Bright Minds Biosciences: BMB-101's Phase 2 Trials Could Unlock Epilepsy Market Potential

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Bright Minds Biosciences' BMB-101, a 5-HT2C receptor agonist, shows promise in treating drug-resistant epilepsy, with favorable Phase 1 safety and efficacy data.The company's proprietary platform ...

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(NASDAQ:DRUG) is a biotechnology company that develops 5-HT2A and 5-HT2C serotonin receptor agonists to treat epilepsy, pain, depression, and PTSD. It leverages its proprietary platform to target serotonin regulation binding receptors and create selective therapies with fewer side effects than traditional approaches. The company’s flagship drug, BMB-101, is a 5-HT2C receptor agonist in Phase 2 trials. BMB-101 is indicated for drug-resistant epilepsy and other rare epileptic disorders. Phase 1 results were promising, with a favorable safety profile and notable efficacy in pre-clinical models. Thus, I believe DRUG is a viable “Strong Buy” for investors who will size their positions accordingly. BMB-101: Business Overview Bright Minds Biosciences was founded in 2017 and is based in New York. It develops therapies for neurological and neuropsychiatric conditions such as epilepsy, pain, depression, and PTSD. DRUG’s approach addresses serotonin regulation using its proprietary platform, which generates serotonin receptor agonists, specifically 5-HT2A and 5-HT2C. These targets are part of the serotonin receptor family, which is key in regulating mood, cognition, and neurological processes.   Source: Company’s website.The serotonin receptor agonists bind to and activate these receptors because they mimic serotonin’s function and stimulate the receptor similarly to natural serotonin. This is what causes a therapeutic effect. It’s worth mentioning that the 5-HT2A receptor subtype is associated with perception and emotional regulation. This means that its activation can potentially treat depression and anxiety. On the other hand, the 5-HT2C receptor regulates neurological processes, mood, and behaviors linked to impulse control and appetite. Thus, through this receptor, DRUG can also target binge-eating and anxiety disorders. Interestingly, the combination of 5-HT2A/2C agonists addresses generalized anxiety disorders. The serotonin receptor agonist’s mechanism of action [MoA] modulates the receptor's functioning, enhancing mental health without undesirable psychoactive effects. This is unlike other drugs with similar effects, such as psilocybin. Also, a key safety benefit of DRUG’s approach is that by avoiding the 5-HT2B receptor, it also reduces cardiac issues like valvulopathy.   Source: Corporate Presentation. September 2024.Currently, DRUG’s pipeline includes three programs centered around CNS disorders, depression, and non-hallucinogenic psychoplastogens. The 5-HT2C agonists for CNS disorders are BMB-101 for rare epilepsies in Phase 2 and BMB-xxx in the preclinical stages, with potential indications for obesity and feeding behavior. Likewise, DRUG’s investigational 5-HT2A agonists are BMB-202 for quick-onset depression therapy and BMB-xxx for neurological and neuropsychiatric indications. Both drugs are in the preclinical phases. An interesting aspect about BMB-xxx is that it’s 10 times stronger than psilocin itself but doesn’t have the same psychoactive effects. Lastly, BMB-201 is an IND-enabling non-hallucinogenic psychoplastogen. BMB-201 promotes neuroplasticity, improving the brain’s capacity to form new connections without producing hallucinations or cardiac issues. Growth Opportunities: Epilepsy Market Its most advanced medicine, BMB-101, is currently studied in Phase 2. It is a drug to address drug-resistant epilepsy [DRE], which is 30% prevalent among epilepsy patients. Resistance is defined by the failure of two effective doses of antiseizure medications [ASM]. The US market potential for this is approximately 230,000 patients. For developmental and epileptic encephalopathies [DEE], the patient population is estimated at 150,000 individuals, with a $2 billion peak revenue potential. So far, we only have BMB-101’s Phase 1 data, which shows a favorable safety profile as a once-a-day formulation. Source: Corporate Presentation. September 2024.Interestingly, management also highlighted that it was undervalued compared to its peers in the rare epilepsy market. The following peer comparisons show a substantial gap between its current and potential valuation. GW Pharmaceuticals has Epidiolex for childhood-onset epilepsy. This company was acquired by Jazz Pharmaceuticals (JAZZ) in 2021 for $7.2 billion. Similarly, Zogenix markets Fintepla for Dravet syndrome. UCB acquired this firm for $1.9 billion in 2022, with a valuation 380 times that of DRUG. Arvelle Therapeutics produces Cenobamate for focal seizures in the EU market. Angelini Pharma acquired Arvelle for $960 million in 2021. These valuations suggest that DRUG remains undervalued relative to its peers.   Source: Corporate Presentation. September 2024.Nevertheless, this is a clearly volatile industry, as it has faced regulatory pressures after the FDA didn’t approve Lykos Therapeutics’ PTSD MDMA-based therapy (midomafetamine). However, the FDA recently suggested there’s still a path forward for Likos. If they succeed, midomafetamine would be the first FDA-approved psychedelic therapy based on MDMA, also known as Ecstasy. This may partly be why DRUG secured its recent $35 million private placement on October 18. Shortly after that, on October 21, DRUG announced a collaboration with Firefly Neuroscience (AIFF) for a Phase 2 trial on BMB-101. They’ll use electroencephalogram [EEG] data analysis to understand the brain’s electrical effects of its drug. AIFF leverages its AI-powered, FDA-approved platform to gather insights into the impact of the 5-HT2C receptor agonist on the brain's activity. This information will be useful to refine the drug's development process. Upside Potential: Valuation Analysis From a valuation perspective, DRUG currently trades at a $216.8 million market cap, making it still a microcap despite its recent stock price appreciation. As of Q2 2024, DRUG's balance sheet held $4.5 million in cash and short-term investments, with no financial debt. However, it’s worth highlighting that DRUG’s investment thesis didn’t seem quite viable at that time because it simply didn't have enough resources to fund BMB-101's Phase 2 trials. I believe this is why its stock was so cheap. Fortunately, the recent $35.0 million private placement changed this outlook entirely. DRUG can now fund its Phase 2 trials for BMB-101.   Source: DRUG's private placement press release. October 18, 2024.According to the company's press release, the funds will go to R&D expenses in general. However, since it announced that BMB-101's Phase 2 trials would be in collaboration with Firefly shortly after the raise, I suspect they'll likely use those funds mostly for BMB-101's clinical trials. Still, it's challenging to pinpoint DRUG's cash burn because its latest quarter showed its R&D spending essentially stopped, reporting a $0.4 million \"gain\" on that rubric. A fair comparison would be back to Q2 2023 when it was finalizing its Phase 1 trial on BMB-101. In that particular quarter, DRUG's trailing twelve-month cash flows suggested a cash burn of $6.0 million. We could estimate a cash runway of around 5.8 years using that figure.   Source: DRUG's collaboration with Firefly. October 21, 2024.Naturally, I imagine they'll also use those funds to work on its other products, so its actual cash runway could be much shorter. Nonetheless, I suspect it should be enough for at least one or two years. Thus, the $35.0 million should be sufficient to fund its upcoming BMB-101 Phase 2 trial, even if it's more resource-demanding than its previous Phase 1 trial. As far as we know, BMB-101’s Phase 2 should begin in Q4 2024 and will likely last at least six months. This means we could get Phase 2 data by 1H2025, which is probably within its cash runway. As for its BMB-101's potential, I believe a worthwhile comparison is Fenfluramine. Zogenix Inc. originally developed Fenfluramine, which is commercially known as Fintepla. It was initially used as an appetite suppressant in the 1970s, but it was discontinued precisely due to its cardiac risks. However, it later received FDA approval in 2020 for Dravet syndrome and Lennox-Gastaut syndrome due to its anti-seizure effects. Fenfluramine’s primary mechanism of action is the 5-HT2C serotonin receptor, which in turn boosts GABA neurotransmission and reduces excessive neuronal excitation. Both drugs target the 5-HT2C pathway, which has proven effective for controlling seizures.   Source: Corporate Presentation. September 2024.Thus, it's important to remember that BMB-101’s anti-epileptic mechanism is essentially the same as Fenfluramine’s. In my view, this positions BMB-101 as a potential competitor to Fenfluramine. However, unlike Fenfluramine, BMB-101's main differentiating factor is that it avoids triggering the 5-HT2B pathway, which is linked to cardiotoxicity risks. This means BMB-101 could achieve similar effectiveness to Fenfluramine but with a much safer profile, potentially making it more competitive. It's possible that Fenfluramine’s additional sigma-1 receptor modulation also plays a role in its anti-seizure effect, which could be a disadvantage of BMB-101 compared to Fenfluramine. However, for the most part, it's mainly the 5-HT2C pathway that's most tightly linked to seizure control. The 5-HT2C pathway is a well-proven anticonvulsant mechanism. Unfortunately, Fenfluramine is risky due to its cardiovascular risks, but this might be an opportunity for drugs like BMB-101. Consequently, I believe BMB-101 has unique and promising properties for treating epilepsy. Like Fenfluramine, BMB-101 primarily targets seizure control by activating the 5-HT2C receptor. Yet, BMB-101's high selectivity for the 5-HT2C pathway should lead to fewer cardiac risks. Additionally, BMB-101's G-protein-biased agonism also theoretically reduces the likelihood of tolerance over long-term use. This is another key advantage it would have versus Fenfluramine. After all, Fenfluramine can potentially lead to receptor desensitization over time and require higher dosages to remain effective. Source: Corporate Presentation. September 2024.While direct human efficacy data for BMB-101 is still pending, several factors from preclinical and Phase 1 studies suggest it may offer comparable seizure control to Fenfluramine. The main drawback is that BMB-101’s data is not from human trials, which does add a risk layer to this investment thesis. Nevertheless, BMB-101’s translational animal models do show dose-dependent seizure reduction. So, I do believe there’s enough evidence to support a speculative “Strong Buy” based on BMB-101’s seizure control efficacy translating into humans. Adding the recently raised $35.0 million to its previous book value of $4.5 million would imply its current book value is roughly $39.5 million. This would suggest a P/B of 5.5, which seems somewhat pricey compared to its sector’s median P/B of 2.4. Yet, the main value lies in the optionality that BMB-101 provides, which, I believe, is significant. Investment Caveats: Risk Analysis If BMB-101's data is as effective as Fenfluramine, then I believe that it should be enough to justify DRUG's valuation. After all, Fenfluramine generated €154 million ($166.6 million) in 1H2024, implying a yearly sales run rate of over $300.0 million. Thus, BMB-101 could theoretically compete with Fenfluramine with similar efficacy but a decidedly better safety profile. BMB-101's lack of 5-HT2B activation significantly reduces this cardiotoxicity risk. Because of this, I imagine we could see DRUG eventually reaching similar annualized revenues with BMB-101, if approved.   Source: Seeking Alpha.Nevertheless, it’s worth highlighting that a successful Phase 2 trial would still drain its recently raised cash. However, at that point, it could position the company for a pivotal Phase 3 trial that leads to a potential FDA approval by 2026. With that in mind, I believe DRUG's valuation might actually be cheap. For context, its sector's median forward P/S is 3.7. So, if BMB-101 is approved and competitive against Fenfluramine, its current valuation would still be a \"Strong Buy\" for investors who understand this is a long-term investment with significant clinical trial risks. After all, if DRUG's Phase 2 trials show disappointing efficacy, then it could derail this investment thesis entirely. This would lead to significant shareholder losses, making DRUG an inherently speculative investment at this stage, nonetheless. Speculative “Strong Buy”: Conclusion  Overall, DRUG might seem expensive after its recent massive stock price surge. However, I think a solid speculative investment case should be made here. DRUG’s BMB-101 appears to have enough evidence to suggest it should be effective for epilepsy when it’s properly tested in humans. Suppose that materializes after its Phase 2 trials. In that case, I believe DRUG will be well-positioned to capitalize on its therapies for rare epileptic disorders and depression, with its strong IP protection and significant revenue potential. Naturally, it remains a speculative bet, nonetheless, which is why I believe it’s a viable “Strong Buy” for investors who will size their positions accordingly.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2479208152"}