NERV - Minerva Neurosciences: Up About 250 Percent Since April With An FDA Catalyst Ahead

2023-05-19 17:34:30 ET

Summary

• NERV has once again run on the submission of an NDA for roluperidone for the treatment of negative symptoms in schizophrenia.
• There will be no Refusal to File letter this time, with NERV using a dispute resolution process to its advantage.
• No advisory committee meeting is scheduled currently, with a target PDUFA date for the NDA of February 26, 2024.

In 2020 Minerva Neurosciences ( NERV ) announced its phase 3 study of roluperidone for the negative symptoms of schizophrenia had failed. I nonetheless wrote about a potential long trade idea, noting that NERV could experience substantial volatility with either results from a planned pharmacokinetic study of roluperidone, or the submission of a New Drug Application (NDA) to the US Food and Drug Administration (FDA).

NERV's pharmacokinetic study didn't produce much of a rally, but the company's first submission of an NDA in August 2022 was followed by a rally, aided substantially by the disclosure of an 8.8% stake by Point72 Capital Advisors. The stock came tumbling back down two months later, however, when the FDA issued a Refusal to File (RTF) letter. NERV has recently rallied again, however, with a second NDA submission, as the company is again trying to get roluperidone approved. This article takes a look at what lies ahead.

Figure 1: Past year of NERV trading.

NERV gets around the RTF letter

When the FDA issued an RTF letter to NERV in October 2022, the company didn't just go away and run another efficacy study on roluperidone. Instead NERV filed a Formal Dispute Resolution Request ((FDRR)) to contest the FDA's RTF decision. NERV's appeal via an FDRR was successful, with the company announcing on May 1 that the FDA had filed the company's NDA on April 27, 2023.

NERV's granted appeal is a better outcome than many other FDRR's achieve. Indeed, in 2016, the FDA published an analysis of the Formal Dispute Resolution process and noted there were 173 unique appeals from the fiscal years 2003 to 2014. That analysis found that the FDA accepted 140 of the 173 appeals for review but granted just 23, the other 117 were denied. As such, while the average appeal is accepted for review, it isn't granted, so NERV has done well to actually have that appeal granted. Nonetheless, NERV's phase 3 study failed to meet the primary endpoint and its successful phase 2b study of roluperidone for the negative symptoms of schizophrenia uses a different formulation. In considering NERV's odds of having its NDA approved, I thought it might be of value to review another drug that didn't have two successful studies but was approved anyway.

The Pimavanserin Story

On November 27, 2012, Acadia Pharmaceuticals ( ACAD ) announced positive results from a phase 3 study of pimavanserin, a 5-HT _2A inverse agonist (a similar mechanism of action to roluperidone), in Parkinson's disease psychosis. The stock then went on a bit of a run throughout late 2012 and 2013.

... Following the successful outcome of this pivotal Phase III trial, we will continue our ongoing preparations for a confirmatory pivotal Phase III trial, the -021 Study, using the same trial design.

Roger G. Mills, ACAD's then EVP of Development. November 27, 2012, press release .

That 2013 rally in the stock was fueled in part by good news on April 11, 2013, when ACAD announced that thanks to an FDA agreement, the company was no longer planning to run another phase 3 study of pimavanserin in Parkinson's disease psychosis. Being able to file an NDA with an existing successful phase 3 study (ACAD's -020 study) and not running another major phase 3 study (the originally planned -021 study) saves money. The idea that the FDA had been willing to accept the NDA without another study demonstrating efficacy, seemed to bode well for ACAD's chances of approval.

... the U.S. Food and Drug Administration (FDA) has agreed that the data from the pivotal Phase III -020 study, together with supportive data from other studies with pimavanserin, are sufficient to support the filing of a New Drug Application (NDA) for the treatment of Parkinson’s disease psychosis ((PDP)). As a result, ACADIA will no longer conduct the Phase III -021 study that was planned as a confirmatory trial and was scheduled to be initiated later this month.

ACAD press release , April 11, 2013.

ACAD had previously run other double-blind, placebo-controlled trials of pimavanserin in Parkinson's disease psychosis that included trial sites in Europe and India (such as the -012 and -014 studies), but these studies failed to hit the primary endpoint. The -020 study was run in the US and Canada alone, so while ACAD only had one positive trial, it had data from other studies which could provide some further signs of efficacy (for example a subgroup analysis of the -012 study showing a benefit in US patients)

In any case, ACAD still had to complete other supportive studies and needed more time to "complete the preparation of systems to support commercial manufacturing and supply " of Nuplazid (pimavanserin). Finally, in September 2015 , ACAD submitted its NDA for Nuplazid for the treatment of Parkinson's disease psychosis. On April 29, 2016, ACAD announced that the FDA had approved Nuplazid for the treatment of hallucinations and delusions associated with Parkinson's disease psychosis.

Might roluperidone be approved?

There are similarities and differences with the pimavanserin story and the roluperidone story. In the same way ACAD only had one positive efficacy study in Parkinson's disease psychosis, but other supportive studies, roluperidone also only succeeded in the phase 2b study in schizophrenia, but has some support from the phase 3 study, which achieved a positive result on a key secondary endpoint, and wasn't miles away from significance on the primary endpoint. The obvious difference is that ACAD didn't initially receive an RTF letter and have to use an FDRR to even get their NDA filed.

Some of the FDA's other concerns regarding the roluperidone NDA, outside of the fact that the phase 3 study technically failed, are pretty alarming. For example, the FDA questioning if NERV can identify patients who may benefit from roluperidone monotherapy.

I think, however, NERV and its CEO, Dr Remy Luthringer, do a very good job of making clear where their drug would be used. The fact that NERV was able to recruit 515 participants to a phase 3 study , and collect 12 weeks of data from them, between the study start date of December 15, and the primary completion date of May 26, 2020, speaks to the existence of this patient population and the ability to identify them.

While we intend for roluperidone to be prescribed as a monotherapy, one of the issues FDA raised is its potential use by patients on antipsychotics. When we began roluperidone clinical development, we deliberately chose to position roluperidone as a monotherapy.

We chose this approach based on both KOL feedback and my personal experience in clinical practice, that highlighted an important underserved population. The substantial number of patients diagnosed as schizophrenia who do not need continuous antipsychotic drug therapy to manage their positive symptoms, but whose negative symptoms render them incapable of leading normal lives. As previously mentioned, these are the patients that we recruited and studied in our clinical trials.

Dr Remy Luthringer, Executive Chair and CEO of NERV, May 15, 2023, earnings call .

Indeed, the addressable patient population for NERV's drug is quite sizable, and if NERV can make clear of the need for the drug, the FDA might be more willing to come to terms with some of the issues it originally saw in NERV's roluperidone NDA.

Financial Overview

NERV had cash, cash equivalents and restricted cash of $36.1M as of March 31, 2023. Net loss was $7.0M for Q1'23, with R&D expense of $2.7M for the quarter and G&A expense of $2.7M for the quarter. NERV also recognized $2M in non-cash interest expense related to its Royalty Pharma ( RPRX ) seltorexant agreement. While NERV's net cash used in operating activities was just $0.1M in Q1'23, this is influenced in part by the company receiving a refund of its NDA filing fee of $3.1M in January.

On the Q1'23 earnings call, NERV's Senior Vice President and CFO, Fred Ahlholm, noted the company expected its cash and cash equivalents would last at least 12 months. That guidance would see NERV make it to the PDUFA date for their NDA, but how much they would have when they get there is another question. In any case, NERV will report earnings again for Q2, likely in August, which will allow investors to better gauge how much cash NERV might have when it gets to the PDUFA date.

On the seltorexant front, the company could bring in ~$95M from the RPRX deal, but only $10M of that would be near-term, assuming a phase 3 study goes ahead.

So we have approximately $95 million left in terms of the milestones in the agreement that we signed with Royalty Pharma. There’s a $10 million milestone, which is dependent on the Phase 3 clinical study and then there’s approximately $60 million related to regulatory approval in various different geographies.

Geoff Race, President of NERV, May 15, earnings call.

As of May 10, 2023, there were 5,568,406 shares of NERV's common stock outstanding, corresponding to a market cap of $35.1M.

Conclusions

I can't tell if the FDA will approve roluperidone or not, I would err on the side of caution and say it won't be approved. No advisory committee is planned at the current time, the PDUFA goal date is February 26, 2024. It is still possible the FDA schedules an advisory committee between now and the PDUFA date. The obvious bear case is that if you have to use a dispute resolution process to even file your NDA, then that doesn't bode well for the odds of the FDA approving it. The bull case might be that some of the FDA's concerns might show that whoever initially reviewed the NDA didn't see the value of roluperidone, despite the fact that others might see the value as quite obvious. A review by a wider panel, in more detail, might see an overall favorable opinion, especially since NERV has had a chance to respond to the issues the FDA highlighted.

In any case, a more short-term bull thesis might be that the stock is going to trade higher than the mid-$6 range between now and the PDUFA goal date in February 2024. That's because NERV technically has a chance of success, and if approved, roluperidone has a substantial addressable market. As such, I've rated NERV a buy right now. I think the stock can continue to rally as investors/traders think a $35M market cap is a bit cheap for a company that got the FDA to come around to accepting its NDA.

The risks of any long in NERV are several folds, a few of which I'll mention here. Firstly, delays in reviewing the NDA, especially if announced in advance, could cause the stock to trade down. Secondly, the FDA might not take until February 2024, and issue a complete response letter prior to NERV prior to that time. Lastly, NERV could report earnings for Q2 or Q3'23 revealing accelerating cash burn, causing the stock to fall.

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