Biotech is hard. It is full of failure and the frustrations of waiting, so it takes a lot for me to get excited about this sector.
But I am beyond excited about one company that has found a conceptual loophole that puts their operations in a constant fast-forward or leapfrog mode, placing them heads above any other drug developers.
That company is Algernon Pharmaceuticals Inc. (AGN:CSE; AGNPF:OTCQB; AGW:FSE), and they remain one of only two pharmaceutical companies in my portfolio.
Why PennyQueen Is Picking Algernon
Algernon has a brilliant concept. They have found drugs that have been approved, but through clinical trials in places other than the U.S. and Europe. Drug repurposing is common in the industry, there are a lot of drugs that are approved for one thing, are effective for another. A good example is Gabapentin, which was developed and approved to treat seizures.
It is used off-label (not approved) to treat bipolar disorder, diabetic nerve pain, migraines, and several other conditions. It has now been trialed and approved to treat pain from shingles, too.
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PennyQueen is an investor who focuses mostly on clean tech and does her own independent analysis. She has created a social media community of over 10,000 like-minded investors with whom she has shared her progress of taking a $329k nest egg and building it to over $6 million within a year.
A major benefit of running a trial on a drug that is already approved is that you can often skip some steps. Is it toxic? No, that was already proven by the prior study. Move past Go, skip paying millions of dollars, and save three to five years on the drug development timeline.
Then, several years later, there is a generic drug, as is part and parcel of the pharma industry. So, if I spend millions of dollars to get my wonder drug approved for disease B, as soon as it is approved, doctors will just prescribe the patients the generic.
This is where Algernon’s brilliance comes in two-fold. They have identified several approved international compounds that have 1) alternative applications and 2) no generic counterparts in the U.S. or Europe. This drastically de-risks a huge part of the pre-clinical trials (where there is a whopping 85% rate of failure due to preliminary efficacy, safety, and toxicity studies) and phase 1 clinical trials (where safety, tolerability, and dosages are studied in patients, to the tune of a 34% failure rate).
The process of clinical trials is not cut-and-dried, and there are many ways for a drug to fail.
Not that my goal here is to be a Negative Nelly on the whole industry, but rather to highlight the risks so that you will understand why, out of all the pharma companies out there, I pick Algernon.
For the investor, Algernon’s setup has a few implications: The process for its drugs is going to be faster and less expensive, and — perhaps more importantly — the company is not a one-trick pony. Of its nine potential medications, I am only interested in the two impressive candidates that have already passed the crucial pre-clinical stage that culls 85% of the would-be pharmaceutical herd: Ifenprodil and DMT.
Can Ifenprodil Effectively Treat IPF and Chronic Cough?
Ifenprodil was originally developed by French firm Sanofi S.A. in the 1970s to treat peripheral vascular disease and was later used in Japan as a treatment for vertigo. Can it be applied to treat idiopathic pulmonary fibrosis, or IPF, too?
IPF is a rare, incurable disease in which the lungs become scarred, causing difficulty in breathing. It is a fatal condition with a survival rate of around three years from diagnosis.
Treatments for IPF qualify as orphan drugs, which are drugs meant to treat extremely rare illnesses; without government assistance, they would not be profitable for pharma companies to produce.
Such government assistance includes tax credits for qualified clinical trials. Some drugs may also be fast-tracked and can have special trial designs without placebo arms. Furthermore, orphan drugs receive seven years of market exclusivity after approval, which means no generics cutting into profits.
Since they are priorities for the FDA, orphan drugs play an outsized role in the pharmaceutical industry. For reference, 53 new drugs were approved in 2020, and 31 of them (or 58%) were for orphan drugs.
While the U.S. provides tax credits for orphan drugs, Australia goes one step further and provides companies a refundable credit of 40%. Since the IPF and chronic cough phase 2 studies are being conducted in Australia and New Zealand, Algernon received a $2 million refund from Australia for their trial expenses.
A preclinical study in the UK showed a promising 110% reduced cough count when compared to Merck’s IPF drug, as well as a delayed cough onset.
Positive phase 2 data is the single-most significant catalyst for a shareholder, creating the greatest delta value (change in stock price).
Algernon is expecting to have its phase 2 data by Q2/22.
Upcoming Phase 1 Studies of Ifenprodil: Algernon also has Ifenprodil in clinical studies for pancreatic cancer and small cell lung cancer. Both advance to phase 1 studies in Q3/22.
There may be even more applications for Ifenprodil if it proves effective.
Can DMT Help Restore Brain Activity After Stroke?
N,n-dimethyltryptamine, known colloquially as DMT, is the active ingredient found in the hallucinogenic ayahuasca plant. DMT, which was first researched in humans during the 1990s, is widely considered safe at hallucinogenic dosages, but U.S. law has kept this from widespread study. DMT is believed to kickstart neurogenesis (the activation of neural stem cells) and to promote the formation of new neurons, applications that are currently being tested on stroke patients at sub-hallucinogenic doses.
A 2020 study out of Semmelweis University in Budapest showed that post-stroke rats who were given DMT had smaller dead areas in their brains and less disability after the treatment. An Algernon-sponsored study also showed 40% increase in neuron growth in a test tube.
In its studies, Algernon has altered the plant molecule enough that it can be patented as the company’s proprietary molecule. The company has already received approval in the U.K. for its phase 1 and 2 studies and has a large enough supply of the compound to begin — while many other groups who are attempting to research DMT have struggled with a supply chain that has proven difficult to arrange.
Over 15 million strokes occur annually and the total addressable market for stroke treatment is expected to exceed 15 billion dollars by 2027, making this a market to watch.
A Market Opportunity for Algernon
I should note that Algernon had a phase 2b/3 COVID-19 trial that yielded positive results but without a large enough cohort to give a statistically significant result. This occurred on March 31, 2021, exactly one day before Pfizer and BioNTech confirmed the high efficacy and safety of its COVID vaccine.
With a larger phase 3 trial ballparked at about $30 million, Algernon decided not pursue further research.
The chaos of the 2021 pandemic market combined with this news caused Algernon’s share price to fall. Since then, the company has consolidated shares 100 to 1, to make it ready for entry onto the NASDAQ.
Algernon — armed with an expansive and largely de-risked drug pipeline, with an efficient clinical model — is sitting at a modest market cap of about $10 million.
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Disclosures
I own shares of Algernon Pharmaceutical, I have not and will not be compensated for this report in any way. I write reports on my favorite picks, this is meant to be educational and not investment advise as I am not an investment advisor, just a mom on a mission to make the world better and make money along the way.
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