Addex: The Little CNS Therapeutics Company That Might

Name Addex Therapeutics

Ticker ADXN

Price 10.90

Shares Outstanding (M) 2.06

Market Cap ($M) 11.72

Net Debt ($M) -4.84

TEV ($M) 6.61

Daily Volume (K): 16.38

Note that Addex is a nanocap with de minimis shares traded daily and limited financial runway at present. It is highly speculative.

Description

Addex Therapeutics focuses on CNS disorders via the mechanism of G coupled protein receptors. From its headquarters in Switzerland, the company has programs in Parkinson’s (Dipraglurant), epilepsy (ADX71149), pain as well as anxiety and addiction (GABA_B PAM). Partnerships with Janssen and Indivior as well as grant money have supported development efforts alongside equity financing. Formed in 2002, it is fast approaching a critical readout on its latest stage program. Addex is dual listed on the SIX (Swiss Exchange) and the Nasdaq.

Investment Thesis

1.     The epilepsy (ADX71449) program is reaching a critical inflection point. Management, despite being blinded to the study, recently expressed confidence in the impending readout of Phase 2 data expected in Q2 2024, which may come earlier.

2.     With a fully diluted market cap of under 20mn and a daily volume of less than 20,000 shares traded, a positive readout may send the share price significantly higher.

3.     Other programs of the company have grant funding and sponsorship.

Indivior agreed for GABA_B PAM to 330mn in milestones, royalties up to double digits and to fund the program for cough & substance use disorder (SUD)

Financial Overview

·      At the end of q3, the company announced 5.2mn cash on hand and will be cash out sometime later this quarter or next. There was a recent grant award of 4.28mn, but it was not stated how much of that grant the company would receive

·      This month, Addex announced a 2.1mn At The Market (ATM) through H.C. Wainwright

It is unclear if this is to effect a reverse inquiry or to sell on the open market without a particular investor. Given the anemic volume, if there is not a reverse inquiry, we might take this as a positive indicator that the company anticipates sufficient interest to generate enough volume to sell shares ATM. At the current daily volume, it would likely not be feasible

This funding could be perceived as a means to get to clinical milestones anticipated for a successful readout

On the downside, it is highly dilutive at the current capitalization

Deep Dive on Investment Thesis

·      With such a small market cap, if we assume that there is a greater than 50% chance of the study succeeding, the expected value of a positive readout for the epilepsy trial is far greater than the current market capitalization. Though we absolutely are not certain of a positive readout, we take the following observations as potentially helpful indicators

Note the following exchange on the Q3 call between an investor and the CEO:

"In the IRB review of unblinded data from 149, were efficacy measures unblinded? Also, were any changes in dosage made between Cohort 1 and Cohort 2?
Tim Dyer
Yes, so thanks for the question. Yes, so the independent interim review committee had some very clear guidance from Janssen. And they were given clear guidance that they should recommend to stop the study if there is a certain level of split between active dose and placebo. And the fact that they, and also, of course, if they saw any significant safety issues, then they had to recommend stop. Now, the recommendation to continue means that they must have seen at least a signal of efficacy and no safety, significant safety concerns. Now, and that was Cohort 1. Now, what we know is that Cohort 2 is a higher dose than Cohort 1. And this is why we are very encouraged by the combination of the recommendation to Janssen to continue and the fact that Cohort 2 is a higher dose. And now that they have completed recruitment, we are guaranteed of data. I hope that answers your question."

The preclinical study shows anti-epileptic activity of ADX71149

Increased 35x Keppra (Levetiracetam) and therefore lower dosing, which may result in fewer side effects such as dizziness, irritability, drowsiness, tiredness among others

o   There is an open label study ongoing, which presumably has had sufficiently good data that the CEO made the remarks noted earlier. The study gives patients ADX71149 with levetiracetam or brivaracetam.

The study is fully funded by Janssen and successful completion would unlock milestone payments so there would not be additional cost to Addex to bring the product to market

From a commercial perspective, since patients take combinations of antiepileptic medications, substituting in ADX71149 should not present a particularly challenge if it is proven to be clinically beneficial

·      Note that JNJ (Janssen) has run 3 clinical trials of ADX71449 so it is familiar with the drug, the open label study was extended, and the review committee was instructed not to continue without evidence of efficacy. Those additional datapoints give support to the idea of a positive readout

Why does the opportunity exist

·      As a nanocap, this company is totally under the radar

Only 1 analyst is covering it in the US – HC Wainwright; the rest are in Europe valuationLab (Switzerland), Baader Helvea AG (Switzerland), ZKB (Italy)

·      Besides Dipraglurant, which the company is trying to partner, no other programs are past IND an enabling phase.

Historical and Projected Financials

·      The company has been financially challenged and again finds itself close to end of their runway. Last Spring it announced a 5mn equity financing. More recently Addex announced a 2.1mn USD ATM with HC Wainwright. 

·      Regarding the ATM, the PR could be read in a negative or positive way. A negative given 2.1mn USD dilution of ~20% of the market cap at present or ~1 quarter of cash. A positive, the ATM may be in place to take advantage of price appreciation, sufficient cash to reach milestone payments, an imminent partnership for one of their unpartnered programs with cash upfront, or a bridge to additional funding such as grants, which they have actively pursued. Given the average volume of ~11,000 shares ($100,000) daily it is unclear they would be able to execute an ATM program without a spike in volume or a reverse inquiry.

·      €4 million Eurostars grant recently awarded does not indicate how much Addex receives. The grant is for an an mGlu2 NAM program in mild neurocognitive disorders

Catalyst

·      The upcoming phase 2 readout of ADX71149 is the only upcoming milestone we are aware of.

·      There may be additional partnerships, but this is not known and pure speculation.

·      IND enabling studies for a variety of programs and phase 2a with Dipraglurant will launch this year.

Valuation and why

The downside case is that the readout for ADX71149 is unsuccessful. In this scenario we are unclear how the company will not trade down substantially, potentially more than 90%. There would be insufficient cash to reach any more readouts driving a higher share price.

The upside case of a positive readout would lead to the following payments:

"We have significant economics in our deal with Janssen with prelaunch milestones of €109 million ($118mn), low double digit royalties on net sales and Janssen is responsible for all development costs."

With a low daily float and a nanocap for a market capitalization, we are optimistic that the share price would appreciate substantially. At its current capitalization, incorporating the full milestones would see multiples of the current valuation. If the readout is positive, we think Janssen would look to commercialize it into an epilepsy market that is anticipated to be 20bn in a few years.

Note that management and the board own 11.23% of outstanding shares

Risks

·      The share price will probably crater if the trial fails

·      The ATM might depress stock price appreciation in the event of a successful readout

·      It may be difficult to exit a position given the lack of volume