Seeking Alpha • Oct 06
Atai Life Sciences: Decentralized Drug Discovery Platform
Summary
ATAI is at a value inflection point, it has slimmed its drug discovery pipeline and promises proof of concept data within two years.
ATAI has taken on debt to give it a cash runway through to 2025, by which time it must have generated compelling evidence for its drugs.
I believe three drugs under development have a good chance of success and will have a strong competitive position if approved.
Atai Life Sciences (ATAI) has a somewhat unique business model, a decentralized platform that acquires and operates clinical programs that are separate companies or behave like them. It is a "company builder" I only know of two other companies with this model in the pharmaceutical industry BridgeBio (BBIO) and PureTech Health (PRTC). The recently appointed CFO of ATAI, Stephen Bardin, has moved to ATAI from BridgeBio. These companies have not done well of late. They are down 76% and 42%, respectively, with ATAI down 76% in the last 12 months.
ATAI identifies promising mental health technologies or drugs and then acquires a stock interest, providing technical and financial support to hasten the time to market. ATAI companies are developing psychedelic and none-psychedelic compounds and technology for treating psychiatric disorders.
ATAI current situation
During the full year 2021 earnings call, ATAI talked about 13 drug development programs and four enabling technologies. In a recent press release, ATAI announced they had slimmed the drug development programs to 8 by focussing on the most promising programs that will generate meaningful data in the next two years.
During the latest earnings call, we learned that ATAI had arranged a $175 million loan facility that brings total available cash to more than $300 million, extending its cash runway into 2025. However, by the end of 2025, the $300 million might have gone, and ATAI will likely have significant debt and most likely zero revenue.
If an investment in ATAI is going to make money, then one of its eight drug programs must be a success. In this article, I will focus on the eight drug candidates under the ATAI umbrella, and a later article will look at the none drug products.
The 8 ATAI drug programs hope to treat one of four mental health disorders. I will look at each disorder and evaluate the compounds being explored by ATAI, trying to judge their competitive situation. I will consider the evidence that they may be effective and safe and the potential market for the drug. None of the ATAI drugs will likely be approved within 3-5 years as all of their drugs are in phase I or II testing. However, all their candidates will release necessary proof of concept data within two years, and a good readout will lift the share price.
ATAI was initially formed as an investment vehicle to invest in COMPASS Pathways (CMPS) and is a 24% shareholder in COMPASS. COMPASS Pathways is leading the way for psychedelic companies as it moves toward phase III testing. I previously wrote about COMPASS in-depth and will only consider it a competitor to ATAI when I assess the eight drug programs.
Treatment-Resistant Depression
Treatment Resistant Depression (TRD) has a significant unmet need; patients will have tried at least two previous treatments to be treatment resistive. ATAI has two drug candidates targeting this condition.
COMPASS Pathways is about to take its Psilocybin-based compound to Phase 3 trial (we should get detail in mid-October) and has breakthrough therapy designation from the FDA, which should speed its path to approval. CMPS is leading the field for this condition and will likely be approved much earlier than any other compound.
ATAI Candidate 1: PCN-101
PCN-101 is a patent-protected R-Ketamine compound. Ketamine is approved as a treatment for depression, and Numinus Wellness (NUMI) offers a wide range of Ketamine-assisted therapy in North America and Europe. The chemical structure of Ketamine is a mixture of two molecules, S-Ketamine and R-Ketamine. The FDA approved S-Ketamine for use with treatment-resistant depression in 2019; however, due to side effects, it must be administered in a clinic. The approval came with the following advisory.
patients are at risk for sedation and difficulty with attention, judgment and thinking (dissociation), abuse and misuse, and suicidal thoughts and behaviors after administration of the drug. Because of the risk of sedation and dissociation, patients must be monitored by a health care provider for at least two hours after receiving their Spravato dose.
ATAI believes that R-ketamine will be equally effective as S-Ketamine but without the side effects and could be approved for at-home use. This would be a significant advantage for the five or six million US adults that suffer from treatment-resistant depression.
A search of available research suggests that R-Ketamine has greater potency and more prolonged lasting effects than S-Ketamine.
ATAI Candidate 2: VLS-01
Derived from Ayahuasca, this hallucinogenic compound called N-Dimethyltryptamine ((DMT for short)) has a significant amount of study suggesting it is safe to use and an effective compound for altering mood. It has a very rapid onset but does require a clinic visit of about 2 hours, VLS-01 is being investigated for several other disorders. ATAI has recently dosed its first patient.
I don't believe that the competitive situation for VLS-01 is as strong as PCN-101, as a psychedelic it requires clinical visits. Although research suggests it will be effective, it uses the same pharmacological mechanism as the other psychedelic drugs and may not offer any additional benefits.
Other companies are also investigating TRD: Braxia Scientific (BRAX), have a phase II trial using Psilocybin to treat TRD and already have significant penetration of the general depression market through their KetaMD platform. GH Research has completed two phase I trials with GHoo1, proprietary and patent-protected 5-MeO-DMT-based compound with no severe side effects and more than 80% of patients reporting improved symptoms. 5-MeO-DMT is a naturally occurring psychedelic compound found in several plants in south America and at least one toad species.
The value of PCN-101 is "at home use" it is the only drug currently in trial for this patient group that could potentially be administered at home. S-Ketamine, Psilocybin, and COMP360 require extensive clinic attendance. If it is successful in trials and ATAI can get it approved for at-home use it could be a huge seller.
PCN-101 is currently in phase 2 testing. A readout from this study is expected in November 2022, and if positive, we could see a jump in share price and the start of a phase three trial. This is the first of the three compounds I think could be a success for ATAI.
Anxiety Disorders
Anxiety is a growing problem and is currently not well served pharmacologically. The market here could be huge; the US alone is thought to have more than 50 million people suffering the various forms of anxiety.
The first line of drugs is usually SSRI (antidepressants), but these drugs are not well tolerated and are slow acting. Many patients fail to adhere to the dose, losing confidence in the drug, and as a result, they are considered somewhat ineffective.
The second line of drugs is Benzodiazepines (like Xanax), these fast-acting and effective compounds come with significant risks of impaired cognition and sedation; they can be highly addictive.
Outside of the US, a third treatment option exists. Etifoxine was developed in the 1960s as an alternative to drugs like valium. In 2000 French scientists discovered its dual action pharmacology which has led to the possibility of the drug being re-purposed as a cure to anxiety as it affects the GABA receptors in the brain. Etifoxine was approved many years ago in France, and more than 14 million subscriptions have been taken with zero addictions reported and a good safety standard generally. The drug was never introduced in the US or any other primary markets outside of France; it is already out of patent, so no business rationale exists for re-purposing it into other markets.
ATAI Candidate 3: GRX-917
GRX-917 is a deuterated Etifoxine (change to the Hydrogen atoms that improves safety and effectiveness). It is a patent-covered formula currently in phase I testing by GABA Therapeutics. Early research suggests that GRX-917 will have the efficacy of Benzodiazepines without any side effects or risks of addiction. We know from the French experience that the drug is likely to be safe and effective. It is not a Psychadelic compound which may make the approval process more straightforward.
Competition in this disorder is somewhat limited MindMed (MNMD) has a phase II trial using LSD (you can read my views on MindMed here). Incannex has a phase II study with Psilocybin, and Diamond Therapeutics have a Phase I with Psilocybin.
GRX-917 appears to be the only non-psychedelic compound that may work in this area. A positive readout from the current trial (due next year) might result in a significant share price jump. Existing evidence for Etifoxine suggests that a positive readout is likely and that GRX-917 could be the blockbusting drug I am looking for and is the second compound I think could be a success.
Cognitive Impairment Associated with Schizophrenia
80% of schizophrenia patients exhibit cognitive impairment ((CIAS)), and there is currently no approved treatment. The 24 million sufferers in the US cost medicare around $150 billion a year, and it is the 15th largest cause of disability. Recognify Life Science, ATAI controlled, is investigating the drug RL-007 and they have strong patents already approved.
ATAI Candidate 4: RL-007
RL-007 (first developed and patented by Allergen now part of AbbVie in 2015 under the chemical formula (2R, 3S) -2-amino-3-hydroxy-3-pyridine-4-yl-1-pyrrolidine-1-yl-propane-1-one ((L)) - (+) - tartrate salt) is now exclusively licensed by Recognify. In December 2021, ATAI released the phase 2a data from 32 patients, showing significant improvement and supporting a more extensive trial.
Two other drug companies Boehringer and Biogen have drugs in phase two trials for CIAS.
It is just too early for me to predict the likely success of RL-007, as a relatively new compound, little research evidence exists, and it is impossible to know how it will stack up against the two competitors which are at the same stage of development.
Substance Abuse
The FDA has stated that:
there currently are no products with demonstrated or purported reduced abuse liability on the market.
As such, it represents a huge unmet need, and any successful drug will have a significant market.
