previously).

•          Trial will focus on the moderate AD population for which the analysis demonstrated improvement.

This third trial is the ongoing trial. On June 9^th the company announced it enrolled 58 patients out of 100 planned patients. Per my conversation with the company, the goal is to have a readout in H1 ’22.

Key Person

 The company’s founder, president and chief scientific officer is Daniel Alkon. Daniel is a true leader in the field –

•  30 years in the National Neurologic Institute of NIH, directing memory related programs.

•           15 years as the Founding Scientific Director of the Blanchette Rockefeller Neuroscience Institute where he and his team developed neurorestorative therapeutics for degenerative disorders of the central nervous system.

•           Authored hundreds of scientific articles as well as several books.

Valuation

 I’ll start with a few financial characteristics:

•           The company has a $15M cash balance as of March 31^st.

•           The company has zero debt.

•           The company is burning ~$3M per quarter.

•           Current phase 2 study is fully funded by the NIH.

The current market cap is $28M. If someone asked me how much this company is worth, my first reaction would be “I don’t know, but a hack of a lot more than $28M”. Nonetheless, I want to try and provide a better answer, so let us go down the rabbit hole. I believe that based on the drug history I reviewed the current trial has a 60-70% probability of success as they have learned from past mistakes and are doing everything right this time, but for conservatism I will assume this is a coin flip at 50% probability of success. Let us take ANVS as a comp as this is the lowest in term of market cap ($630M) – ANVS announced positive results in a phase 2 trial that only included 14 patients (some of which were in the placebo arm) – this is compared to SNPX with a 100 patients ongoing trial. If the trial is successful, no reason why SNPX will not be worth at least as much as ANVS.

If we assume a 50% chance of success, we would justify a $315M valuation today. You know what, let us give this a 40% haircut as risk-averse investors do not like binary investments – you still get to $190M which is 7x the current market cap.

So, to sum this up, the company is currently worth at least 7x the current price and with a successful phase 2 should be worth more than 22x the current price.

Catalysts

•           Nasdaq up-listing – this already took place June 7^th and created additional liquidity in the name. the volatile trading over the last few days already suggests to me that market participants are struggling with the current valuation.
•           Active Management – management understands the valuation gap and is working to narrow it. This is why they up-listed. Expect PRs and additional conferences to promote the story.
•   Runup to trial results – I expect this to run as we approach the results readout. Since the valuation gap is so large and I expect it to narrow over the next months, one strategy (for the more risk-averse crowd who do not want to be in the name when trial results are read) is to just invest and sell within a few months and prior to data readout. I assume the price will rerate at least 2-3x by then.
•  Trial results – the obvious catalyst here. I did not hear anything, but potentially we could receive some interim data earlier than H1 2022.
  

Risks

·       Phase 2 trial fails.

Catalyst

Included in writeup