Neurotech International (ASX:NTI)

Investment Memo:

Neurotech International (ASX:NTI)

- LIVE

Opened: 18-Sep-2023

Shares Held at Open: 8,400,000

What does NTI do?

Neurotech International (ASX: NTI) is a clinical stage biotech company.

NTI is advancing clinical trials targeting rare and severe neurological disorders predominantly in children.

NTI’s primary treatment is a cannabinoid derived biopharmaceutical called NTI164. NTI is seeking to prove it is a both safe and effective treatment for disorders such as Autism Spectrum Disorder, Rett Syndrome, PANDAS/PAN and Cerebral Palsy.

What is the macro theme?

Paediatric neurological disorders are not getting as much attention from biotech companies as they should, but luckily there are government incentives for companies developing treatments for these disorders.

The impact to families who have children with these disorders is significant and society more generally bears a large cost in supporting these families. Moreover, some treatments can have bad side effect profiles or suboptimal efficacy.

NTI’s clinical trials are for disorders of the brain and spinal cord, mostly in children, across potential orphan drug indications for rare conditions, such as Rett Syndrome as well as disorders that have larger total addressable markets such as Autism Spectrum Disorder (ASD). Both avenues to market for NTI164 could prove lucrative, assuming the trials are successful.

As is often the case, biotechs that successfully complete clinical trials can generate sustained re-rates as positive data comes out, regulatory approvals are granted and commercialisation agreements are made.

We think that companies that can improve on existing standards of care across both safety and efficacy will attract capital in the market due to their ability to improve both quality of life and health economics.

Why did we invest in NTI?

NTI has significant material newsflow in the next 6-12 months across 3 trials

Clinical trial results are massive share price catalysts for biotechs. NTI has three different trials completing over the next 12 months. One of them is expected in the next couple of weeks.

NTI is targeting “orphan” diseases - treatments that are highly valuable

NTI is currently targeting PANDAS/PANS and Rett Syndrome, which are potentially eligible for orphan drug designation. The average price for an orphan drug is US$32,000 per year per patient and government approvals to market are fast tracked.

NTI is following the same strategy as the $1.4BN capped Neuren

Neuren Pharmaceuticals’ share price re-rated by more than 1,300% (~$100M market cap to $1.4BN market cap). Neuren developed a successful treatment for Rett Syndrome and is working on other orphan diseases. NTI is unashamedly trying to replicate Neuren’s path to success. We like this approach.

Strong safety profile, is NTI’s treatment better than $1.4BN Neuren?

If NTI’s upcoming Rett Syndrome trial shows its treatment is SAFER than $1.4BN Neuren’s “claim to fame” Rett Syndrome treatment, we think NTI can take a big chunk of the market (and hopefully get to a similar $1.4BN market cap).

Promising efficacy data at treating Autism, large addressable market

If NTI’s treatment is proven safe and effective for Autism Spectrum Disorder (ASD), we think it could become an important part of the overall care for ASD sufferers, which is 1 in 100 children.

NTI Management track record

NTI’s Executive Director is Dr Tom Duthy, who is also Chairman of Arovella Therapeutics, another one of our Portfolio Companies, which grew from a low of 2 cents to a high of 10.5 cents between January and April 2023. We like to follow management that has delivered for us in the past.

Successful fund, Merchant Group has a substantial position in NTI

Merchant Group became a substantial shareholder of NTI with a 5.01% stake when NTI was trading at ~9 cents. We have followed Merchant Group’s investments closely and think the fund has a keen eye for high potential biotechs given its past history of success.

What do we expect NTI to deliver?

Objective #1: Rett Syndrome clinical trials

NTI is currently undertaking a Phase I/II trial that will test the safety and efficacy of NTI’s treatment for a rare genetic neurological and developmental disorder called Rett Syndrome.

This is the same disease that Neuren Pharmaceuticals commercialised a treatment for which helped take Neuren to a ~$1.4BN market cap.

NTI’s trial is aiming to improve on Neuren’s results across safety and efficacy, after dosing the first patient in this trial in August 2023.

NTI completes Rett Syndrome Recruitment [26-Sep-2023]

Milestones

not done Last patient dosed for Phase I/II

not done Results (anticipated Q1 CY2024)

Objective #2: Autism Spectrum Disorder (ASD) clinical trials

After a successful Phase I/II trial demonstrated the safety of NTI’s treatment in 2023, and showed promising signs on its efficacy, NTI launched a larger Phase II/III trial for ASD.

We expect NTI to complete recruitment for this trial before the end of 2023.

Milestones

not done Completion of patient recruitment (H2 CY2023)

not done Last patient dosed

not done Results (Q1 CY2024)

Objective #3: PANDAS/PANS clinical trial

This Phase I/II clinical trial is testing the safety and efficacy of NTI’s treatment for a rare paediatric neurological disorder sometimes associated with Streptococcal infections called PANDAS/PANS.

Milestones

complete Results (mid-late September CY2023)

Objective #4: Cerebral Palsy clinical trials

NTI intends to launch a Phase I/II clinical trial for Cerebral Palsy in 2H CY2023. We see this as a source of additional upside for NTI over the long term.

Milestones

not done HREC Approval and TGA clearance

not done First patient recruited

not done Completion of patient recruitment

not done Last patient dosed

not done Results

Objective #5: Advance commercialisation through licensing/partnerships

We want to see NTI advance commercialisation initiatives at this early stage, and ideally accelerate these initiatives pending clinical trial results. This could be a source of additional capital for the business.

Milestones

not done Sign a licensing/partnership agreement with another larger company

What could go wrong?

Clinical trial risk

It is important to be aware that clinical trials can be unsuccessful.

In particular, there are some standard risks that are associated with biotechs that are undertaking clinical research:

Patient recruitment is delayed or fails
Ethics approval is delayed or fails
Clinical trial cost blowouts
The drug/treatment is not considered safe for human consumption (usually established in Phase I)
The drug or treatment is ineffective at treating the particular disease (usually determined by clinical trial results in Phase II and Phase III)
The design of the trial is such that the regulatory body does not approve the drug/treatment

There is a chance that one or more of NTI’s clinical trials fail to meet their primary or secondary endpoints, meaning the treatments fail to satisfy the criteria of the studies. Any clinical trial results, if negative, could hurt the NTI share price.

NTI completes Rett Syndrome Recruitment [26-Sep-2023]

Competition risk

NTI will need to move quickly to establish its presence in the market. If progress is slow, alternative treatments could emerge hurting NTI’s prospects.

Funding risk

Pre revenue biotech companies regularly need to raise capital to fund their growth ambitions. Capital raises can cause dilution to existing shareholders.

NTI will likely need to raise capital at some stage in the future, potentially at a discount to market prices to secure funds. This will be contingent on clinical trial results and broader market sentiment (see next risk).

Market risk

Broader market sentiment for small pre-revenue biotechs could get worse and the sector as a whole trades lower, taking NTI’s share price with it. Alternatively, the entire market could sell down as well.

What is our investment plan?

Our Investment Plan for NTI is to hold on to a majority of our position to see the company execute on its business strategy over the next two to three years.

If the company’s share price materially re-rates in the medium term due to the results of any of the clinical trial results, a macro triggering event or any other unknown reason, we may look to sell up to ~20% of our holding. See our general disclosure policy for more details.

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 8,400,000 NTI shares at the time of publishing this article. The Company has been engaged by NTI to share our commentary on the progress of our Investment in NTI over time.