PRAX - Praxis Phase 2 Results: Mixed Outcomes Prompt Change In Rating

2023-04-10 03:24:51 ET

Summary

• Praxis Precision Medicines' ulixacaltamide (PRAX-944) fails to achieve statistical significance in primary endpoint for essential tremor treatment in Phase 2 clinical trial.
• The drug demonstrates nominal statistical significance in secondary endpoints, indicating some effectiveness in treating the disorder.
• In light of the mixed results, the recommendation has been changed from "Buy" to "Sell" for Praxis Precision Medicines.
• Investors are advised to be cautious and reevaluate the company's prospects following further developments in the ulixacaltamide program.

Introduction

Praxis Precision Medicines ( PRAX ) is a biopharmaceutical company focused on developing innovative therapies to treat central nervous system disorders. One of their leading drug candidates, PRAX-944 or ulixacaltamide, is a T-type Ca2+ channel blocker that shows potential for treating essential tremor ((ET)), a neurological disorder characterized by involuntary shaking or trembling. The drug has shown promising results in preclinical studies and has advanced to Phase 2 clinical trials for further evaluation of its safety and effectiveness. Recently, Praxis revealed top-line data for ulixacaltamide in ET, and this article explores the implications of this data for the company and its investors.

Financials

Before we begin, let's examine the most recent financial report from Praxis. As of December 31, 2022, the company had $100.5 million in cash, cash equivalents, and marketable securities. This is a decline from the previous year's $275.9 million, primarily because of $185.0 million in cash used in operations during 2022. Praxis anticipates that its existing cash reserves will be sufficient to finance operations through the first quarter of 2024. In 2022, research and development costs rose by $34.7 million, mainly attributable to expenditures associated with the Cerebrum and Solidus platforms. General and administrative expenses increased by $12.8 million in 2022, largely due to personnel-related expenses and stock-based compensation. Praxis reported a net loss of $41.2 million for Q4 2022 and a net loss of $214.0 million for the year 2022, including stock-based compensation expenses.

The company's cash reserves have decreased significantly, and its net losses in Q4 2022 and the entire year reflect increased research and development costs and general expenses. While the company anticipates that its cash reserves will last until the first quarter of 2024, further setbacks in drug development could potentially strain its financial resources.

Recent Phase 2 Results

On March 3, 2023, Praxis announced the topline results from the Essential1 study evaluating ulixacaltamide for ET treatment. The study found that although ulixacaltamide demonstrated some improvement in the primary efficacy endpoint of modified Activities of Daily Living (mADL) compared to placebo, it did not reach statistical significance (p=0.126). However, the drug achieved nominal statistical significance in the TETRAS-ADL secondary endpoint (p=0.026) and showed nominal statistically significant improvements in the Clinical Global Impression-Severity (CGI-S) and Patient Global Impression-Change (PGI-C) scores.

Despite the observed efficacy and safety profile, the failure to achieve statistical significance in the primary endpoint is a considerable setback for the drug's development. Praxis intends to engage with the FDA in an end of Phase 2 meeting and initiate a Phase 3 study for ET treatment in the second half of 2023.

It should be pointed out that the Phase 2 trial utilized a composite primary endpoint that combined both objective and subjective measures of essential tremor, with the aim of incorporating more patient-reported measurements. Based on the Phase 2 results, it is unlikely that the FDA will approve a Phase 3 trial primary endpoint that is even more inclusive of subjective measures, which is presumably what Praxis hopes for.

Expectations Versus Reality

In my initial article , I predicted a low-to-moderate chance (35-45%) of a favorable outcome for the Phase 2 trial of PRAX-944, while acknowledging the greater probability (55-65%) of a negative or inconclusive result. Given the challenges of achieving both significant efficacy and safety in treating essential tremor, caution was warranted. The recently published results, which did not meet the statistical threshold for the primary endpoint, align with my original projections.

Although the drug did demonstrate nominal statistically significant progress in certain secondary endpoints, indicating some effectiveness in treating essential tremor, it was not as strong as originally hoped. Overall, my analysis accurately anticipated the difficulties of achieving a significant positive outcome in the Phase 2 trial.

My Analysis & Recommendation

The recent Phase 2 results for ulixacaltamide (PRAX-944) present a multifaceted outlook on the drug's potential. While it did not achieve statistical significance for the primary endpoint, it demonstrated nominal statistical significance in some secondary endpoints. This implies that ulixacaltamide might still possess potential in treating essential tremor, but its overall effectiveness and the likelihood of gaining regulatory approval have become less certain.

Another critical aspect to consider is the FDA's probable position on the design of the Phase 3 trial. In light of the mixed outcomes of the Phase 2 study, it appears unlikely that the FDA will approve of a primary endpoint with an even greater emphasis on subjective measures. Subsequently, shifting focus from essential tremor to other indications and pipeline candidates could be a more advantageous approach for Praxis.

Initially, I recommended a "Buy" based on the premise that while the chances of Praxis's failure were high, the potential rewards in the event of success outweighed the risks for investors who prioritize risk aversion.

Currently, Praxis only makes sense for portfolios that use a "barbell strategy" (described best by philosopher and investor, Nassim Taleb), which involves investing 90% in safe options like treasury bills or general market ETFs, and 10% in highly-volatile, risky stocks. Therefore, my "Buy" recommendation assumes the utilization of PRAX within a barbell portfolio. It might, however, be prudent for the average investor to wait for Phase 2 data before investing.

Stephen Ayers

Given the recent Phase 2 data, I am revising my recommendation for Praxis from "Buy" to "Sell". This change is because Praxis is no longer immediately suitable for a barbell strategy, nor does it appear to be an attractive option for the average investor.

Risks to Thesis

"When the facts change, I change my mind."

Some risks could challenge my pessimistic outlook:

1. Positive Phase 3 results: If Praxis can successfully advance ulixacaltamide to Phase 3, positive results could significantly improve the outlook for ulixacaltamide, leading to potential regulatory approval and commercialization.
2. Strategic partnerships: Praxis might enter into partnerships with other pharmaceutical or biotechnology companies to co-develop or co-market its drug candidates. Such collaborations could provide additional resources, expertise, and funding to support the development and commercialization of ulixacaltamide.
3. Alternative indications for ulixacaltamide: While the focus has been on essential tremor, ulixacaltamide might prove effective in treating other neurological disorders or conditions. If successful, this could create additional market opportunities for the drug and improve the overall prospects of Praxis.
4. Advancements in the pipeline: Apart from ulixacaltamide, Praxis has other drug candidates in development. If any of these candidates show promising results in clinical trials, it could enhance the company's value and offset the potential setbacks of ulixacaltamide.
5. Mergers and acquisitions: Praxis could become an attractive target for acquisition by a larger pharmaceutical or biotechnology company, which could lead to a premium on its stock price. Such a transaction could provide access to additional resources, expertise, and funding to support the development and commercialization of the company's drug candidates.
6. Favorable regulatory environment: Changes in the regulatory landscape could create opportunities for Praxis to accelerate its drug development and approval process. This could potentially improve the company's prospects and increase its value.

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