Cybin Inc: Another High-Risk Psychedelics Play

seekingalpha11-04

Cybin describes itself as a “breakthrough neuropsychiatry company” but is best thought of as a speculative play on FDA approval of psychedelic-based treatments for mental health disorders.Whilst the ...

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(NYSE:CYBN) on Seeking Alpha in April 2023. Although somewhat dated, that note is a good place to start for readers who are not yet familiar with the company. There has been a great deal of change since my initial write-up, both at the Cybin level, and also within the broader psychedelics sector. Arguably the biggest news for the sector since April 2023 was the announcement in August 2024 that the US FDA had rejected the new drug application ('NDA') by Lykos Therapeutics (formerly MAPS Public Benefit Corporation) for the use of MDMA-assisted therapy for the treatment of post-traumatic stress disorder. In my view, the FDA decision on the Lykos NDA was a big reality check for the psychedelics sector. I direct readers to my Compass Pathways plc (CMPS) note published in August 2024 for detailed analysis and discussion relating to the Lykos NDA rejection. Hype around the psychedelics sector peaked in late 2020/early 2021. At the peak, valuations for listed psychedelics stocks hit rather ridiculous levels. The bubble inevitably burst, many investors took a bath, and capital providers rapidly became much more cautious about throwing money at the sector. It became pretty obvious that a number of players would either collapse or be swallowed up as they ran out of cash or failed to make meaningful advances with clinical trials. Cybin has been one of the survivors. In this note, I'll update my analysis on the company and review my stock rating. Before getting into the nitty-gritty of Cybin, I think it's important to stress that, despite the advances that have been made over recent years, every stock in the psychedelics sector should be regarded as highly speculative. The path to achieving FDA approval still involves a great deal of uncertainty and huge expense. Even in the scenario that the FDA approves psychedelic drugs/treatments, it is far from certain what commercialization will look like; analysis of the potential profit streams that may subsequently flow in the FDA approval scenario is a highly subjective exercise. That being said, there is an undeniably urgent need for new treatments to tackle mental health conditions, and putting my investment concerns aside, I remain hopeful that something very societally positive emerges from the psychedelics sector. Is Cybin No Longer A Psychedelics Company? It is most interesting to compare how Cybin describes itself in its Q1'25 (30 June 2024) and Q3'23 (31 December 2022) MD&As. The Q3'23 wording (Exhibit 1) very clearly references the centrality of psychedelics to Cybin's activities (which I have highlighted in bold). In contrast, the Q1'25 wording (Exhibit 2) makes no mention of psychedelics. Could it be that Cybin is attempting to distance itself from the stigma that still exists around psychedelics, and that may have been a contributing factor to the FDA Lykos NDA rejection? Cybin was once a plain old \"biopharmaceutical company\", but it has now morphed into a \"breakthrough neuropsychiatry company\". Exhibit 1: The Company is a biopharmaceutical company focused on advancing psychedelic-based therapies, delivery mechanisms, novel compounds and protocols as potential treatments for various psychiatric and neurological conditions. The Company is developing technologies and delivery systems aimed at improving the pharmacokinetics of its psychedelic-based molecules while retaining the therapeutic benefit. These new molecules and delivery systems are expected to be studied through clinical trials to confirm safety and efficacy. Source: Cybin Q3'23 MD&A, page 5. Exhibit 2: The Company is a clinical-stage breakthrough neuropsychiatry company focused on advancing next- generation therapies, delivery mechanisms, novel compounds and protocols as potential treatments for various psychiatric and neurological conditions. The Company is developing technologies and delivery systems aimed at improving the pharmacokinetics of its proprietary molecules while retaining the therapeutic benefit. These new molecules and delivery systems are expected to be studied through clinical trials to confirm safety and efficacy. Source: Cybin Q1'25 MD&A, page 5. Small Pharma Acquisition Setting aside my somewhat sarcastic comments above, it's blatantly obvious that Cybin is still a psychedelics business. In fact, Cybin dived deeper into the psychedelics space in August 2023 when it announced the acquisition of Small Pharma Inc, a UK-based biotechnology company focused on short-duration psychedelic therapies. I had been following Small Pharma prior to the acquisition; the group was progressing the development of short-duration psychedelic therapies for mental health conditions, focusing primarily on the use of DMT (N,N-dimethyltryptamine) to treat Major Depressive Disorder ('MDD'). Having had a reasonably positive view of Small Pharma, I concluded that Cybin had made a good move in acquiring a smaller competitor. Small Pharma was running low on cash, and Cybin provided a solution to its precarious financial situation. In acquiring Small Pharma, Cybin gained ownership of an array of granted patents and patent applications. After gobbling up Small Pharma, Cybin's intellectual property portfolio now comprises 70 granted patents and over 220 pending patent applications. Whilst these numbers sound impressive, it would take a skilled patent lawyer, a qualified bio pharmacist and a deeply experienced biotech equity analyst to value such a portfolio - and even then, I'd take the valuation with a big pinch of salt. My positivity toward the Small Pharma deal may well prove to be misplaced. Cybin's most recent (September 2024) 'Corporate Deck' presentation makes no reference to the Small Pharma assets acquired. Further, the Q1'25 MD&A commentary (Exhibit 3) indicates that little progress has been made since the Small Pharma deal completed in October 2023. Exhibit 3: The Company is continuing to assess the research and development programs of Small Pharma acquired through the acquisition of Small Pharma by way of the Arrangement and will provide further information and updates upon completion of the integration of Small Pharma's business, including the anticipated spend associated with any programs. Source: Cybin Q1'25 MD&A, page 9. Clinical Trial Progress Cybin has made solid progress with the two molecules that I identified as the group's key focus areas in April 2023, being CYB003 and CYB004. I've previously described these deuterated analogs of existing psychedelics as \"psilocybin - but faster\" (CYB003) and \"DMT - but slower\" (CYB004). Note that a deuterated drug is a molecule in which a hydrogen atom has been replaced by a deuterium atom; deuteration is a common approach in drug discovery. The progress that Cybin has made with CYB003 and CYB004 over the last eighteen months can be seen by comparing the March 2023 (Exhibit 4) and September 2024 (Exhibit 5) corporate deck presentations. Cybin used to refer to CYB003 as a \"deuterated psilocybin analog\", whereas it now labels the molecule \"deuterated psilocin\". If you were to ask people to name the active ingredient in magic mushrooms, I'd wager that psilocybin would be a much more common answer than psilocin. As such, I wonder if the relabeling of CYB003 by Cybin is another example of the company trying to sidestep psychedelic stigma. Note that psilocybin is a pro-drug that the human body metabolizes into psilocin - for the layperson, psilocybin and psilocin can be thought of as the same thing. Exhibit 4: Source: Cybin Corporate Deck Presentation, March 2023, slide 7. Exhibit 5: Source: Cybin Corporate Deck Presentation, September 2024, slide 6. CYB003 - Breakthrough Therapy Designation On March 13, 2024, Cybin announced a significant advance for CYB003 - it had been granted Breakthrough Therapy Designation ('BTD') by the FDA in respect of the molecule. Whilst Cybin is not the first group to receive BTD in respect of a psilocybin-based drug (Compass Pathways beat Cybin to it, with COMP360), this is still an important achievement, and it provides Cybin with several advantages:  Shorter review timeframes: under a BTD, the FDA aims to complete its review within six months instead of the standard ten months. Flexibility and feedback: The BDT allows Cybin to submit parts of their application piece-by-piece, rather than waiting until the entire application is complete. Obtaining feedback from the FDA in a stage-wise fashion will allow Cybin to modify its path if necessary, potentially increasing the chance of a successful outcome. Improved access to the FDA: the BTD provides Cybin with more frequent FDA meetings and guidance on trial design. Supports capital raising: the BTD is a major milestone, and as such it ought to improve Cybin's ability to raise any additional capital required to reach the point of NDA submission for CYB003.  The Q1'25 MD&A states that Cybin had incurred costs of ~CA$8m relating to the planned launch of the CYB003 Phase 3 study. Further outlay of ~CA$5.3m has been flagged in order to initiate the Phase 3 study in summer 2024. Cybin has already selected clinical sites for the Phase 3 study; trials will be conducted at thirty sites, using facilities in the USA and Europe. The Q1'25 MD&A stated that trial enrollment was expected to commence \"shortly\". Progress since early August 2024 is somewhat unclear. On August 13, 2024, Cybin reported that it had conducted a Type B Initial Breakthrough Therapy Meeting with the FDA and that the Phase 3 trial was still aiming to commence in late summer 2024. The most recent news on the trial was released on September 19, 2024, at which point Cybin stated that the trial was expected to begin \"imminently\". Following the FDA Lykos rejection, Cybin has stressed that the CYB003 Phase 3 pivotal trial design will incorporate elements to address functional unblinding concerns. Time will tell whether or not the efforts to deal with functional unblinding challenges are successful. Clearly something went awry with the Lykos NDA in regard to functional unblinding, so Cybin is wise to invest time and money to avoid making the same mistake. CYB004 - \"patient-friendly\" DMT The reference in Cybin's Q1'25 MD&A to \"patient-friendly dosing methods\" made me chuckle, as virtually all reports suggest that the DMT experience is anything but friendly. DMT trips are frequently described as short, but challenging experiences that can create extreme anxiety and disorientation. Cybin's deuterated DMT, CYB004, has been designed to provide for a gentler and longer trip than unmodified DMT. The reference to patient-friendly dosing refers to the decision to administer the drug intramuscularly, rather than intravenously. Cybin claim that intramuscular delivery of CYB004 can result in acute effects lasting approximately ninety minutes. It is worth noting that the switch to intramuscular delivery appears to have been influenced by data that Cybin gained from Phase 1 studies completed by Small Pharma. The group's September 19, 2024 news release stated that dosing was underway in the Phase 2 study of intramuscular delivery of CYB004 in participants with moderate to severe Generalized Anxiety Disorder ('GAD'). Topline safety and efficacy results are expected to be released late 2024 or early 2025. The study is small, with only 36 participants. Cybin had spent around CA$1.1m on the Phase 2 trial as at June 30, 2024, with a further expense of ~CA$4.4m flagged for the second half of 2024. Balance Sheet & Cash Burn Readers of my analysis on Compass Holdings (CMPS) and Mind Medicine (MNMD) will be familiar with my concerns regarding balance sheet strength and cash burn rates for stocks in the psychedelics sector. Consistent with CMPS and MNMD, Cybin has been pretty successful in terms of raising capital to support its ongoing cash losses. Whilst this is good news in terms of keeping the company in business and getting closer to the possible payoff that regulatory approval would deliver for CYB003 or CYB004, existing Cybin shareholders unable to participate in the various rounds of capital raisings have suffered a great deal of dilution pain. Cybin's balance sheet today looks vastly different from when I last reviewed the company. Much of the transformation occurred during FY24, as shown in Exhibit 6. The increase in cash relates to multiple capital raisings completed during FY24. Intangible assets and Goodwill have increased substantially, driven by the acquisition of Small Pharma. Exhibit 6: Source: Cybin FY24 Financial Statement Cybin's cash raising activities over FY24 resulted in a massive expansion of the group's shares on issue. Exhibit 7 shows that Cybin's common share count increased by a staggering 3.79x over FY24. In relation to the Small Pharma deal, Cybin issued 0.2409 new shares for each share of Small Pharma, resulting in a total of 80,945,254 new shares being issued to Small Pharma shareholders. If I back out the share expansion relating to Small Pharma, then Cybin's share count increased by a still eye-watering 3.38x during FY24. The number of common share warrants on issue also shot up, from ~23.2m at FY23 to reach ~106.4m at FY24 (refer to Exhibit 8), an increase of 4.57x. Exhibit 7: Source: Cybin FY24 Financial Statement Exhibit 8: Source: Cybin FY24 Financial Statement The bulk of Cybin's share issuance in FY24 came from the March 19, 2024 private placement of 348,837,210 shares at a price of US$0.43 per share for gross proceeds of CA$202.995m (US$150.00m). Note that the placement was completed shortly after Cybin announced its FDA Breakthrough Therapy Designation for CYB003. With so many new shares being issued in FY24, Cybin's share count was getting out of hand. The company recently undertook a 38-1 share consolidation, reducing the 759,692,495 shares issued and outstanding prior to the consolidation down to approximately 19,991,907 shares. The participants in Cybin's March 19, 2024 private placement paid US$0.43 per share - adjusting this for the 38-1 consolidation gives an adjusted purchase price of US$16.43 per share. Based on the Nasdaq November 02, 2024 closing price for Cybin of US$9.99, the private placement investors are currently sitting on losses of ~39%. Cash used in operating activities was ~CA$21m in Q4'24 and ~CA$27m in Q1'25. Given the imminent launch of the CYB003 Phase 3 trial, and considering further progress with the Phase 2 trial for CYB004, I think that it would be prudent to assume an ongoing average cash burn rate of ~CA$30m per quarter. On that basis, ignoring any further capital raisings, Cybin's June 30, 2024 cash balance of ~CA$183m will only provide a runway through to late 2025. This timeframe will almost certainly not be long enough for Cybin to obtain FDA approval for CYB003. The company has an at-the-market ('ATM') equity program with an expiry of September 17, 2025, which has remaining capacity (as at June 30, 2024) of ~US$27m worth of shares. The company also has a purchase agreement in place which has capacity to raise ~US$30m. Utilization of both the ATM and the purchase agreement facilities would extend Cybin's cash runway by a little over six months. Based on Cybin's current share price, I estimate that full utilization of the ATM and the purchase agreement would require the issuance of shares equating to ~40% of the current shares on issue, implying yet another round of dilution for existing shareholders. Closing Remarks & Rating Cybin is making impressive progress with CYB003 and CYB004. Although the acquired Small Pharma portfolio is yet to deliver benefits for Cybin, there could be further positive news to flow on that front. Alongside CMPS and MNMD, I am inclined to conclude that Cybin is one of the leaders in the listed psychedelics space. The company has strengthened its balance sheet substantially, but this has come at a high cost in terms of share volumes issued. As is also the case for CMPS and MNMD, Cybin shareholders must be mindful that further material balance sheet strengthening may be required, possibly requiring issuance of shares at prices much lower than Cybin's current trading levels. Whilst I do not claim to be an expert in interpreting clinical trial design or results data, Cybin's clinical trial results for CYB003 and CYB004 strike me as being rather positive. However, in the not too distant past, myself and many other analysts and qualified experts would have said much the same about the Lykos clinical trial results for MDMA-assisted therapy, and we know how that story ended. Cybin bulls may talk up the CYB003 Breakthrough Therapy Designation, but this is a long way from being a guarantee that the FDA will eventually approve CYB003.  If I were to adopt an optimistic view and assume that Cybin obtains FDA approval for CYB003, then my best guess is that such approval would not be granted until 2027 at the earliest. In that case, Cybin's ongoing cash burn represents a material downside risk given the company's current cash holdings. The near certainty of future cash burn issues arising, combined with a great deal of uncertainty around the achievement of FDA approval, lead me to land at a Sell rating for Cybin. I will continue to monitor the stock closely and remain very open to revisiting my stock rating if and when the risk/reward equation becomes more persuasive.","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":1},"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/2480395780"}