CRVO: Initiating Coverage of CervoMed, Inc.; Phase 2b Trial in Dementia with Lewy Bodies Underway…
NASDAQ:CRVO
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Initiating Coverage
We are initiating coverage of CervoMed Inc. (NASDAQ:CRVO) with a valuation of $17.00. CervoMed is a biopharmaceutical company that is developing central nervous system (CNS) treatments for acute and chronic neurodegenerative diseases. The company’s lead development compound is neflamapimod, which is being developed as a therapy for dementia with Lewy bodies (DLB). The compound targets and inhibits p38 mitogen-activated protein kinase (MAPK) alpha (“p38⍺”). Chronic activation of p38⍺ is thought to impair how neurons in the brain communicate through synapses, which ultimately leads to synaptic dysfunction. Inhibition of p38⍺ in the brain may improve neuroinflammation and improve cognitive and motor function that is seen in early-stage neurodegenerative diseases. Neflamapimod was previously tested in a Phase 2a clinical trial in DLB, with results showing a statistically significant improvement compared to placebo on measures of dementia severity and functional mobility.
Extensive Clinical Experience with Neflamapimod
Neflamapimod was in-licensed from Vertex Pharmaceuticals in 2014. It was discovered using Vertex’s proprietary structure-based drug discovery program. The compound had completed both single- and multiple-dose Phase 1 trials in healthy volunteers as well as a Phase 2a clinical trial in rheumatoid arthritis. Post-licensing and prior to the Phase 2a clinical trial in DLB, neflamapimod was tested in two Phase 2a trials and one Phase 2b trial in Alzheimer’s disease. Results from those trials showed that the drug was well tolerated, crosses the blood-brain barrier, and is pharmacologically active in the brain, with the demonstration of significant reduction, relative to placebo, of spinal fluid levels of markers of synaptic dysfunction and neurodegeneration.
Phase 2b Clinical Trial Fully Funded by NIH/NIA
In January 2023, CervoMed was awarded a $21.0 million grant from the National Institute of Aging (NIA), which is estimated to fully fund the Phase 2b trial of neflamapimod in DLB. An initial disbursement of $6.9 million was made in February 2023, with an anticipated $8.1 million disbursement to be made in February 2024 and the remainder of the grant to be disbursed in February 2025.
Multiple Catalysts by the End of 2024
We anticipate a number of catalysts over the next 12-18 months, including the publication of additional Phase 2a data from the DLB study in the second half of 2023, completion of enrollment in the Phase 2b DLB trial in the first half of 2024, and topline data from the placebo controlled portion of the Phase 2b DLB trial in the second half of 2024.
Large Commercial Opportunity in DLB
DLB is the second most common neurodegenerative disorder after Alzheimer’s disease and is more common than Parkinson’s disease. There are an estimated 700,000 patients each in the U.S. and E.U. The only currently approved therapy is cholinesterase inhibition, which is only moderately effective. As screening techniques that distinguish DLB from other neurodegenerative disease become more sophisticated, the rate of diagnosis will likely increase which could lead to an expanded market opportunity.
Valuation
We value CervoMed using a probability-adjusted discounted cash flow model that takes into account potential future revenues of neflamapimod for the treatment of DLB in the U.S. and the E.U. The company has indicated that it may pursue additional indications for neflamapimod in the future, but for now we only consider DLB for modeling purposes. Additional indications for neflamapimod represents potential upside to our valuation. We model for CervoMed to enter into commercialization partnerships and to receive 15% royalties on net sales of neflamapimod for the treatment of DLB in both the U.S. and E.U.
The following assumptions were made for generating our model: 1) A Phase 3 trial will initiate in 2025 followed by an NDA filing in 2027 and approval in the U.S. in 2028; 2) An MAA filing in the E.U. will occur in 2028 and approval in the E.U. will occur in 2029; 3) the list price for neflamapimod will be $30,000 in the U.S. and $15,000 in the E.U. upon launch, with a 3% yearly increase in price; 4) peak sales in the U.S. of approximately $2.4 billion and in the E.U. of approximately $1.2 billion seven and six years after launch in each jurisdiction, respectively; 5) a 15% gross-to-net adjustment; 6) patent exclusivity loss in 2035 with a subsequent 50% drop in revenues the following year.
Using a 15% discount rate and a 33% probability of approval leads to a net present value for neflamapimod in DLB of $134.5 million. We combine this with the company’s estimated cash balance following the merger ($13 million) to derive a net present value for CervoMed of $147.5 million. Dividing by the current share count (5.7 million) plus an estimated 3.0 million shares for future dilution leads to a valuation of $17 per share.
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