Revive Therapeutics: Initiation report
Revive Therapeutics (CSE:RVV, OTCQB:RVVTF) is a speciality life sciences company focussed on repurposing drugs for rare and infectious diseases. The company has a pipeline comprising three main platforms:
Bucillamine for treatment of infectious diseases including COVID-19:
Bucillamine (BUC) is a medication with a well-established safety profile having been prescribed for arthritis for more than 30 years. Revive Therapeutics has been working with BUC for five years as a repurposing opportunity and has obtained two Food and Drug Administration (FDA) INDs (investigational new drug applications) with BUC to treat gout flares and cystinuria. During 2020 the company has made an IND filing concerning the use of BUC to treat COVID-19 with intellectual property around infectious diseases.
BUC has shown significant potential to reduce lung inflammation damage associated with a serious infection, and could, therefore, reduce fatalities from COVID-19. The company received a recommendation from the FDA that it skip Phase 2 trials and make an application to move immediately to Phase 3. If this trial proceeds and begins to deliver results, we believe this would be a major catalyst for the share price. We examine this opportunity on p3-5.
Psilocybin:
Revive is targeting rare diseases, mental health and addiction using formulations based on psilocybin, a psychedelic compound derived from fungi. The development of pharmaceuticals from psychedelics has become a growth field in recent years attracting interest from big pharma as well as smaller specialists. Revive Therapeutics has a robust portfolio of formulations and collaborations in place with leading research partners such as the University of Wisconsin.
CBD for autoimmune hepatitis:
Revive is developing a therapy for autoimmune hepatitis (AIH) based on cannabidiol (CBD). The company has obtained Orphan Drug status for this treatment.
Three platforms
In aggregate, the indications being targeted represent a market opportunity in hundreds of millions of US dollars, within applications that are under-addressed by existing therapies.
During the next 12-18 months Revive will approach significant milestones for several aspects of its research and development programmes, including the Phase 3 trial for BUC, and applications for Orphan Drug status for its psilocybin-based therapies. We believe that these events could represent significant upside catalysts for the share price.
We examine the valuation of Revive Therapeutics using a sum-of-parts framework. We conclude that the current valuation offers investors substantial upside potential.
Path forward, and valuation upside
Revive Therapeutics pipeline
Source: Revive Therapeutics
The three current development programmes are all at the pre-clinical stage. Pharmaceutical company share prices tend to exhibit a high degree of sensitivity to development programme milestones as therapies move from the pre-clinical stage to clinical trials and then through the clinical trial phases. We expect that development milestones will be a major driver of the Revive share price during the next 12-18 months.
Bucillamine has significant potential to attenuate the clinical course of diseases such as COVID-19
The bucillamine research and development programme could potentially be the biggest driver for the Revive share price in our view. On March 20, 2020, the company announced that it would conduct research on the use of bucillamine to treat infectious diseases including COVID-19. Further to this announcement, on April 23 the company announced that the FDA had recommended that the company move directly to a Phase 3 clinical trial. We expect further news on this process in the coming weeks.
The psilocybin programmes have generated a rich portfolio of intellectual property (IP), with patents pending for delivery systems and extraction processes, and the company plans to move the research down the clinical path.
Revive’s CBD programmes have already been awarded Orphan Drug status for therapies targeting auto-immune hepatitis (AIH) and also ischaemia and reperfusion injury from organ transplantation. The company plans to file an IND (investigational new drug) application for Phase 2 trials for the AIH therapy.
The following table summarises the status and milestones across the three research areas.
Multiple programmes approaching potential key regulatory events
Stage of development of each programme
Source: Revive Therapeutics
We believe that Revive Therapeutics is at an important stage in the journey to realising the potential of these novel therapies and that the next 12-18 months could see significant value discovery for shareholders.
Bucillamine
Revive is examining the potential for the repurposing of a drug called Bucillamine for the treatment of infectious diseases including influenza and COVID-19.
The objective is to use bucillamine to counteract the damage caused to lung tissue by COVID-19 and other diseases that affect the lungs. In this sense, bucillamine will not be a cure for COVID-19 but will aim to reduce lung inflammation and to reduce the mortality rate associated with the disease.
The following schematic illustrates various approaches that are being developed worldwide in the effort to combat COVID-19. Some of these are already in use to treat patients, while others are in various stages of investigation and development.
Different approaches are being attempted globally in the fight against COVID-19
COVID treatments, conceptual and already operational
Source: Proactive Research
The benefit of bucillamine, if the programme is successful, will be to reduce fatalities from COVID-19 and to reduce hospitalisation times. The same destructive mechanisms that are associated with COVID-19 are also associated with other lung diseases, meaning that the market for bucillamine to combat pulmonary inflammation could extend beyond the current pandemic.
Reactive Oxygen Species thought to have a significant role in causing damage to lung tissues
Bucillamine as a potential treatment for lung disease
A number of studies into lung damage from COVID-19 have focused on the role of reactive oxygen species (ROS). These are free radicals that contain oxygen and that easily react with other molecules in a cell. A build-up of reactive oxygen species in cells may cause damage to DNA, RNA, and proteins, and may cause cell death.
The following article gives an overview of the role of ROS in lung tissue damage associated with COVID-19:
https://www.sciencedirect.com/science/article/pii/S0188440920305403
The following diagram illustrates the mechanisms by which ROS cause cell damage.
Oxidative Stress
Source: Western University
BUC provides multiple donatable thiol groups
The action of bucillamine is comparable to a medicine called N-acetylcysteine (NAC) that is used to treat obstructive pulmonary disease. This works by acting as a donor of organic compounds called thiols that the body uses to produce anti-oxidants.
Bucillamine is a cysteine derivative that contains two thiol groups; this contrasts with NAC, which possesses a single donatable thiol. Furthermore, the liver breaks down bucillamine into three metabolites, two of which also have donatable thiol groups. As a consequence, bucillamine is 16-fold more potent than NAC as a thiol donor in Vivo (in a living body), thereby providing greatly enhanced potential for ROS scavenging as well as for reactivating glutathione to enhance endogenous antioxidant activity in comparison with NAC. Bucillamine, therefore, has the potential, via increasing glutathione activity and other anti-inflammatory activity, to lessen the destructive consequences of SARS CoV2 infection in the lungs and attenuate the clinical course of COVID-19.
BUC has a well established safety profile
Revive Therapeutics’ work with bucillamine
Bucillamine has been in use for more than 30 years as a treatment for arthritis in Japan and South Korea. As such the drug has a well-established safety profile and has also been shown to have high cellular permeability.
Revive has previously been working on repurposing bucillamine for other conditions, and has obtained two INDs with bucillamine and also obtained Orphan Drug status. The company conducted a Phase 2 clinical study stage for its application of bucillamine to treat acute gout flares.
In March 2020 Revive announced its plans to explore the use of bucillamine as a treatment for infectious diseases including COVID-19, and in April 2020 filed a pre-IND meeting request with the FDA to propose clinical trials.
The FDA has recommended that Revive proceed directly to filings for a Phase 3 trial
At the end of April 2020 Revive announced that the FDA had recommended the company proceed directly to a Phase 3 trial for the use of bucillamine against COVID-19. The company is now working on a Phase 3 clinical trial proposal, and we expect to hear more on this in the next few weeks.
Advancing directly to Phase 3 is a major milestone, which we believe reflects the urgency that regulatory authorities are attaching to potential treatments for COVID-19.
The following table summarises the FDA clinical trials process.
Phases of FDA drug trials, overview
Source: Proactive Research
If the Phase 3 trial goes ahead, and produces compelling results, this could also support the use of bucillamine to treat other lung diseases.
We believe that the bucillamine development process offers two potential near-term catalysts for the Revive share price:
- Acceptance of the Revive Therapeutics Phase 3 trial proposal in the next few weeks.
- Mid-phase results from those trials in the following few months.
Pschedelics - Psilocybin
Psilocybin is a psychedelic compound derived from fungi. It was first isolated in 1959 and was considered to have significant potential therapeutic value, particularly in treating mental health disorders; however, much of this research came to an end in the late 1960s amid public concern about the recreational misuse of drugs. The following timeline outlines the history of psilocybin.
History of psilocybin
Source: Proactive Research
A renewed wave of pharmaceutical interest in psychedelics
During the past decade, there has been a renewed wave of interest in the pharmaceutical use of psilocybin and other psychedelics. There is now FDA recognition of the potential value of psilocybin, as demonstrated by notable developments including:
- In 2018 the FDA awarded Breakthrough Therapy status to a psilocybin-based therapy for Treatment-Resistant Depression by a company called Compass Pathways.
- In 2019 the FDA awarded Breakthrough Therapy status to a psilocybin-based therapy being developed by the Usona Institute (a non-profit organisation) for treatment of Major Depressive Disorder.
Within the wider field of psychedelic-derived pharmaceuticals, perhaps one of the biggest developments has been the FDA approval for commercial sale of a drug called Spravato from Johnson & Johnson, for Treatment-Resistant Depression, which is based on a ketamine derivative called esketamine. Esketamine had previously been in use as an anaesthetic, so this is another example of repurposing.
The following chart shows the sales trajectory and forecasts for Spravato since its approval.
Spravato is likely to become the first psychedelic derived pharmaceutical to exceed US$1bn sales
Market for J&J Spravato (esketamine)
Source: Proactive Reserch, average of estimates from various market sources
We believe that the success of Spravato creates an improved environment for psychedelics in terms of big pharmaceutical company interest in the field, which in turn could provide opportunities for smaller companies like Revive Therapeutics in terms of eventual licensing or selling of IP if a drug trial produces positive results.
From a pharmaceutical perspective, one of the interesting properties of psychedelics is that they have a pronounced impact on the functioning of neurotransmitters within the brain, and potentially a very selective impact. This has led to interest in the use of psychedelic derived pharmaceuticals for a wide range of conditions including ADHD, Post-Traumatic Stress Disorder, anxiety, depression, addictions, eating disorders, and others.
For psilocybin specifically, another interesting feature is its very low harm profile. The following chart shows the results of a study published in The Lancet (world leading medical journal).
Low harmfulness of psilocybin
Source: David Nutt et al., The Lancet
Revive Therapeutics’ psilocybin programmes
In February 2020 Revive Therapeutics announced its entry into the psychedelics market via the acquisition of a company called Psilocin Pharma Corp (Psilocin). Psilocin has developed its own production processes and a number of psilocybin-based formulations to be targeted for clinical research for the treatment of depression, anxiety, bi-polar disorder, bulimia, and others.
A strong portfolio of novel formulations and processes
Through this acquisition Revive acquired a portfolio of intellectual property including patent-pending technologies covering:
- Methods for extraction and crystallisation of psilocybin
- Psilocybin effervescent and tablet compositions
- Psilocybin hard-shell capsules containing dry powdered ingredients
- Psilocybin oral strips and psilocybin transmucosal delivery system
- Psilocybin formulations for spray/pump/dosing pen.
Further to the acquisition, Revive has announced a research partnership with the University of Wisconsin-Madison, and a collaboration with Phytochemical Solutions LLC, which is a spinoff company of the University of Wisconsin-Madison. These partnership will focus on delivery systems that can provide precise dosing of psilocybin and controlled release, using tannin-chitosan composites.
Potential to achieve Orphan Drug status for psilocybin formulations
The next steps
One of the important goals for Revive is to achieve Orphan Drug designation for its psilocybin formulations. The designation as Orphan Drug is an incentive scheme by the US government to encourage pharmaceutical companies to invest in therapies for rare diseases and conditions, which typically means conditions affecting less than 1 in 200,000 people. Benefits of orphan drugs designation include:
- Research & development tax credits
- A seven-year marketing exclusivity for the indication covered by the designation
We believe that obtaining Orphan Drug status would be a material boost for Revive’s psilocybin programmes, providing an additional level of intellectual property protection.
Furthermore, we argue in our sum-of-parts valuation analysis in p11 that the psychedelics portion of Revive is currently valued at in implicit discount to other listed psychedelics stocks. We believe that Orphan Drug designation could help to narrow the discount.
Cannabidiol
Cannabidiol (CBD) is an extract of the cannabis plant, which does not contain the psychoactive elements of cannabis. CBD is sold as a health supplement in many countries in the EU and also in the US and Canada.
CBD is also used in pharmaceutical applications and has been granted FDA designations for clinical investigation for a number of conditions. Some examples include:
- Tetra Bio-Pharma awarded Orphan Drug designation for a cannabinoid cream for epidermolysis bullosa, 2020
- MMJ International awarded Orphan Drug designation for a CBD-based formulation for Huntingdon’s disease, 2019
- Emerald Health Therapeutics obtained Orphan Drug status and Fast Track status for a CBD-derived treatment for scleroderma, 2017
The biggest development for pharmaceutical CBD has been the FDA approval of a drug called Epidiolex, from GW Pharmaceuticals, for the treatment of rare forms of epilepsy, in 2018.
Revive Therapeutics CBD programme – targeting autoimmune hepatitis
Revive Therapeutics obtained Orphan Drug designation in 2018 for cannabidiol in the treatment of autoimmune hepatitis. This is a disease of the liver that affects around 50,000 people in the USA. We believe that the potential market size if over US$100mln. The next step for Revive will be to file an IND for Phase 2 trials.
Financing the opportunities
We next consider some possible routes for Revive to finance its pipeline of opportunities.
On March 31, 2020, the company reported cash on the balance sheet stood at C$713,000. Further to this, the company raised an additional C$820,000 (gross proceeds) of equity financing in April 2020. At the recent historic operational cash utilisation rate of C$200,000 per quarter, we estimate that the cash on the balance sheet would equate to seven quarters of capital requirement starting from April 2020, i.e. funding through 2021.
We expect both sides of this equation to change (more discussion below), but the following chart illustrates the baseline situation.
Cash in hand and pending
Source: Proactive Research
Cash resources, current and pending, support first stages of a Phase 3 trial
We understand that the warrants at 7 cents can be exercised during July and August 2020.
In terms of spending requirements, the biggest potential incremental investment in our view would be a Phase 3 trial for bucillamine in the treatment of COVID-19. We believe that the current resources would allow Revive to initiate a Phase 3 trial, but that additional capital would be required in order to complete the trial, the cost of which we estimate at US$20-30mln.
We believe that in the event of a successful proposal for Phase 3 trials then Revive could potentially look at raising fresh equity capital. Additionally, the company could look at co-funding development with a third party on a suitable risk/reward basis. We argue that a Phase 3 trial for a COVID-19 treatment would attract considerable interest from the equity market and from the industry, opening up various options for funding, albeit the exact mechanism remains an uncertainty factor in financial modelling.
Valuation
We believe that the trajectory of the Revive share price in the next 12-18 months will largely be a function of development milestones in the major projects. The following annotated price chart shows the major developments for the share price in the last year.
Revive share price history
Source: Proactive Research, CSE data
While the bucillamine programme has been the major driver in the past six months and will continue to be important in our view, we also believe that the psilocybin piece could be a significant driver. Psychedelics have become a very active topic of interest for the pharmaceutical industry and for investors:
https://www.bloomberg.com/press-releases/2020-06-04/psychedelic-medicine-and-the-future-of-mental-health-care-looks-promising
Relative to some of its peers, we believe that the Revive psilocybin programme is assigned a relatively low valuation in terms of its implicit contribution to a sum-of-parts valuation (see p11). The following table summarises the market-listed peer group in the psychedelics space.
Revive psychedelics programme alone could justify the current market cap
Psychedelic peers
Source: Proactive Research
Further progress in the psilocybin development programme could lead to a material re-valuation of the share price in our view. We argue that the same is also true of the bucillamine programme.
The following table shows our estimate of how the market is valuing Revive Therapeutics on a sum-of-parts basis, together with the corresponding calculation at March 10th 2020 (before the bucillamine announcement), and a hypothetical future valuation scenario.
Sum of parts valuation suggests significant potential upside
Sum Of Parts
Source: Proactive Research
The potential future valuation is a matter of subjectivity, and is dependent on risk factors that are hard to quantify. The scenario we have focused on is not intended as a “blue sky” scenario of maximal positive drivers. Instead, we have tried to realistically scope the upside of some potential catalysts in the next 12 months.
In assessing the upside potential we believe that investors need to ask:
- If the bucillamine programme proceeds to Phase 3 trials, would it be likely to be valued below C$100mln?
- Investors would need to take into account the broad-based market for a pulmonary inflammation drug, and also the COVID-19 potential.
- If the psilocybin programme discloses a specific and under-addressed target condition, and a defined pathway to development, would it continue to be valued at a steep discount to psychedelics peers?
We argue that Revive Therapeutics has an exciting pipeline of novel therapeutics, with the potential to drive substantial upside for investors.