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April 7th is World Health Day. It's celebrated every year on the 7th to mark the anniversary of the founding of the World Health Organization (WHO). WHO is a specialized agency of the United Nations with a primary focus on concerns of international public health. In its 69 year existence, WHO has played a major role in combating diseases on a global basis, including eradicating smallpox and fighting pandemics such as HIV/AIDS, Ebola, malaria, and tuberculosis. However, the theme for 2017 is a bit different from the past focus on communicable diseases. For 2017, WHO is targeting depression.

The involvement of WHO is likely to bring significant media attention and public awareness to depression. This marries well with recently media coverage and scientific publications around ketamine and NMDA receptor targeting as a novel strategy to treat depression. For the purpose of this article, I look at three companies targeting depression through NMDA pharmacology and which of these names might offer the best returns over the next year or two.

An Enormous Market

This year, WHO will undertake a media campaign designed to create education and awareness for depression. Depression affects people of all ages, from all walks of life, in all countries. It causes mental anguish and impacts on people’s ability to carry out even the simplest everyday tasks, with
sometimes devastating consequences for relationships with family and friends and the ability to earn a living. WHOs overall goal of this campaign is to get people with depression to seek and get help for their disease. The campaign slogan is: Depression - Let's Talk.

WHO estimates that depression affects 300 million people around the world and is the leading cause of disability worldwide (1). Common symptoms are depressed (or irritable) mood, diminished interest or loss of pleasure in almost all activities, sleep disturbance, weight change, appetite disturbance, decreased concentration or indecisiveness, suicidal ideation or thoughts of death, agitation or quietness, fatigue or loss of energy, and feelings of worthlessness or inappropriate guilt. According to WHO, depression was ranked as the third leading cause of the global burden of disease in 2004 and will move into the first place by 2030 (2).

The statistics are staggering. According to the CDC's National Center for Health Statistics, 7.6% of the U.S. population over the age of 12 years suffer from depression (3). Almost 10% of adults aged 40-59 report depression; women outnumber men nearly 2:1. Based on 2015 Census data, this equates to approximately 21 million individuals. Data from the U.S. National Institute of Mental Health (NIMH) pegs the number slightly lower at 6.7% of all U.S. adults, equating to 16 million individuals (4). Whatever the exact number, it's clearly a large market. The Anxiety and Depression Association of America (ADAA) estimates the direct costs of the disease at $42 billion per year (5). The total economic burden, which includes workplace costs and suicide-prevention costs, totaled over $210 billion in 2010 (6).

According to the CDC, two-thirds of individuals with depression report mild symptoms, roughly half of who note some difficulty at work, home, and in social activities. Rates of any difficulty with activities related to depressive symptoms increased as the severity of those symptoms increased, from 74% among persons with moderate depressive symptoms (21% of the cases) to 88% among those with severe depressive symptoms (13% of the cases).

NIMH data shows less than 20% of all Americans with mild to moderate depressive symptoms reported having seen a mental health professional in the past year. Of those with severe symptoms, only 35% reported having contact with a mental health professional in the past year (7). A 2004 report by WHO found several reasons why those with depression do not seek help, including fear and shame (stigma), lack of awareness (anosognosia) to the problem, distrust of medical professionals, and a feeling of hopelessness or unavailability (8). Unfortunately, of the 35% that do seek medical help for their depression, only about two-thirds see any benefit from pharmacotherapy and it can take as many as four different regimens and six months before those benefits are noticeable. 

In 2006, results of a seven-year long clinical trial conducted by researchers at the NIMH were published in the American Journal of Psychiatry. The Sequenced Treatment Alternatives to Relieve Depression (STAR*D) trial enrolled nearly 4,000 patients with major depressive disorder (MDD) (9). Subjects were given anti-depressant medication in a linear stepwise fashion. Those subjects who demonstrated an acceptable benefit, preferably symptom remission, from any particular step could enter a 12-month naturalistic follow-up phase. Those not achieving remission with or unable to tolerate a treatment step were encouraged to move to the next anti-depressant medication.

The remission rates were 36.8%, 30.6%, 13.7%, and 13.0% for the first, second, third, and fourth acute anti-depressant medications, respectively. The overall cumulative remission rate was 67% (10). The numbers in the U.S. work out to a target of around 3-4 million patients each year who seek medical help for MDD but are classified as treatment-resistant (i.e. fail multiple lines of anti-depressant medications).

One of the primary reasons why existing first- and second-generation antidepressants do not work is because of their slow onset of action. For example, results from the STAR*D trial conducted by the NIMH found that the average time to remission was 5.4 to 7.4 weeks (11). In other words, MDD patients did not begin to see a clinical benefit until over a month after initiation of treatment; and, this is for patients that responded. Patients that do not respond move onto the second and third-line medications, and often go several months of drug switching when they are non-responsive.

This lag time is far too long between initial symptoms such as suicide ideation and clinical efficacy and a major drawback to currently available MDD treatments. The initial treatment period for antidepressants is when suicide risk is the highest and slow-acting drugs like SSRIs and SNRIs can increase the risk of suicide upon initiation of therapy (12).

New Treatment Options Are Necessary

In March 2017, Nina Notman, a staff writer at Chemistry World, the online outlet for the UK's Royal Society of Chemistry, published an outstanding article highlighting how ketamine may hold the key to treating patients with severe depression (13). That's because ketamine has a fundamentally different mechanism of action from the traditional SSRI/SNRI molecules examined in the STAR*D study back in the early 2000's by investigators at the U.S. NIMH. Ketamine is an NMDA receptor blocker, and the research shows that ketamine offers a rapid antidepressant effect in people who’ve otherwise been depressed for many years, often after only a single dose (14).

The mechanisms of action for ketamine and other NMDA receptor antagonists is one of enhancing synaptic function through a shift in activity to the AMPA receptor precipitated by non-competitive inhibition of the NMDA receptor. Administration of ketamine increases extracellular levels of glutamate in the prefrontal cortex. The resulting burst of glutamate caused by ketamine then leads to activation of the signaling machinery (stimulation of BDNF-mTORC1 cascade) that stimulates synapse formation (15).

Investigators at the U.S. NIMH seem rather excited about the potential of this new mechanism of action for the treatment of depression. Scientists have long assumed that NMDA receptor targeting has antidepressant-like effects, but the chronic antagonism of the receptor by ketamine is not tolerable. Ketamine, colloquially known as "Special K", is addictive and has a high potential for abuse or misuse (16). Recent NIMH studies tested only a single dose of ketamine for fear severe side effects associated with chronic use (17). This leaves significant questions for physicians on dosing and duration when administering off-label ketamine to patients.

The issue is so hot right now that a team of influential KOL's in the depression field published a Consensus Statement on the use of ketamine in the treatment of mood disorders in the March 2017 issue of JAMA Psychiatry. The paper, while noting the potential clinical benefits of the drug, highlights the lack of safety data and potential risks associated with the long-term off-label use of ketamine. The story was highlighted in YaleNews on March 1, 2017 (18).

(Click on image to enlarge)

Two Major Players, And One Upstart

Two of the world's largest pharmaceutical companies are aggressively pursuing development of NMDA receptor targeting drugs for the treatment of MDD. They are Johnson & Johnson (NYSE: JNJ) and Allergan plc (NYSE: AGN); but, it is upstart VistaGen Therapeutics (Nasdaq: VTGN) that offers the most upside to investors.

 - Esketamine (Johnson &Johnson)

J&J is developing esketamine, the S(+) enantiomer of ketamine, for treatment-resistant depression (TRD), and prevention of suicide in high-risk individuals. J&J's clinical efforts to date have been extensive. A whopping 32 programs are listed on ClinicalTrials.gov, 11 of which are currently active and recruiting patients (or expected to start recruiting patients in 2017) (19). These programs target enrollment of nearly 3,000 patients. The company is developing both an intravenous and intranasal formulation of the drug. J&J believes that esketamine has the rapid antidepressant effects of racemic (R, S)-ketamine without the nasty side effects.

Phase 2 data with intravenous esketamine was published in Biological Psychiatry in November 2015 (20). The trial (NCT01640080) enrolled only 30 patients and tested two doses of esketamine, 0.2 mg/kg and 0.4 mg/kg, versus placebo. The primary endpoint was the change in Montgomery-Åsberg Depression Rating Scale (MADRS) total score from day 1 (baseline) to day 2. Of the enrolled patients, 97% (29 of 30) completed the study. The least squares mean changes from baseline to day 2 in MADRS total score for the esketamine 0.2 mg/kg and 0.4 mg/kg dose groups were -16.8 (±3.00) and -16.9 (±2.61), respectively, and showed significant improvement (P = .001) for both groups compared with placebo (-3.8 ±2.97).

J&J may be in the lead with esketamine, but that does not necessarily mean they will be the market leader. Treatment-emergent adverse events in the Phase 2 trial were dose-dependent, with the most common being headache, nausea, and dissociation. The dissociation was transient and did not persist beyond four hours from the start of the esketamine infusion, but it concerns nevertheless. The side effects of esketamine may stem from the drug's affinity for the PCP binding site of the NMDA receptor. Esketamine increases glucose metabolism in the frontal lobe, which has been shown to increase dissociative or hallucinogenic effects (21).

There is little reason to believe the intranasal formulation will reduce these effects and is likely only in development for the convenience of administration. While certainly more desirable than an intravenous infusion, it is still far less desirable than an oral tablet. Perhaps this is why J&J licensed a second ketamine analog from privately-held Amorsa Therapeutics, Inc. in January 2017 (22). I'm not sure what that says about J&J's confidence in intranasal esketamine that they are already in-licensing backup compounds.

Furthermore, J&J may be investing heavily in esketamine today, but with the risk of dissociative or hallucinogenic effects, use of the drug be relegated to a rescue therapy for patients at high risk of suicide. J&J posted total revenues in 2017 of $71.9 billion. Unless the profile of esketamine looks markedly improved in the Phase 3 program, I do not see investing in J&J as an efficient way to play NMDA receptor antagonism.

 - Rapastinel & NRX-1074 (Allergan plc)

Allergan plc. entered the NMDA receptor targeting TRD market in July 2015 when it acquired privately-held Naurex for $571.7 million in cash upfront, plus up to an additional $1.15 billion in future potential milestone payments (22). The lead candidate at Allergan is rapastinel (GLYX-13), a NMDA receptor modulator with GlyB site partial agonist properties. Preclinical and early-stage clinical data points to rapid and long-lasting antidepressant activity, along with potential cognitive improvements in patients with post-traumatic stress disorder (PTSD) (23). In January 2016, the U.S. FDA awarded Breakthrough Therapy Designation to rapastinel as an adjunctive treatment for MDD (24).

Rapastinel's rapid-acting antidepressant properties appear to be mediated by its ability to activate NMDA receptors leading to enhancement in synaptic plasticity processes associated with learning and memory. Alterations in dendritic spine morphologies associated with the maintenance of long-term changes in synaptic plasticity have been demonstrated in rats following single dose injections of rapastinel (25). These data suggest that rapastinel produces its long-lasting antidepressant effects via triggering NMDA receptor-dependent processes leading to hippocampal long-term potentiation (26).

Allergan's Phase 3 program for rapastinel is equally as aggressive as J&J's. ClinicaTrials.gov lists six clinical programs, five of which are active and targeting enrollment of 3,550 patients (27). The Phase 2 data on rapastinel looked very good (28), but the long-term safety of the drug will need to be fully vetted in the current Phase 3 program. If there is a knock on rapastinel, it is that the drug is dosed through intravenous infusion. I believe this severely hampers the peak sales potential of the drug. In this regard, Allergan has an oral formulation called NRX-1074 that has completed Phase 1 studies (29). This reminds me of J&J's recent in-license of an oral backup ketamine analog. I think both companies know patients widely prefer oral molecules over the alternatives. Nevertheless, with only $14.6 billion in sales in 2016, Allergan seems a more efficient way to play this market than J&J.

 - AV-101 (VistaGen Therapeutics Inc.)

Allergan's acquisition of Naurex and subsequent breakthrough therapy designation for rapastinel should stimulate investor interest in VistaGen Therapeutics because AV-101 looks to be a better version of rapastinel. And, because VistaGen has a market value of only $20 million, it clearly provides the most "bang for your buck" if one wanted to invest in the NMDA receptor targeting market for treatment-resistant MDD.

AV-101 is an orally available prodrug candidate rapidly converted in vivo into its active metabolite, 7-chlorokynurenic acid (7-Cl-KYNA). 7-Cl-KYNA is a full antagonist of the GluN1 subunit with a similar mechanism to rapastinel (note: rapastinel is a partial agonist). Regarding potency, Naurex' preclinical data shows that that AV-101 is a more potent GlyB site modulator (30). Phase 1 studies showed good dose proportionality with Tmax of 1-2 hours and a half-life of 2-3 hours. These data compare favorably to the half-life of only 5-8 minutes for rapastinel (31). In this regard, AV-101 looks more like Allergan's oral backup compound, NRX-1074, only the drug is already in Phase 2 clinical studies.

Watch this short video on the mechanism of action to learn more about how AV-101 works:

An NIMH-sponsored Phase 2a study (NCT02484456) is currently taking place at the NIH Clinical Center in Bethesda, MD, under the principal investigation of Carlos A. Zarate, MD. Dr. Zarate is one of the nation's foremost experts in the field of depression and has authored over 100 papers on the subject, including paradigm-shifting work with ketamine recently published in Nature (32). Target enrollment for this study is 24 to 28 adult subjects with treatment-resistant MDD. Data are expected late 2017.

VistaGen is currently planning a company-sponsored Phase 2 study with AV-101 separate from the NIMH-sponsored Phase 2a study noted above. The Phase 2 study will be a randomized, double-blind, placebo-controlled study targeting enrollment of 200-250 patients with inadequate response to standard antidepressants. AV-101 will be studied as an adjunctive treatment to background antidepressants in a sequential parallel comparison design (SPCD). SPCD was established by the Massachusetts General Hospital Psychiatry Academy to mitigate placebo-response and assess the true efficacy of the drug over a two-stage format (33).

The primary endpoint is efficacy as assessed by the MADRS. Maurizio Fava, M.D. of the Massachusetts General Hospital and Professor of Psychiatry at Harvard Medical School, is the principal investigator of this study. Dr. Fava was the lead investigator on the NIMH-sponsored STAR*D trial discussed above. Between Dr. Zarate and Dr. Fava, VistaGen has some pretty impressive individuals running its clinical programs with AV-101.

What's VistaGen Worth?

For the valuation standpoint, I believe the two best comparables for VistaGen are Naurex, Inc. and Sage Therapeutics (Nasdaq: SAGE ). Above I noted that privately-held Naurex was acquired by Allergan in June 2015 for $571.7 million in upfront consideration. Backend milestones to Naurex shareholders could total to another $1.15 billion. Prior to the Allergan deal, Naurex had published data on rapastinel from a Phase 2b study in roughly 400 patients. Between the Phase 2a study at the NIH and the planned Phase 2 study to start in the second quarter 2017, VistaGen is following a similar pathway, only about 18 months behind. Still, from $20 million market value today to potentially over $500 million in 18 months is one heck of an exciting return.

Sage Therapeutics (Nasdaq: SAGE) represents another roadmap to value-creation for VistaGen. In July 2016, Sage released top-line results from a Phase 2 clinical study with SAGE-547 in patients with severe postpartum depression. The study was a multicenter, placebo-controlled, double-blind, design that enrolled only 21 women. This is about the same as VistaGen's current Phase 2 study ongoing right now at the NIH and expected to offer data later this year. Nevertheless, despite the small sample size, results were highly statistically significant in favor of SAGE-547 (34), resulting in an increase in market value for Sage of approximately $500 million!

The market seems to have spoken. Phase 2 data in depression is worth $500 million in value, or about 25x what VistaGen is trading at today. That being said, I do not think investors in VistaGen need to wait that long to see an increase in value. Last month, the company announced it had received a Notice of Intention to Grant a European patent for AV-101 from the European Patent Office (EPO) (35). The granted claims covering multiple dosage forms of AV-101, treatment of depression and reduction of dyskinesias associated with L-DOPA treatment of Parkinson's disease will be in effect until at least January 2034. I'm expecting a similar patent to be issued in the U.S. shortly. The protected IP in Europe might allow VistaGen to out-licenses rights to AV-101 outside the U.S. for upfront cash.

Conclusion

I think VistaGen's stock has tremendous upside potential that today's price. Yes, the company is likely to raise cash at some point over the next several months, but my valuation works pegs the fair value for the shares at multiples of the current valuation. I estimate the U.S. rights to AV-101 alone are worth $168 million right now (36). The rights in the EU, assuming a licensing transaction where the company will receive cash, future milestones, and royalties, are worth another $40 million. That means even with a 30% dilutive offering, VistaGen is worth 6-8x today's price.

Peer analysis supports a valuation north of $500 million upon successful completion of the NIH Phase 2 study in late 2017. Data from the company-sponsored Phase 2 study in 2018 put VistaGen on a similar path to Naurex, which got acquired for $571.7 million in upfront cash and backend consideration worth another $1.15 billion.