by Travis Johnson, Stock Gumshoe | January 4, 2019 9:38 am
Ray Blanco makes (part of) his living looking for biotech moonshots, like most biotech-focused newsletter writers — and like his predecessor at Agora’s biotech and emerging tech-focused newsletter Breakthrough Technology Alert, he has often touted companies that are trying to end the scourge of Alzheimer’s Disease.
Why? Well, two main reasons: First, and by far most important, is that Alzheimer’s Disease is the Great White Whale of biotech investing, by far the largest “unmet need” and the hugest market that has not really been tapped by a blockbuster drug… existing treatments help some with symptoms, but no real preventive or curative drug has ever made a big impact, partly because there’s still a huge amount of debate over what causes Alzheimer’s.
That’s not for lack of trying, researchers have been banging their head against this wall for decades… and biotech and pharma companies the world over know that there are hundreds of billions of dollars potentially on offer for a real “cure,” and they keep pushing possibilities through clinical trials… and failing, usually very expensively. For most drugs, Phase III is when you really prove safety and efficacy and have a good chance of approval thanks to the many prior studies that set up expectations… for Alzheimer’s Drugs, Phase III is where you spend a few hundred million dollars but abandon your efforts at the finish line for lack of efficacy or some surprising new safety issue.
And Second, because the market for newsletter subscribers is also the population of people that is likely to be most worried about Alzheimer’s Disease… relatively affluent people in their 50s and 60s. They (maybe you, if you fit the “average” profile) have enough money to hope for a relatively secure retirement and potentially afford $2,000 a year for a niche sector investment newsletter, but also are at the age that they’re likely to have friends or family members (especially parents) whose lives have been ravaged by the disease, or fear for it in their own future. The “greed” impulse for finding a cure is boosted by the “maybe this will really help people, including me” feeling you get from reading about an Alzheimer’s breakthrough.
So we’ve seen Alzheimer’s Disease pitches many times from pretty much every biotech-focused newsletter, but things have been a little bleak in this area recently (as with much of biotech)… and, since none of the Alzheimer’s drugs pitched over the years have actually made it through to approval, or even in many cases to late-stage clinical trials, none of the Alzheimer’s pitches have made any money for investors if held through today (some of them would have provided opportunity for trading profits for those who are nimble and prescient, but any stock price spikes on good news or newsletter attention have always faded).
And this week, we’ve got another one to look at for you in an ad that started circulating recently. It looks very similar to Ray Blanco’s pitch from about a year ago, though it’s for a different company — back in January of 2018 he had a similar-looking and very similarly worded pitch for a teensy little microcap called ProMIS Neurosciences (PMN.TO, ARFXF), which was supposed to be about to blow the roof off Alzheimer’s and become a $40 billion behemoth thanks to his promise that their CEO would make a February 14 announcement to shock the world with the news that “Alzheimer’s Disease is Now Completely Treatable.”
And, of course, no such announcement was made last February… and that preclinical microcap did not cure Alzheimer’s Disease last year. The attention from Blanco was enough to help send the shares from 22 cents to 63 cents (Canadian), but the rest of the year saw the stock return to that 20 cent neighborhood, where it now sits once again.
That, in turn, was quite reminiscent of his similar promises about Anavex Life Sciences (AVXL) back in 2015, which was also supposed to “revolutionize modern medicine” thanks to its CEO’s anticipated November 7, 2015 announcement. Anavex is still an Alzheimer’s “story stock” to this day, marking now about the 10-year anniversary of its ANAVEX 2-73 drug being the “next great hope” for Alzheimer’s sufferers (and biotech investors), and it’s still trudging along, starting another Phase 2b/3 trial… who knows what will happen, the three-year results of its last trial looked at least mildly encouraging but the number of patients ever dosed with that drug is still extremely small, that phase 2 study started with only 32 patients and continued on with 21.
As many folks have noted, Alzheimer’s Disease treatments almost always fail in Phase III clinical trials… which, probably not coincidentally, is when the patient cohort typically becomes far larger and you get a real sense of the average response from at least hundreds, preferably thousands of patients. AVXL’s next study will be more than 10X larger, but will still treat only 450 patients, so the skeptic in me still says the sample size is too small to take very seriously. That’s a huge deal for Alzheimer’s Disease, since any drug will likely be extremely widely prescribed to people who are relatively healthy and don’t yet have symptoms of dementia — safety is going to be important, even as the FDA is trying to encourage more AD drugs with somewhat easier paths to approval and might allow through drugs whose efficacy is less than exciting, and you might not learn much that’s very definitive about safety from a few dozen or even a few hundred patients.
But I haven’t really been following Anavex or ProMIS recently, and I’m no expert on Alzheimer’s Disease, so let’s get to the meat of this one, shall we?
Now that we’ve given you some reason for skepticism about the whole idea of investing in a “big news” Alzheimer’s treatment in general, and perhaps about Ray Blanco’s ability to predict those scientific events with the accuracy he evinces in his ads, what the heck is his pitch about this time?
Here’s a little snippet from the order form:
“This is a discovery so spectacular, that Washington University School of Medicine confirmed:
‘TREM2 triple[s] the risk of Alzheimer’s disease’
“Dr. Marco Colonna, one of the doctors involved in the study, agrees it cannot be ignored:
‘All signs point to TREM2… [it] is now linked to Alzheimer’s disease.’
“And Dr. Ryan will share his discovery with the world.
“When he does, his tiny little company – currently trading for less than $20 per share – will be ignited by the $1.410 trillion in worldwide demand for a true Alzheimer’s cure.
“Early investors will have front row seats to history unfolding — millions of lives saved, a world without the terrible fear of dementia, and the fastest 72-hour profit gain in stock market history.”
We get lots of other clues as well…
“No pharmaceutical… no Silicon Valley tech startup… no company currently trading on any exchange anywhere in the world has ever had a run like this…
“No wonder a group of members of this company’s Board of Directors and Senior Management Team gobbled up a staggering 11,856,247 shares of their own company!
“Not only that, but they ALL bought on the same day…
“Clearly, something HUGE is on the way and you now have the opportunity to be the next person in line behind them.”
And we’re told that Jay Flatley, former CEO of Illumina, “scooped up” 250,000 shares.
Is that enough? Indeed it is, we don’t even have to roll through the rest of the ad (though you can check it out here if you’re so inclined)… the answer to this one is: Denali Therapeutics (DNLI)
Confirmation? In this case a couple specific numbers make it easy… on December 12, 2017, most of the board members and officers converted their private or preferred shares into common equity, right after the company’s IPO. That number did indeed total up to 11,856,247 shares, including the 250,000 shares owned by former Illumina CEO (and now Independent Director of DNLI) Jay Flatley.
I expect that not a single one of those people has bought Denali shares since it went public (there have been some “acquisitions,” but they all look like stock grants to board members and executives, some of whom have also been selling — as is typical of a newly public company), and I wouldn’t describe that conversion process as them “gobbling up” shares on that particular day, though some of them did invest in the company when it was private (most notably ARCH Venture Partners’ Robert Nelson, a well-known biotech venture investor who is also a board member and a large shareholder — more than 10 million shares of that 11.8 million are listed under his name).
And yes, Denali is trading at just under $20 a share right now, and is a small cap stock with a market cap of about $1.8 billion — though it’s nowhere near as tiny as ProMIS or Anavex were when Blanco touted those other Alzheimer’s hopefuls in years past. It also has some strong partnerships, notably with Sanofi and Takeda, and a lot of cash (about $375 million last quarter, both from the IPO and from partnership payments)… and an extremely early-stage pipeline of treatments for neurodegenerative diseases.
The drug pipeline stands out mostly for its lack of any big news at this point, their most advanced three drugs are in “early clinical” stage (including DNL747 for Alzheimer’s, along with a couple Parkinson’s drug candidates) and mostly still testing for initial safety in small groups of healthy volunteers, though they do say that the “science is breaking open” for their work in Alzheimer’s, Parkinson’s and ALS as degenogenes are identified.
Most of the leaders at Denali are from Genentech’s neuroscience division, and it seems that they’re trying to take Genentech’s (and others) success in oncology, based partly on better genetic understanding and targeting, and use that to take the next steps in neurodegenerative diseases like Alzheimer’s and Parkinson’s. They are using genetics to select specific targets and biomarkers for drug development, and have designed their own proprietary platform for engineering large and small molecules that can cross the blood brain barrier, which is a challenge for many drugs (particularly the “big molecules” like antibodies). They also talk about a “portfolio” approach, where they work on several drugs at once for an indication, dropping the lead drug and going to the next one in line if it fails to show progress, which sounds encouraging… but I have no idea whether that’s at all unique in the world of biotech.
The company is not pitching themselves as the owner of a cure for Alzheimer’s, that’s all Ray Blanco, but they do have three Alzheimer’s drugs in their “core” portfolio — though the “TREM” drug, which they currently call ATV:TREM2, is still just planning for an IND at some point over the next year or two, it won’t likely generate any data anytime soon… and certainly not before January 14.
They have released Phase 1 results for their most advanced Alzheimer’s Disease drug, DNL747, which gave some indication of a solid safety and pharmacokinetic profile (meaning mostly that it didn’t cause severe reactions in healthy volunteers, and the drug got into the blood as expected and had the chemical reaction planned), and hope to initiate the next clinical trials soon to start to get some indication of efficacy (whether it actually does anything useful for patients)… presumably from some targeted Alzheimer’s patients with specific biomarkers.
You can get a good deal more information from their R&D Day Presentation that was given last month. This is one of those companies that looks really impressive to me, mostly because of their professed strategy and the quality of their investors and executives, but I’ve learned to resist that impressive look in this particular sector — I’ve generally sworn off of investing in clinical stage biotech stocks because of my inability to be an expert in the science… or make any rational guesses about the financial prospects for drugs that are likely to be close to a decade from commercialization (though that could speed up a bit if all goes really well). This is not a sector where betting on one or two companies is likely to work out well for individual investors, the failure rate is very high and lots of very smart people who understand the science (unlike me) calculate the odds of success for specific companies very differently — and accept that failure rate as the cost of investing in the sector, which means they have to diversify (ARCH Venture Partners, for example, helped to build Denali and is well-known for their venture work in biotech, and they list a portfolio of well over 100 companies they’ve worked with — some have been big successes, some have disappeared).
So I won’t be buying this stock, but it is the first new Alzheimer’s pitch we’ve seen in a while, and it is an interesting looking company despite its young age and early stage pipeline, so perhaps those of you who dabble in biotech or have some sector expertise will be interested in at least watching their progress. If there’s going to be big news on January 14 about some efficacy breakthrough from Denali in these early Phase 1/2 trials, and a “Alzheimer’s will soon be treatable” headline, I would guess that January of 2020 is a much likelier date to shoot for than next week. But, of course, hope springs eternal and I wish them the best — the science sounds cool, and the cause is certainly worth the effort.
I’ve got a separate Friday File note coming out for you in a little while with some portfolio updates after these crazy couple weeks (not huge ones, I’m largely hunkering down at the moment), so stay tuned…
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