Company: Cortexyme, Inc
Market Cap: $478M (11/3/2021)
Cortexyme is developing a game-changing approach focused on an upstream Alzheimer’s disease target. I had published an article about Cortexyme (CRTX) on Aug 10th. On Oct 26th Cortexyme released the outcome of their pivotal GAIN trial. The press release was interpreted negatively by the market and led to a sell off that peaked at -77%. In this short update article I want share my thoughts on what happened and why I did buy the dip in CRTX.
"Everybody has a plan until they get punched in the mouth" Mike Tyson
Everybody that follows CRTX was excited about CTAD 2021, the event that Cortexyme would present top-line results from its Phase 2/3 GAIN Trial in November. It was unclear, if we would receive a press release in advance. However, that was clarified rather rapidly on Oct 26th, as a press release came out after markets closed. The algorithms, short term traders & biotech tourists just read the first sentence in the press release "In overall population, co-primary endpoints of ADAS-Cog11 and ADCS-ADL were not met" and then immediately hit the sell button, during after hours trading. The sell off played out in regular trading the next day and led to an overall drop of -77%....*Ouch*.
This was our punch in the mouth 🥊
Source: Google Finance
Those clever speculators that have followed Cortexyme for a while and did their homework, of course knew what to look for and dug deeper. I count myself among those and used the drop in price to average down on my cost basis quite dramatically, more than doubling the amount of shares I hold and achieving a costs basis of $29.75 PPS.
I will lay out my rationale below. This is just intended as a short update. I will write a deeper dive follow up article about Cortexyme at a later point in time.
8 reasons I bought the dip
First, most of the selling started immediately after the press release was sent. This leads me to the assumption, that behind most of the trading were either algorithms or short term traders. The sellers acted just on the information that the primary endpoints were not met, but disregarded that "GAIN Trial Data Demonstrated Relationship Between Reduction of P. gingivalis Infection and Slowing of Alzheimer’s Disease Progression", which was not only the content but also the title of the press release. As clinical trial results, especially in complex indications like Alzheimer's Disease, are hard to interpret and usually take time to digest, I doubt that the instant sellers were aware of the magnitude of what the Cortexyme team achieved with this trial. In my opinion, the sell off was an exaggeration based on algorithms picking up only specific keywords in the press release. This happens often in biotech stocks as the wording & outcomes can be misinterpreted.
Second, I listened to the conference call that was held that day. The conference call was not one of a team that just failed to achieve an important company milestone, but rather a team that feels vindicated as their thesis could finally be proven in a clinical trial. Yes the co-primary endpoints of ADAS-Cog11 and ADCS-ADL were not met in the overall population, but they could prove a 57% slowing (p=0.02) of cognitive decline in pre-specified subgroup with P. gingivalis detected in saliva (n=242, 37% of participants) as measured by ADAS-Cog11. Michael Detke, MD, PhD, Cortexyme’s chief medical officer said, “The first large clinical study of a gingipain inhibitor confirmed the benefits of treatment in the appropriate population at doses that reduce P. gingivalis. Disease modification and preservation of cognition as demonstrated in the GAIN Trial provides the foundation for altering the course of Alzheimer’s. The P. gingivalis-infected participant population was easily identified with saliva or simple blood tests and was highly responsive to atuzaginstat treatment on multiple clinical measures, and we will be discussing next steps with global regulators promptly.” If this would have been a failed trail, there would be no need to talk with global regulators promptly. The full presentation can be found here.
Third, the fact that the "pre-specified subgroup with Pg DNA detectable in saliva (PG-DS) showed statistically and clinically significant superiority of Atuzaginstat over placebo on cognition" is important to highlight, as it proves that the results of this trial show clinical benefit to a large subgroup of the overall population. As mentioned in my first article, The disease afflicts an estimated 5.7 million people in the United States and more than 30 million people worldwide and is expected to grow to 14.0 million people in the United States by 2050. Imagine being able to offer ~37% of those a treatment that would slow their cognitive decline by ~57%. Remember also that those results are not a one time effect, but rather compound over the time of treatment. We have also to remember that not every drug is applicable to everybody, if nearly half of the population that suffer a disease can benefit from the drug, that is a success in my opinion and should be offered to the patients that can take the drug. In addition, "these Pg-AD patients are easily identified through saliva or simple blood tests, offering a convenient level of precision medicine atypical in Alzheimer’s disease".
Fourth, the overall safety profile looks promising and Atuzaginstat is well tolerated overall. One topic that will have to be addressed are the dose dependent liver enzyme elevations, which may be mitigated by titration, the company believes. Dave Sherman, Ph.D. had a great note released last week, where he put the whole data readout into context and had this to say about the liver enzyme elevations:
"The problem with framing the liver AES as program-killing, is that the FDA has already been all over this dataset. They slapped a partial clinical hold on the program after the interim analysis. I say that as a good thing. Note the word partial. If the safety was so bad that the program was dead in the water, why let the trial run to completion? All that would do is risk more liver AEs for no reason. The more likely explanation for what happened is that there is a risk-benefit to the drug that needed to be examined with efficacy data in hand. This isn't hard to think through. Just think about the product profile we're discussing here and how a caregiver would respond. People with high levels of anti-P. gingivalis IgG in their saliva show on average a -50% slowing in cognitive decline and, at present, it looks like there may be a 1% chance of liver complications that can be monitored and are asymptomatic and reversible. I think that would be an easy decision for a lot of caregivers. But, you know what, even it's a really hard decision, I struggle to see how the FDA isn't ultimately going to give patients and caregivers the opportunity to make it. We will have to see what transpires when the company discusses the data with regulators, but I see a path forward and enough here to remain encouraged by the long term prospects." Those interested in David Sherman's full note, can find screenshots in this tweet.
Fifth, on Nov 11th (11.35 a.m.) Cortexyme will present additional data at CTAD and most likely provide biomarker data that is supportive and consistent with the cognitive benefit that has been shown. Michael Detke will present the results as part of the "LATE-BREAKING READOUT ROUNDTABLE 6: Top-line Results from the GAIN Trial: A Phase 2/3 Study of Atuzaginstat in Mild to Moderate Alzheimer’s Disease". It is important to note that Dr. Marwan Sabbagh will be part of the roundtable as well. "Dr. Marwan Sabbagh is a board-certified Geriatric Neurologist at the Cleveland Clinic Lou Ruvo Center for Brain Health, specializing in Alzheimer’s disease and other forms of dementia. He has dedicated himself to finding a cure for Alzheimer’s and similar neurodegenerative diseases. His expertise has earned him the position as the Camille and Larry Ruvo Endowed Chair for Brain Health.  ."he has written and co-written over 300 scientific articles on research surrounding Alzheimer’s
Sixth, Cortexyme is no one trick pony, they have a full pipeline and enough cash to progress it. As they have $140.6M cash as of September 30, 2021, and believe that existing capital resources will be sufficient to fund their projected operations through at least 2023.
Seventh, buying CRTX at a PPS below $20 is even below the IPO price. The close price was $23.86 on IPO day May 1oth 2019. Since then there was only one dilutive event in form of a private placement offering on Feb 10th 2020 for $125M. This indicates that the market caps are roughly comparable and buying for below $20 is less risky than in May 2019, as so much has been achieved since then (that is not reflected in the price now) and we are certain of the clinical benefit of Atuzaginstat now.
Eight, the bad news is out of the way. I don't expect bad news at CTAD. In general, the scenarios I see going forward are as following. As they have proven there is value in their pipeline, the worst case scenario would be a buyout from big pharma (would limit upside potential), but the buyout would also be at higher valuation than $478M (I assume). The best case scenario would involve having clarity on next steps re regulators after CTAD and the market pricing this accordingly post CTAD.
In a good speculation it is important that the questions you ask yourself are when questions not if questions. Speculating on CRTX was risky in terms of the outcome, because there was one big if question. We now turned the big if question into a when question. Rather than contemplating, if there is a connection between P.g. and AD that can be proven in a clinical trial, we now know that this is the case, there is clinical benefit for a subgroup and the question now is WHEN can their treatment be approved by one or multiple, global regulators and do they have to do a confirmatory trial beforehand? They know exactly which subgroup to target and how to identify the subgroup.
“Be fearful when others are greedy, and greedy when others are fearful.” Warren Buffett
I recommend reading my first article about CRTX, for those that want to get more insights about the company.
Update 3/30/2022: Based on the news of a clinical hold on Atuzaginstat’s Investigational New Drug application (1/26/2022), I decided to sell most of my position. There have also been some other changes that completely change the investment case. I still have some shares left but will sell them during the coming months.
Dave Sherman note: https://twitter.com/slay_ad/status/1454203376346931202?s=20
Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research, before taking investment decisions. I am long Cortexyme..