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ADXN - Get To Know Addex Therapeutics - Initiating Coverage


By Jason Napodano, CFA

Below is a summary of our Initiation of Coverage on Addex Therapeutics. For the full 28 page report, please click here:

We are initiating coverage of Addex Therapeutics (Swiss: ADXN.SW) (OTC Markets:ADDXF) with a ‘Buy’ rating and CHF 20 ($21.00 US OTC) price target. Despite limited volume on U.S. OTC tracking stock ADDXF and the inability of some U.S. investors to purchase shares on the Swiss SIX, we are initiating coverage of Addex Therapeutics because we believe the company’s discovery platform, focused on positive and negative allosteric modulators, offers potential significant advantages in small molecule drug development. We believe the two leading pipeline candidates, dipraglurant and ADX71149, offer blockbuster potential for their respective indications.

…Dipraglurant To Fill A Significant Unmet Medical Need…

Addex Therapeutics is currently seeking a development and commercialization partner for dipraglurant. The drug is an oral negative allosteric modulator (NAM) of the metabotropic glutamate receptor 5 (mGluR5), for the treatment of Parkinson’s disease levodopa-induced dyskinesia (PD-LID). LID is a major side-effect of Levodopa use. Levodopa (L-DOPA) is the leading dopamine replacement therapy for the treatment of Parkinson’s disease. LID is characterized by hyperkinetic movements, including chorea (abnormal involuntary movement), dystonia (sustained muscle contraction, abnormal posture), and athetosis (involuntary convoluted movements). It is most common at times of peak L-DOPA plasma concentrations (peak-dose dyskinesia), although it may also occur when plasma concentrations of L-DOPA rise and fall (diphasic dyskinesia) or during off-time (off-period dystonia).

Phase 2a clinical data on dipraglurant, reported in March 2012, demonstrated encouraging signs of efficacy, safety, and tolerability. Results showed that patients taking dipraglurant had a meaningful and statistically significant reduction in abnormal involuntary movement as soon as one day after starting dipraglurant therapy. The data was also suggestive of an increased in “on” time – the time in which a Parkinson’s patient is treated with Levodopa without experiencing dyskinesia – and a reduction in “off” time – the time after which L-DOPA has left the body prior to the next Levodopa dose.

The profile of dipraglurant is one we believe physicians and patients will look very favorably upon. LID is a significant problem that emerges during the treatment of Parkinson’s patients. Levodopa is a staple of modern Parkinson’s treatment and LID is essentially unavoidable a decade after Levodopa dosing begins. The only available treatment for LID is to reduce Levodopa dosing, which in turn worsens the underlying symptoms of Parkinson’s disease.

There are over 1 million Parkinson’s patients between North American and Europe on Levodopa therapy. Within five years of beginning treatment, approximately 50% will develop LID. We see dipraglurant as a $650 million opportunity. We expect substantial partnering interest from global pharmaceutical and biotechnology companies for the drug. Management at Addex would like to partner dipraglurant for the next stage in clinical development, which we expect to be a pivotal phase 2b program to begin in 2013, by the end of the year. Based on the market potential for dipraglurant, we can foresee an upfront payment greater than $25 million, with backend potential milestones eclipsing $200 million plus double-digit royalties on worldwide sales. The Michael J. Fox Foundation (MJFF) supplied funding for the phase 2a trial.

Based on these parameters, we have built a financial model that assumes a U.S. and European launch of dipraglurant in 2017. We see dipraglurant alone worth over $120 million (~ CHF 100 million) in market value. Addex is currently trading with a market value of only CHF 65 million. We believe the dipraglurant market opportunity is being vastly under-valued by investors in both the U.S. and Switzerland.

…ADX71149 Offers Unique Potential Profile…

In January 2005, Addex Therapeutics formed a research collaboration agreement with Johnson & Johnson to discover, develop, and commercialize novel allosteric modulator compounds for the treatment of anxiety, depression, schizophrenia, and Alzheimer’s disease. The first of these compounds, ADX71149, has entered clinical testing and is current in a phase 2a for the treatment of schizophrenia. To date, Addex has received a total of €10.2 million in upfront and milestone payments on ADX71149, with the potential to receive an additional €109 million in future pre-commercialization milestones and potential low double-digit royalties on worldwide sales once commercialized.

The potential therapeutic profile of ADX71149 is intriguing. Despite generic competition from atypical antipsychotics, we believe an enormous market opportunity exists for ADX71149. Atypical antipsychotics carry significant side effects, including weight gain, hyperprolactinemia, increases in blood glucose, increases in serum cholesterol and triglycerides, and increased risk of cataracts, which all lead to high discontinuation rates. Additionally, atypical antipsychotics have limited efficacy in addressing the negative symptoms of schizophrenia, including social withdrawal, apathy, alogia, anhedonia, and avolition.

Addex has designed ADX71149 to address both of these limitations found with atypical antipsychotics. With over 5 million addressable schizophrenics between North America and Europe, we see ADX71149 as a potential blockbuster drug if the theoretical profile holds. For the purpose of our financial model, we have chosen a more conservative approach, modeling ADX71149 as having peak sales around $500 million. Data from the ongoing phase 2a program is expected by the end of the year.

J&J has also progressed ADX71149 into a phase 2a clinical trial looking to study the drug in patients with anxiety that have major depressive disorder (MDD). Conventional selective serotonin reuptake inhibitors (SSRIs) for the treatment of depression carry significant side effect, one of which is anxiety. We believe there is meaningful clinical need for a drug that can treat both major depression and anxiety without exhibiting some of the debilitating side effects seen with SSRI and SNRI drugs. Similar to our forecasts for the drug in schizophrenia, we have chosen a heavy discount rate and conservative stance on modeling sales for ADX71149 in anxiety and MDD.

Despite these conservative forecasts, we see ADX71149 as worth an estimated $75 million (~ CHF 70 million) in value. This includes a heavily discounted NPV on the potential €109 million in future pre-launch milestones and potential low double-digit royalties on worldwide sales of ADX71149 from J&J once commercialized.

…Pipeline Kicks In Upside…

Besides the two clinical stage candidates noted above, Addex Therapeutics possesses a deep preclinical pipeline, which includes a handful of GABA and mGlu candidates targeting neurological and inflammatory diseases. The company also has candidates targeting GLP-1, TNFR1, and TkkB for various CNS and metabolic disorders in earlier-stage preclinical trials. The most advanced preclinical candidate is an oral GABA-B receptor PAM in late-stage preclinical studies with an investigational new drug application (IND) planned for the fourth quarter 2012. We see Addex’s allosteric modulator pipeline and chemistry platform worth an estimated $25 million (~ CHF 20 million).


Price Target

We have built a discounted cash flow (DCF) model to value the shares of Addex Therapeutics. Our model is built in Swiss francs and assumes a launch of dipraglurant in 2017 by a yet unfound partner and ADX71149 by J&J also in 2017. We expect several additional candidates to enter the clinic over the next several years. Our model calculates fair value at CHF 217 million, of CHF 20 per share, which equates to a U.S. OTC price of $21.00 per share. We have posted our DCF model in the back of our report.

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