2023-04-12 13:13:16 ET
Summary
- Investor confusion surrounding Annovis’s interim analysis of its Phase 3 Parkinson's (PD) study highlights the need, in my view, for improved PR processes at Annovis.
- The company will have ~9 months to improve communications leading up to the expected Phase 3 PD data in the 1Q24.
- Lead asset buntanetap's underlying thesis remains unchanged as an intriguing and potentially upstream intervention in multiple neurodegenerative diseases.
- Reiterate 12-month price target: $107/share (+622%).
Intro
While our last article (published 3/30/23) focused on the science behind Annovis's ( ANVS ) lead asset buntanetap and its clinical results to date, this article aims to clear up the confusion some Annovis investors have experienced over the past two weeks regarding the Phase 3 Parkinson's Disease ((PD)) interim analysis ( Twitter , StockTwits , Reddit ).
Ultimately, the recent events can be summarized as follows: a series of communications from the company appears to have led many investors (rightly or wrongly) to expect an interim efficacy readout of its ongoing Phase 3 PD trial at the AD/PD 2023 conference in Sweden on 3/30/23. The company did not end up making the presentation, and released an 8-K the following day stating that the interim analysis was received, that it was positive, that the study would proceed as originally designed, and that the company remained blinded to the data. This led the stock, which had run up in anticipation of the event, to fall back to ~$12/share, the level at which it spent the majority of 2022.
It is our conclusion that nothing calculated or nefarious occurred (the fear of some investors), and that instead, the mass confusion was caused by a series of botched communications. After a thorough review of the details, we have five primary conclusions:
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The company never planned to report efficacy data-the Phase 3 PD trial is a placebo-controlled, double blind study, the integrity of which would be compromised by releasing unblinded efficacy data.
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The "interim analysis" was always planned to be a sample size re-estimation ((SSR)) analysis conducted by a third party , in which Annovis would receive no data, other than possibly blinded variance data of the combined study, which confers nothing about the underlying treatment groups.
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The miscommunications that created the false expectation of efficacy data amongst investors were inadvertent.
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The company should strive to improve its public/investor relations, starting with being more available to shareholders and inviting a more active role for its IR firm.
The following article is a detailed analysis of how we believe the company failed to accurately set expectations, and why we believe the company was always planning to conduct an interim SSR analysis, and never an interim efficacy readout. This article will be semantic and exhaustive(ing) at points, in an effort to restore confidence in the underlying story for those that are understandably skeptical.
The company's public statements leading up to the Phase 3 PD interim analysis display a degree of imprecision and ambiguity that is unfamiliar to many clinical-stage biotech investors. While the failure to communicate clearly and effectively is a potential threat to the realization of shareholder value, we believe the situation is remediable in the months leading up to Phase 3 readouts expected in the 1Q24.
Investment Thesis
Importantly, our deep dive into the latest events has reassured us that Annovis's fundamental story remains unchanged. As such, we reiterate our positive view:
Annovis's buntanetap has a differentiated mechanism of action with the potential to address both PD and AD at a point further upstream in the pathophysiology than many other clinical-stage programs. After trading up/down ~40% in anticipation of/reaction to the "interim analysis" debacle, the stock now sits at a market value of ~$120 million, which may be a potential level of support (reinforced throughout 2022) and an attractive entry point for long-term investors.
As we discussed in our previous article, we believe Annovis's most recent Phase 2a AD/PD trial data (reported in mid-2021) was misunderstood and subsequently overlooked by the market, and, while inherently limited (only 68 total patients treated for 25 days), we believe it was supportive of buntanetap's potentially disease-modifying effects when taken in the context of its broader scientific and clinical profile. We believe the stock presents outsized upside potential as an underfollowed, low-float (~6 million shares) microcap with Phase 3 readouts in the massive PD and AD markets due in the 1Q24.
The company also recently removed the stock's primary overhang in the interim by raising $7.6 million via its ATM facility (which is now closed) and an additional $1.1 million via a private placement to management and the Board, ensuring it will reach the Phase 3 data readouts (and then raise additional capital). Notably, the ATM registration revealed that Annovis has added BofA as its lead banker, which we believe is a positive development that has been overlooked by the investment community.
Besides the results of upcoming Phase 3 data, we believe the potential for poor communication with investors is the company's primary risk, but believe the market's expectations for the next 6-9 months are appropriately set on receiving no new material data until the full Phase 3 readouts, limiting the potential for confusion in the near term. While it may not ultimately matter in the event of overtly positive Phase 3 data, we view the next 6-9 months as an opportunity for active shareholders to help facilitate a more robust system of internal practices and procedures at Annovis.
Price Target
We reiterate our 12-month price target: $107/share (down from $117 last article reflecting 10% share dilution).
This price target, which corresponds to a market cap of ~$960 million, is an approximation derived, in part, from:
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Buntanetap's ongoing Phase 3 studies in both Parkinson's (~1 million US patients) and Alzheimer's (6+ million US patients), with potentially-positive results from PD (expected to be reported first) conferring positive implications for AD.
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Cassava Science's current market of ~$1 billion, whose drug simufilam we regard as marginally beneficial in decreasing the rate of cognitive decline in a subset of earlier-stage patients, based on currently-available data.
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Annovis's previous high of $121 in 2021, which corresponded to a ~$960 million market cap, following the initial excitement generated by its initial Phase 2a results.
Review of Recent Events
A quick review of the past weeks' events (and the events leading up to them):
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1/25: Annovis reports strong enrollment in its Phase 3 PD trial and that there will be an "interim data analysis" in the 2Q23 aimed at optimizing the sample size of the study.
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Stock goes from $13/share to $20 over the next week.
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3/22: Company press release states that SVP of R&D, Dr. Cheng Fang, will present results of the interim analysis on 3/30 at the AD/PD 2023 conference.
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Stock price, which had drifted back down to $15, increases to $22 in anticipation of what appears to be incoming efficacy data.
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Morning of 3/30: Company does not present at AD/PD 2023, with rumors that the presentation has been moved to Saturday because of scheduling issues at the conference. No communication from the company.
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Morning of 3/31 (Friday): Company files an 8-K stating that the results of the interim analysis were positive; study will continue as planned; explicitly states that it remains "blinded to the data".
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Trading day of 3/31: Stock falls 23% as it becomes clear Dr. Fang's presentation was canceled (not moved to Saturday).
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After the close 3/31: Unaudited 10-K is filed containing the same statement about the interim data being positive; restates that it remains blinded to the data.
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After the close 3/31: Files $50 million ATM shelf registration led by BofA; reveals it expects to have $16.8 million of cash on a preliminary unaudited basis at 3/31/23.
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Monday 4/3/23: 8-K filed with 4Q22 highlights and new development; contains same statement about successful interim analysis; no new information.
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4/3/23: Updated April slide deck released.
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Morning of 4/4/23: 8-K filed that states the company raised $7.6 million through its ATM, and is terminating the balance; revealed later that it raised an additional $1.1 million in a private placement to management and the Board.
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4/5/22: Annovis Twitter page posts about Parkinson's awareness-business as usual.
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Week of 4/3: Stock eventually settles at around $12/share, where it spent the majority of 2022.
SSR Analysis
Our conclusion is that the company tried to convey in its January press release (discussed below) that the upcoming "interim analysis" was a sample size re-estimation ((SSR)) analysis , but unfortunately left significant room for misinterpretation. Before diving into the details of the mixed signaling, it is beneficial to establish what a SSR analysis is, how common they are, and why it would be unusual for Annovis to report interim efficacy data for its Phase 3 PD trial.
As explained in this video and this collection of articles , a SSR analysis is a common adaptive trial design that allows the company to assess and potentially adjust the sample size of a trial based on the statistical variability of the interim data. The goal of a SSR analysis is to ensure adequate statistical power in the study.
Importantly, the actual analysis is performed by a third party (likely Annovis's contract research organization ((CRO)), TFS HealthScience), and a recommendation regarding the sample size is then made to the company based on predetermined thresholds of variability of the underlying combined, blinded data, i.e. data from all treatment groups (placebo, 10mg/day, and 20mg/day) taken together as one group.
In a SSR analysis, Annovis would not receive any data about the underlying treatment groups or effect sizes. At most, Annovis may have received the variability of the combined, blinded data-most likely the standard deviation (a measure of variability)-which does not confer any information about the mean effect size of the treatment groups, nor the within-group or between-group variability.
Accordingly, we believe Annovis's public use of terms such as "interim data analysis" and "results" to describe a SSR analysis are inaccurate (discussed below). The term "data", no matter the surrounding qualifiers, implies to the vast majority of people (especially scientific layman) that the company is reporting data , when in fact what Annovis actually received from the third party data analysis provider is much closer to a "conclusion" or "determination".
Regardless, it would be very uncommon for a company to report interim efficacy data two months into a six-month double blind, placebo-controlled study-primarily because it introduces biases for investigators and patients that are still receiving treatment.
While there are some examples-including Biogen's interim readout of its Phase 1b PRIME study of aducanumab in 2015, Sage Therapeutics' Phase 2 trial of zuranolone in postpartum depression in 2021, and Gemphire Therapeutics' Phase 2b trial of gemcabene in high cholesterol in 2017-there is usually a reason, such as aducanumab's panoply of serious side effects (i.e. it was both an efficacy and a safety interim analysis).
While it would not be out of the realm of possibilities for Annovis given the unorthodoxies of its Phase 2a trial-a combined AD/PD study of 14 AD patients and 54 PD patients being treated for only 25 days, with the first 14 patients in each indication being giving CSF and the others not, and interim readouts announced sporadically between May and October 2021-interim efficacy readouts are especially rare in Phase 3 trials, again because they diminish the scientific integrity of the data.
Expectations Miscommunications
The mis-setting of expectations surrounding the "interim analysis" of the Phase 3 PD trial, in our view, began with the release of the company's January slide deck on January 6th.
January 2023 Slide Deck
Slide 4, under "Multiple Catalysts", refers to the SSR analysis by stating that Phase 3 Parkinson's "interim data (is) expected Q2 2023". As discussed above, characterizing the SSR as "data" is inaccurate in our opinion.
Then the company put out the January press release (on January 25th). While it is the most clear of all of the company's communications and clearly attempts to convey that the interim analysis pertains to the sample size of the trial, it is still far from explicit. It contains a quote from CEO Maria Maccecchini:
"We look forward to providing an interim data analysis from the study in the second quarter of 2023, which will enable us to optimize our patient enrollment for the study."
It then says:
"The purpose of the interim analysis is to determine if the Company's original estimates for patient enrollment in the Phase 3 trial (150 patients per arm) will be sufficient to observe a statistically significant treatment effect…"
While these statements are reasonably clear about the objective of the study, they are unfortunately unclear about what the interim analysis actually entails. They omit any mention that the results will be blinded, that the analysis will be conducted by a third-party, or that the "analysis" Annovis will receive is more akin to a recommendation based on pre-specified parameters.
Conceivably, the language used in the January press release could be understood as meaning that the company plans to use interim efficacy data to determine if its original estimates for patient enrollment are sufficient to observe statistical significance.
For investors that may have been confused by the press release, the February slide deck continued to show that Phase 3 "interim data" was expected in the 2Q23.
March Press Release
Then, the company's March press release announced that the company's SVP of R&D, Dr. Cheng Fang, would present the interim analysis at AD/PD 2023. This press release used significantly more misleading language than the January press release regarding the nature of the data to be presented.
First, it states that the title of Dr. Fang's presentation is/was:
"Phase 3 Clinical Studies in Alzheimer's and Parkinson's Disease; Interim Analysis of the Parkinson's Clinical Study"
While the title is rather generic and does not explicitly say "efficacy", it also does not include any indication that the interim analysis is a SSR analysis.
The press release then states:
"Dr. Fang's presentation will cover the study designs of the current Phase 2/3 study in Alzheimer's disease and the Phase 3 study in Parkinson's disease, as well as the interim analysis of the Parkinson's Disease study that includes results from 30% of patients who have received 2 months of treatment."
The first part of the sentence is fine-it focuses on the study design (though could still be more specific)-but then, in a new clause that appears to be referring to a separate subject (i.e. "as well as"), states that the presentation will include an "interim analysis…that includes results from 30% of patients".
We think the majority of readers, especially scientific laymen and even hobbyists, would read the March press release as saying that the company was reporting efficacy data at AD/PD 2023-the stock certainly thought so. The company very easily could have referred to the analysis as what it is: a sample size re-estimation analysis .
Additionally, the fact that the March press release represented a moving up of the previous "2Q23" timeline up to 3/30/23 (just eight days after the PR), and was now slated to take place at one of the largest neurodegenerative conferences in the world, only added to the impression that the company was reporting something of consequence.
It seemed from our correspondence that the company's IR firm, LifeSci Advisors (first appearing in the January slide deck), may have had some input into the January press release, which could account for why the January release gave a more accurate impression of what to expect from the analysis, though this is speculation.
Other Events
Biotech stock research services also appeared to be under the impression that efficacy data was coming, including BioPharm Catalyst and BiopharmIQ ( 1 , 2 , 3 ), both of which included the company on their equivalents of catalyst calendars.
The Response: Friday's 8-K
When it became clear on the morning of Thursday 3/30 that the AD/PD 2023 presentation did not occur, investors were left to try to figure out what had happened without any comment from the company.
The next day, Annovis filed an 8-K . Interestingly, the filing starts off by saying:
"Annovis Bio has received the interim analysis for sample size re-estimation for its Phase 3 clinical trial for the treatment of early Parkinson's Disease".
This was the first ever use of the term "sample size re-estimation" in an Annovis Bio filing, essentially confirming that the company was aware of the confusion they had created.
Then the filing reads:
"The company has received the results of the pre-planned interim analysis conducted by a data analytics provider …".
Again, these terms are completely new to Annovis's filings-suddenly the company is being direct, clear, and explicit in its description of the interim analysis.
Unfortunately, when referring to the actual "results" of the analysis, the clarity evaporates:
"As the interim analysis was conducted at two months of the six-month endpoint and only on 132 patients, it may not be indicative of the results at six months for the full patient population because as the trial progresses, clinical outcomes may materially change as patient enrollment continues and more patient data become available, or different conclusions or considerations may qualify such results once additional data have been received and fully evaluated. Based on the results of the interim analysis, the Company intends to proceed with the trial as planned in accordance with the previously established protocol."
This rambling, equivocating statement is bizarre, in our opinion, and we encourage investors to read the original document for full effect. Not only did this statement make it into an SEC filing, but it was copy-and-pasted into both the 10-K filed after the close, as well as the 4Q22 update 8-K filed the following Monday.
Annovis could have stated the same sentiment by simply saying: "two-month data does not equal full six-month data".
Why so many qualifications? While we are speculating, we think this language may have been chosen to explain why the company may not be following the third-party data provider's recommendation to either increase or decrease the sample size.
Interestingly, the 8-K also announced that, "a separate interim safety analysis is in process and the Company expects that interim analysis to be released in the second quarter of 2023". This "separate interim safety" analysis was not previously announced to our knowledge, and it is unclear why an interim safety analysis (presumably containing the same number of patients and the same treatment duration) would take longer to complete than the SSR analysis.
10-K
After the close on Friday 3/31, the company filed its 10-K containing preliminary 2022 financial results (preliminary because of previously-identified financial reporting deficiencies, likely discovered by the company's new CFO who started in late August 2022). The 10-K repeated the same statements as the 8-K (verbatim), but added a few additional pieces of info, which seem to contradict its other statements:
The company repeats that, "We remain blinded to the Phase 3 PD study and we do not have safety or efficacy data from the trial" , but then, two sentences later, states that, "Using the data from the Phase 3 PD study interim analysis, we intend to design an 18-month long disease-modifying Phase 3 study in the same early PD patients." .
We do not know what to make of this. Whether it is referring to the SSR analysis or the newly-announced "interim safety analysis", it is unclear how either would provide "data" that could be used to inform the design of its 18-month study. Again, the use of the term "data" in this context is careless in our opinion.
Along the same lines, the 10-K says the company plans to "consult with the FDA following the completion of these interim analyses, to obtain feedback on our ongoing and planned AD and PD studies". We are unsure what Annovis would be presenting to the FDA, but believe this statement is more of a boilerplate "we are in-touch with the FDA" statement.=
The 10-K also revealed that the company plans to release an interim analysis in its AD study in the 3Q23, which will presumably mirror the PD interim analyses, i.e. provide no new information (we assume buntanetap to have already substantially proven its positive safety profile, even at significantly higher doses).
ATM Shelf Registration
Annovis also filed a $50 million ATM shelf registration after the close on 3/31, which came as a shock to some investors that had heard CEO Maria Maccecchini state in two recent interviews (in February and March 2023) that the company had enough cash to make it through the Phase 3 data readouts. Obviously, this further undermines investor confidence.
On the positive side, the filing revealed that Annovis added Bank of America as its lead banker, where ThinkEquity had been the sole bookrunner on its 2020 IPO and 2021 $50 million equity offering. While not necessarily consequential, the relationship does bring a sense of legitimacy and could indicate the potential for an expanded relationship (e.g. research coverage) in the future. We believe this development has been overlooked by shareholders.
The company announced on 4/4 (the following Tuesday) that it was terminating the ATM after raising $7.6 million in gross proceeds, in addition to $1.1 million raised via a private placement to management and the Board (announced on 4/11).
Ultimately, we expected the company to have to raise additional cash before reporting Phase 3 PD results (as noted in our previous article), despite Maria stating otherwise in her interviews, and believe that while better planning could have resulted in slightly less dilution (higher average sale price), the $7.6 million raise was only minimally-dilutive (8%; 10% including $1.1 million raised via private placement) and removed a key overhang that existed between now and Phase 3 data.
April Slide Deck
The company also released its April slide deck last Monday (4/3), which may have presented investors with a few additional points of confusion.
The updated deck (shown below) continues to refer to the interim analysis as "Phase 3 interim data", which makes even less sense now that the company's recent filings have stated it remains blinded to the data.
We can also see that, for some reason, the February slide deck (left), which was released on 2/13/23, states that the first AD patient was dosed in January, while the April slide deck (right) states that the first AD patient was dosed in February.
February (left) and April (right) 2023 Slide Decks
While it is better than the other way around (i.e. retroactively moving the study initiation date earlier), the question is: why was it ever stated (in February) that the first patient was dosed in January?
Additionally, on the prior slide (slide 3; shown below) in the same April slide deck, the company had stated that the AD trial "started in January 2023", though it is conceivable that this was intentional and the company is drawing a distinction between when the trial "started" and when the first patient was dosed.
April 2023 Slide Deck
Then there is slide 15, which is new to the company's deck and appears to attempt to address the recent confusion surrounding the interim analysis:
April 2023 Slide Deck
It is difficult to understand the meaning of the text on this slide, but it appears to have been written before the outcome of the interim analysis was announced, even though multiple other slides in the deck acknowledge the analysis as having been received.
Finally, the April deck also contains this slide:
April 2023 Slide Deck
This slide says that there is a "2 months interim analysis expected in 2Q'23", which could either be referring to the "separate safety interim analysis" which was recently announced, or is also leftover text from before the company reported the sample size re-estimation analysis. We also note that on this slide, the company uses the term "interim analysis" rather than "interim data" (as it does on slide 4). Also, while not an inaccuracy, it is worth pointing out the image of a woven basket (and surrounding cream-colored outline box), which is also a new addition to the slide deck.
Our Takeaway
While odd and potentially suspicious on the surface, we are convinced that the company's ambiguous communications were inadvertent-primarily resulting from carelessness and a lack of experience, internal controls/procedures, and correspondence with its IR firm-and that the interim analysis was always set to be a SSR analysis.
Specifically, our conclusion is formed on basis of: the company's clear attempt to communicate an accurate description of the interim analysis in the January press release; the relative rarity of interim efficacy analyses due to the introduction of biases, especially in Phase 3 trials; and the company's precedence of ineffective and confusing communication (discussed in the Appendix). As such, we do not believe the company attempted to "cover up" up "bad data" or had other nefarious motives, like some investors have feared.
Additionally, we are comforted by the assumption that the company would have been in violation of securities law if it had received interim efficacy data and proceeded to tell investors otherwise.
We are, however, concerned about management's inability to communicate effectively and the continued risk of undermining investor confidence in what is otherwise a very compelling underlying story. Additionally, we do not think that the company (or its IR firm) are sufficiently in touch with its investor base, evidenced by both parties' lack of knowledge that investors were expecting an efficacy readout. As a result, we think investors would benefit from changes to the company's internal procedures and communications processes.
Why Present at AD/PD at all?
A fair question is why the company was presenting at AD/PD 2023 in the first place if all it would have to report was a recommendation given by a third party data analysis provider.
We can only imagine that the company wanted to get in front of the scientific community at one of the largest conferences in the world to preview the Phase 3 data that it plans to report in the next 9-12 months.
The company would've been better served to have never scheduled its presentation at AD/PD 2023 in the first place. If the company simply released the "interim analysis" on a random day in the 2Q23 as a filing or press release, we doubt the market's reaction would have been as negative, even if many investors were expecting efficacy data. Additionally, the company likely would have been able to raise the additional cash it apparently needed at a higher share price if the situation was handled better.
Why the Presentation was Canceled
Though it is conjecture, we believe that the company gambled that it would have the results of the interim analysis by the AD/PD 2023 presentation on 3/30, when in fact it was not a surety-perhaps the timeline given to the company was the end of March-and that Annovis received the results of the interim analysis too late to construct a presentation. Then, due to a lack of organization and formal processes, did not address the public/investors via press release until the following day.
Study to Continue as Originally Designed
As for the "results" of the interim analysis, it is of course a positive development that the trial will be continuing as originally designed (as opposed to the sample size being increased), but, again, this determination is presumably based on the variance of the blinded data and thus implies nothing about the underlying results of the study. We also think that even if the recommendation was to decrease the sample size (potentially positive, though still ambiguous), Annovis would still have opted to keep the original size to collect more data, especially given the strong pace of enrollment.
CEO Maria Maccecchini
In our conversations, we have found Dr. Maria Maccecchini to be an intelligent and diligent scientist-a PhD in Biochemistry from the University of Basel; post-doctoral research at Caltech and Roche Institute of Immunology; fellowship at The Rockefeller University. She has devoted the majority of her life to making an impact in the lives of those with neurodegenerative disease, and we appreciate her dedication to moving the company forward throughout its long history and note that she has proven the ability to deliver on estimated clinical timelines.
That said, it is our sense that Dr. Maria Meccecchini has near-complete control over corporate communications at Annovis, and while she has been a guest lecturer at Wharton Business School since 2016, the management of Annovis as a publicly-traded company demonstrates a lack of strategic planning. While she is highly capable of moving buntanetap forward, the company's public communications are uncharacteristically imprecise for a clinical-stage biotech, which are typically careful to be completely accurate in their public statements.
The company will likely need to reform its internal communications procedures if it wants to attract new and larger investors (currently has almost no institutional ownership), preferably before the release of Phase 3 data. While we are sympathetic to the fact that going from 2 employees to 10 is a big jump (as Maria mentions in the Heroes of Healthcare interview), we believe the company's public relations could be significantly improved with relatively little effort, chiefly by way of a more coordinated and thoughtful effort with their IR firm.
Communications
We believe the next 6-9 months leading up to the Phase 3 readouts should give Annovis adequate time to improve the company's communications processes. Changes that would benefit inventors include:
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A closer relationship between the company and its IR firm, and increased engagement of both parties with new and existing investors. The company should not be unaware of the investment community's expectations regarding an upcoming milestone.
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A more collaborative decision-making and public relations procedures, likely involving the delegation of certain processes, such as press release drafting and data visualization, perhaps to SVP of R&D Cheng Fang, and/or an increased role for its IR firm.
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Holding a quarterly earnings call. We are unsure if the company has held a live call since its October 2021 final Phase 2a data release. We would assume Maria is open to answering questions, but if not, the company could prepare a set of FAQs to answer.
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Find an opportunity to host an hour-long "investor day" or "fireside" chat.
Conclusion
While we are sufficiently convinced of there was no management wrongdoing regarding the interim analysis communications, we believe that a lack of formal internal processes at the company leaves the door open for continued missteps that may undermine the investability of the company, especially in the eyes of the larger investors that Annovis should be aiming to attract. It does not benefit anyone-the company, investors, or patients-for the company to release potentially misleading public statements. While overwhelmingly positive Phase 3 data would likely override mild-to-moderate miscommunication, we believe the firm's ability to paint an exceedingly clear picture of the data and guide investors to expected milestones is critical to the maximization of value for all stakeholders.
With Phase 3 PD data likely ~9 months out, we will continue to engage with the company, its shareholder base, and the underlying story to highlight the aspects of Annovis's asymmetric upside potential.
For further details see:
Annovis: Making Sense Of The Interim Analysis