Vistagen Therapeutics Inc. (VTGN) May Hold the Key to Treatment Resistant Depression

In 2014, Dr. Thomas Insel, the former director of the National Institute of Mental Health (NIMH), wrote in a blog post that intravenous ketamine “might be the most important breakthrough in antidepressant treatment in decades”. This is quite a statement, given the fact that the prevalence of lifetime major depressive disorder in the United States is estimated to be about 13%.

Further, about 20% of these people have what is known as treatment-resistant depression, or TRD. Current standard therapies like Prozac and Zoloft do not work for them, and only recently has ketamine, an anesthetic, been discovered as a fast-acting solution. Recent estimates pin the number of TRD patients in the US currently being treated at 4.9 million.

The problem with ketamine though is that it’s dangerous, addictive, and prone to abuse. Using ketamine to treat TRD is something akin to using heroin to treat chronic pain. It works, yes, but at a cost.

A lot of investor attention in biotech is now being focused on abuse-deterrent formulations of opioid pain killers. The concept is of course straightforward. The mechanism of action for these drugs works, so keeping that mechanism but making the drug less prone to abuse makes intuitive sense. Yet, in the flurry of new trials for abuse-deterrent pain medications, similar developments in the depression space have been overlooked.

Granted, there aren’t nearly as many companies working on abuse-resistant drugs targeting TRD, simply because ketamine was only recently discovered as an effective treatment for the condition. This does present advantages from an investment perspective though from a combination of lack of attention and market concentration in the event of an approval.

There are two companies working on the problem. One is Naurex Inc., which was acquired by Allergan plc (NYSE:AGN) in 2015 for $571 million in cash plus milestone payments. That gives us a good general idea of the capital value of such a drug to pharmaceutical leaders, but unfortunately, the ship has sailed on Naurex in terms of any outsized speculative gains. One may of course buy Allergan to capitalize on any success here as a conservative choice, but the more speculative option in terms of high return potential is Vistagen Therapeutics Inc. (NASDAQ:VTGN), a small $32 million company that was unable to take advantage of the media generated by the Naurex acquisition last year. It is still a relatively unknown company.

Returning to the abuse-deterrent opioid comparison, both Naurex’s and Vistagen’s candidates are not exactly abuse-deterrent ketamine, but they work in a similar way. Ketamine works by blocking a neural pathway called the NMDA receptor and is typically used as an anesthetic. This receptor is very important for normal mental function, so blocking it does cause serious mental and physical side effects, hence the danger. What Naurex’s Rapastinel and Vistagen’s AV-101 do instead is modulate the NMDA receptor instead of block it, changing the way it works but keeping it functional. Both companies believe that the slight change in the mechanism will translate to less side effects with similar efficacy, hopefully providing a fast-acting and safer solution to TRD.

Allergan plc (NYSE:AGN) has already stated its opinion on the matter by acquiring Naurex after a successful Phase IIb trial, and Vistagen Therapeutics Inc. (NASDAQ:VTGN) is right behind with a Phase IIa, with topline results scheduled for Q2 of next year. The Phase IIa is fully funded by the NIMH, and this after its parent National Institutes of Health (NIH) already funded preclinical and Phase I development.

The Phase I trial results for AV-101 were cautiously encouraging. A Phase Ia trial saw a dose escalation setup on 36 patients, 18 in the active arm and 18 on placebo, to see if AV-101 caused any ketamine-like side effects. There were none reported. On top of that, 2 out of 3 patients in the highest dose cohort voluntarily reported feelings of well-being, an initial if scant indication of efficacy on humans without the negative effects of ketamine. No patients in the placebo arm reported similar feelings.

A Phase 1b trial found similar results, with 1 out of 12 patients in the highest cohort reporting feelings of well-being, but none in the placebo arm. While that may seem low, the trials were on healthy volunteers, so it is unclear if modulating the NMDA receptor in people without TRD is supposed to do much. The real test will be on patients with TRD in the Phase IIa.

The ongoing Phase IIa trial is enrolling up to 28 patients, with a primary efficacy endpoint using the Hamilton Depression Rating Scale, considered the gold standard for rating depression in clinical trials. These will be patients with TRD being treated for 14 days. Any significant efficacy reported here should bring in some speculative investment as people will begin comparing Vistagen to Naurex and Allergan plc (NYSE:AGN) more actively.

It is the planned Phase IIb trial, however, that is the most interesting because of its setup. Scheduled to begin by the end of this year, it is targeting a 280-patient enrollment for AV-101 as an augmentation therapy with a Sequential Parallel Comparison Design (SPCD). The SPCD is especially appropriate for psychological trials focusing on mood endpoints because the placebo effect is particularly high here.

An SPCD protocol enables the filtering out of placebo responders after an initial stage in order to compare the active arm with confirmed placebo non-responders. This enables investigators to get a clearer picture of whether the drug actually works or not. It will also help assuage FDA concerns from the placebo effect direction. The trial isn’t expected to complete until 2018, so for now it is the Phase IIa that will determine the value of the company in the short term.

The risks here should not be understated however. Though Vistagen has other assets, it is heavily reliant on AV-101. Its balance sheet needs padding, and funding will be reliant on good results. Lack of efficacy in this trial could irreversibly damage the company and put its future into question.

That said, there is one more major advantage that Vistagen’s AV-101 has over Allergan and Rapastinel, and that is that Rapastinel can only be administered intravenously. AV-101 is a pill that can be taken orally, and that is made possible because it is a prodrug. Prodrugs are designed to be inert until they reach their destination, in this case the NMDA receptor in the brain. A pill has obvious advantages over IV including ease of prescription and administration, and less associated taboo.

If Rapastinel makes it to market, it will likely get there before AV-101. But even so, the oral advantage that AV-101 has evens out the playing field, assuming it is apples to apples with Rapastinel as both do have the same mechanism of action.

As for the future, Vistagen Therapeutics Inc. (NASDAQ:VTGN) has expressed its intent to explore partnership opportunities with Big Pharma and will likely use any successful Phase IIa trial reported next year to attract one. Whether Vistagen is looking for only partnership or acquisition outright is not yet clear. What is clear though, is that a drug with the same mechanism of action as AV-101 was already acquired for over half a billion by Allergan at Phase IIb. So how much would Vistagen be worth if it reports successful results for its Phase IIa in the first half of 2017? Hard to pinpoint exactly, but it will probably be much more than $32 million.

Note: This article is written by David Rich and originally published at Market Exclusive.