Top Partnering Opportunities In Neuroscience: The Ugly Truth

Consultant notes some promising candidates in a challenging space for investment.

Harry Tracy, a publisher and consultant who tracks the neurotherapeutics space, calls the partnering environment for central nervous system drugs “dismal” and “ugly.” He’s not far off the mark.

While the number of deals in the space has fluctuated in the last three years – 24 development-stage deals in 2009, 32 such deals in 2010, and 13 so far in 2011, according to Elsevier’s Strategic Transactions database – the amount of money that companies are willing to risk upfront has gone down dramatically.

According to Tracy, president of NI Research Inc. of Cardiff, Calif., the upfront payments for deals in the CNS space have declined dramatically in the last three years. In 2009, upfronts for development-stage CNS deals totaled $921 million; they dropped to $318.5 million in 2010, and are at about $60 million for 2011 so far.

“Funding has gone down tremendously,” says Tracy. “Venture capitalists and companies are afraid to invest in CNS.” He attributes investors’ fear of the space to its challenges, such as the lack of good animal models, unreliability of existing biomarkers, and the difficulty of determining efficacy, so that companies have to do mid-stage testing before they can make a judgment call.

In an effort to improve the deal-making landscape in CNS, Tracy sifted through the current neuroscience contenders in areas like Alzheimer’s disease and depression to identify companies that offer a promising candidate in the space, but need a larger partner to help move their research forward. The chosen companies will present at Windhover's upcoming Therapeutic Area Partnerships conference, Nov. 30 – Dec. 2 at the Westin Copley Place in Boston in hopes of attracting the attention of a big biotech or pharma.

Tracy said he chose companies across the risk spectrum, adding that many of the more “unorthodox” investments were just as risky as a lot of the internal programs within big pharma. “The list will provide something for companies with every risk tolerance,” he said. “My hope is to give these companies a better profile so that the programs don’t seem quite so unorthodox.”

A Different Path

Some of the companies, like Allon Therapeutics Inc., have shown promise in multiple areas of study, but have chosen to pursue narrow indications for their compound until further research and funding allows them to expand to broader indications.

“We thought it was dopey to think that a small company like us was going to solve the Alzheimer’s problem when so many others, who have spent billions, have not,” said Allon CEO Gordon McCauley.

Allon’s lead compound, davenutide, has shown some activity in Alzheimer’s disease since it is derived from naturally-occurring neuroprotective proteins that are found in the brain and have effects on Tau. Some scientists believe that Tau could be the underlying cause of Alzheimer’s disease. Allon is currently studying the drug in progressive supranuclear palsy (PSP), a rare type of frontotemporal dementia (FTD) that is often mis-diagnosed as Parkinson’s disease or Alzheimer’s.

Davenutide is in a Phase II/III trial that has fully enrolled 300 patients and is expected to run for one year. Allon will evaluate patients based on a PSP ratings scale that measures the drug’s effects on daily activities. The company is hoping to file for approval with FDA in the beginning of 2013.

Tracy has chosen Allon to be a presenter at the TAP conference in prior years as well, explaining, “This is a program that could have gone a lot quicker had it been better funded. It has a lot of data and it the drug doing what they say it does,” said Tracy. “It should have a partner by now.”

While Allon may think it’s too small to tackle a disease as broad as Alzheimer’s, another entry on the list is taking that chance. NeuroPhage Pharmaceuticals Inc., a preclinical-stage company, is targeting beta-amyloid plaque in the brain with its drug NPT001, which was discovered in the laboratory of Professor Beka Solomon, chairman for biotechnology of neurodegenerative diseases at Tel Aviv University.

The company has completed toxicology testing in animals and is currently working on dose escalation. It expects to file an IND by the end of 2012. NeuroPhage so far has raised almost $20 million (see chart for a look at each company’s financial position).

Another unorthodox entry on the list is Kyalin Biosciences, which Cypress Bioscience Inc. spun out in October 2011 with only $100,000 in its bank account. The company is developing intranasal carbetocin for the treatment of social deficits in autistic patients. It is currently raising money in order to fund a Phase I proof-of-concept study in healthy volunteers, says Kyalin CEO Srinivas Rao. It plans to make a “go- no go” decision after data comes back from the upcoming trial.

Intranasal carbetocin is a synthetic, long-acting, eight amino acid analog of oxytocin – the “trust hormone” – but which doesn’t have the same safety issues because it does not hit as many receptors. Rao believes that investors could have an exit within three years with an investment less than $4 million.

The Well-Worn Path

Some of the other programs that Tracy has selected are “well-established” because of their well-known mechanism of action. For example, North Carolina-based CeNeRx BioPharma Inc. is developing a monoamine oxidase-A inhibitor (MAOI) called TriRima for treatment-resistant depression. While MAOIs are a common category of anti-depressant, the treatment-resistant subset of MAOs is an unmet medical need.

CeNeRx is currently enrolling patients in its second Phase II trial and expects to have results by mid-year. CEO Barry Brand hopes the company will have a Big Pharma partner shortly after that.

Naurex Inc., which also will be presenting at the conference, is developing a drug for treatment-resistant depression as well (Also see "Recapitalization Becomes A Better Alternative In A Weak Economy" - Pink Sheet, 31 Oct, 2011.). Unlike TriRima, which is a twice-daily oral, GLYX-13 is a fast-acting injection that gives depression patients a boost and would be used in conjunction with other therapies. GLYX-13, is a NMDAR Glycine-site Functional Partial Agonist (GFPA), which is comprised of four amino acid sequences: threonine-proline-proline-threonine. While the company has enough financing to make it through 2012, CEO Derek Small said it will need to raise more funds or find a partner if the compound is going to advance.

Naurex is currently conducting an 80-patient Phase II proof-of-concept trial in patients with depression who have failed to respond to other antidepressants; results are expected in 2012.

A Second Chance

Unlike the other companies on the list, BioAxone Biosciences has already licensed out its compound. The Montreal-based BioAxone Therapeutic Inc. previously licensed the Phase II Rho inhibitor cethrin to Boston Life Science Venture Corp., later Alseres Pharmaceuticals Inc., in January 2007, but recovered the drug after the latter shelved it.

The move nearly drove BioAxone out of business. It operated as a shell company before repossessing the drug and restarting as a U.S.-based company. Cethrin, which inhibits the Rho pathway to stop cell death and promote regeneration, is being studied as a treatment for spinal cord injuries.

Tracy said that the completed Phase II data is promising, even if it came from a single-arm study. The Phase IIa trial tested for safety and efficacy in 48 subjects. The treatment is used as part of an initial surgery that most spinal cord injury patients are given to relieve pressure. The localized injection helps protect the nerves and prevent further deterioration to the damaged tissue. BioAxone founder Lisa McKerracher believes cethrin could be the first-line in a continuum of care for these patients, who don’t have many good treatment options.

The company needs another $10 million to bring cethrin to the next step, a Phase IIb study. McKerracher hopes that the company will get the financing that it needs by next summer.

Meanwhile, Marinus Pharmaceuticals Inc. has not yet garnered a partner, but has managed to attract the government’s interest. The company is developing ganaxalone, a first-in-class neurosteroid, which it is testing for the treatment of posttraumatic stress syndrome, partial complex seizures, and Fragile-X syndrome.

More than 900 healthy adults have participated in Phase I and Phase II studies testing the compound. The Department of Defense has helped fund research in behaviors associated with Fragile X and PTSD.

The company is currently raising money to fund a Phase III study in epilepsy; an end of Phase II meeting is expected to take place in early 2012.