The psychedelic space in the biotech industry has been challenging, with shares not far off all-time lows amid the recent risk-off sentiment.
Toronto-based Stifel GMP Analyst Andrew Partheniou views this environment as favorable to “long-term investors who can pick among the best candidates at a de-risked entry point.”
“The company has successfully completed the world’s first phase 2a trial with MDMA for AUD. The result could be a treatment with up to 10 years before generic competition, offering more attractive long-term economics.”
— Stifel GMP Analyst Andrew Partheniou
“We highlight AWKN as a pure-play psychedelic company focused on treating addiction with a world-renowned management team including famed Professor David Nutt, a differentiated clinic strategy leveraging the only clinical trial-backed ketamine therapy protocol for Alcohol Use Disorder (KARE) and a de-risked drug development pathway with its lead candidate MDMA for Alcohol Use Disorder (AUD) currently in phase 2,” Partheniou wrote in a March 31, 2022, equity research report initiating coverage on Awakn Life Sciences Corp. (AWKN:NEO; AWKNF:OTCQB).
“At an enterprise value below CA$50 million, we believe shares offer an attractive risk-reward profile with investors receiving its KARE licensing strategy, on-label potential for KARE as well as second generation candidates all for ‘free,’” he added.
Partheniou bases his view on Awakn on a “world-renowned management team” that boasts a Professor Celia Morgan and Professor Ben Sessa, who have both completed world firsts in their ketamine and MDMA clinical trials for AUD. Nutt, meanwhile, is the global expert on substance addiction, leading AWKN’s second generation drug pipeline, while Professor Shaun McNulty brings “a wealth of blue-chip experience to steward these pharmacotherapies through commercialization.”
The second part of Partheniou’s investment thesis involves Awakn leveraging its proprietary KARE protocol to address “a CA$5-6.5 billion market opportunity.” He wrote that Awakn’s evidence-based, ketamine-assisted psychotherapy “differentiates itself from competing clinics” and could “increase adoption rates.”
“Investors also gain free optionality for international KARE licensing opportunities and potential insurance reimbursement following a successful market authorization,” Partheniou wrote.
He notes that the company is taking steps to de-risk its offerings and that CEO Anthony Tennyson has “a long track record mitigating risk.”
“The company has successfully completed the world’s first phase 2a trial with MDMA for AUD. The result could be a treatment with up to 10 years before generic competition, offering more attractive long-term economics,” Partheniou wrote.
Partheniou further sees a valuation re-rating upon market authorization of its KARE protocol as well as from “licensing KARE to expand more rapidly and in an asset-light fashion.”
The following are Partheniou’s key upcoming catalysts for Awakn:
- 2022: Announcing KARE licensing initiatives in North America, U.K., Europe
- Q3/22: KARE entering phase 3 in the U.K.
- Q4/22: MDMA for AUD entering phase 2b in the U.K.
- Q1/23: Identify a lead second-generation drug candidate with robust IP potential
Partheniou arrived at his valuation by using a “sum-of-the-parts analysis with a sales multiple approach for AWKN’s clinic business, applying a 1.5x multiple on our FY24 revenues of CA$22 million. This translates to an approximately 15% contribution to our consolidated company valuation, with MDMA for AUD in a 10-year discounted cashflow model accounting for the balance.”
Stifel GMP initiated coverage of Awakn with a Speculative Buy rating and a CA$8 target price. Awakn shares currently trade at around $0.86.
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1) Brian Sylvester wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. They or members of their household own securities of the following companies mentioned in the article: none. They or members of their household are paid by the following companies mentioned in this article: none.
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Disclosures for Stifel GMP, AWAKN Life Sciences Corp., March 31, 2022
I, Andrew Partheniou, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Andrew Partheniou, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com/institutional/ImportandDisclosures.
Awakn Life Sciences Corp. is a client of Stifel Canada or an affiliate or was a client of Stifel Canada or an affiliate within the past 12 months. Awakn Life Sciences Corp. is provided with investment banking services by Stifel Canada or an affiliate or was provided with investment banking services by Stifel Canada or an affiliate within the past 12 months. Stifel Canada or an affiliate has received compensation for investment banking services from Awakn Life Sciences Corp. in the past 12 months. Stifel Canada or an affiliate expects to receive or intends to seek compensation for investment banking services from Awakn Life Sciences Corp. in the next 3 months. The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel's overall revenue, which includes investment banking revenue.
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