The Long Way Round: The Neurotech International Story (NTI)

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

There is one truth about investing in small-cap stocks…

Everything takes longer and costs more than you think.

Which means that “timing the market” is a genuine strategy.

(As opposed to the classic “time in the market”)

If things take longer than the market expects, investors get bored, sell their stock and the company’s share price tanks.

THEN, when it finally achieves what it set out to achieve… the stock is trading at a fraction of the price, with no one watching.

Such is the story with the next company on my Biotech 165 Challenge…

Neurotech International (ASX: NTI | MC: $25M | Not Held).

An old client of mine, and one of the first biotech stocks I ever wrote about.

So it does hold a special place in my heart.

Over the last two weeks, there have been TWO key de-risking events.

At first they look like administrative fodder. 

They are not.

Here is what NTI announced…

FIRST, it secured an Investigational New Drug application with the FDA.

SECOND, it (effectively) secured a patent in the US over its product.

Okay… so what?

Well, these were incredibly hard to get.

Why?

It all comes down to what the drug is made from.

NTI’s product is a cannabis plant extract. 

Hard to manufacture consistently. Hard to patent.

Two years ago, the company published what I'd classify as genuinely good data showing its product, NTI-164, could meaningfully improve autism symptoms in children.

After 12 weeks, the mean child on the trial moved from baseline ‘markedly autistic’ to somewhere between ‘borderline’ and ‘mild’.

Riding high on that 2024 data readout, the company raised $10 million at a market cap of around $100 million.

The problem was what came next.

In order to get a drug approved in the US, it had to go back and do all of the desktop work to secure an IND.

(An IND is basically a licence to run human trials in the US… more on this in a bit)

Back to the beginning.

Manufacturing. PK studies. Animal testing.

Think of this like finishing a master's degree, only to go back and pass first-year economics to get the diploma.

Also, it took much longer than expected.

18 months to 2 years.

As I said… it is very hard to patent and to consistently manufacture a plant.

This gap, between human efficacy data and a robust regulatory package, is not uncommon on the ASX.

It's a strategy.

Prove the drug works cheaply at home, then go back and do the costly, unglamorous work of building a robust regulatory package once the results have paid for it.

I’ve seen multiple ASX-listed companies do this.

Generally it makes for a good trade, but can also hamstring a company for months or even years if things take longer than expected.

The market rewards the results. It never rewards the desktop work.

(Even though that is the bit that actually unlocks the market).

The unglamorous work is coming to an end…

IP protection… tick.

IND approval and contract manufacturing… tick.

Strong Phase 2 data… well, that was always there.

Now it is up to the company to get the drug registered and approved in Australia through a Phase 3 clinical trial.

Interim results? Scheduled for the end of this year.

(If they can find the funding)

Someone once said to me… 

“The US biotech industry is like the Premier League. 

Big budgets. Best analysts. Lots of capital.

Australia… 

Well, that is Championship Division 5.

Everything on a shoestring budget, and the market gets bored quickly.

To win, you need to win scrappy.”

So, that's what the ASX does. It wins scrappy.

… and by scrappy, I mean that it uses the path of least resistance to get to the most important thing for any early-stage biotech.

Data.

Human data.

Does the drug work?

But data is NOT the only thing that you need to get a drug to market.

It needs to be safe…

It needs to be patent-protected…

It needs to have a clear mechanism of action…

It needs to be manufactured consistently…

The grunt work that goes into getting a drug ready for market.

Normally (and the big US companies would do this), all of this work is done up front BEFORE human trials.

But some companies in Australia work backwards.

Run your trial first (in Australia) where all you need is an ethics committee's tick.

THEN get your efficacy data. 

THEN raise money off the result.

THEN (and only then) do you go back and do all of the unglamorous grunt work you were technically supposed to do first.

Do it backwards, do it cheap, keep the lights on.

This can work. Right up until the expensive bit takes two years instead of two months.

That was the story with Neurotech International (ASX: NTI), the next company on my Biotech 165 Challenge.

They always had the results. 

Genuinely good Phase II/III data in autism, which we'll get to.

What took time was all the desktop studies and manufacturing required to get an IND.

Yesterday, that problem was solved.

Let’s dive in…

NTI first listed on the ASX in 2016 with a medical-device - a portable EEG headband for autism. 

The device was fine… but it never really gained much traction in the market.

Then in 2020, the company optioned a full-spectrum medicinal cannabis extract.

Low-THC (about 0.08%). CBDA-rich. With a range of minor cannabinoids.

There were a lot of cannabis stocks running around at the time, but this one stood out because it was NOT going after Schedule 3 (over the counter); it was going down the traditional pharmaceutical route.

In preclinical work, the product showed genuine promise as a brain-protective agent, significantly dampening inflammation in brain cells and promoting neuron survival.

Over the next few years, the company conducted two clinical trials for autism. 

A Phase 1 safety trial and a Phase 2/3 efficacy trial.

(With two other side bets in rare diseases: PANDAS/PANS and Rett Syndrome).

The results were good.

Very good.

I remember covering them at the time and being impressed.

Children on NTI-164 improved from "markedly-to-severely ill" to "mild-to-moderately ill" on the CGI-S scale (the standard clinician's scorecard for how sick a patient is). 

In the 12-week follow-up, the improvement stretched to 56% from baseline

A massive, massive improvement.

It’s also great to listen to the parents of these children using the drug, and how much it has impacted their lives too (Start at 16:13):

Data on the other two conditions were promising.

… but really it was the autism trials that were most important to the company.

As they say… with great data comes great responsibility.

NTI had a responsibility to… 

FIRST, continue to provide the drug to the families under the special access scheme (which was a pivot from the original trial design and the families pretty much begged for this) and at NTI’s cost.

SECOND, bring this drug to market to help more families.

Which meant doing all of the unglamorous things that it had neglected.

Manufacturing. PK studies. Animal testing.

Which, unfortunately… it took much longer than expected.

An IND is an Investigational New Drug application that allows a company to test a drug in humans in the US.

Think of this like a “licence”.

It doesn’t guarantee any success; it is just the conditions of entry.

There are three things that the company must prove:

For most drug developers, securing an IND is run-of-the-mill.

BUT, Neurotech had one distinct disadvantage.

It was a botanical.

Neurotech's product is a special, proprietary plant extract, not a synthetic.

(Avecho’s (ASX: AVE) cannabis product, on the other hand, IS synthetic, making it easier for them to get an IND)

A synthetic drug is a single, precisely defined molecule. 

You make it in a lab the same way every time, so batch one looks like batch one thousand. 

Regulators like this, because of the consistency.

NTI164 is a botanical, a whole-plant extract, a mixture of many compounds. 

Plant compositions shift with soil, climate, harvest and growing region.

The FDA's Botanical Drug guidance sets out the bar…

To get a botanical across the line, you have to demonstrate "therapeutic consistency" using raw material from three or more cultivation sites, run biological assays, and satisfy a "totality of the evidence".

In the entire history of the FDA, only four botanical drugs have ever won approval.

It’s not easy.

That is what Neurotech has spent the better part of two years on. 

Not the science of whether the drug works.

It was the chemistry-manufacturing-controls work of proving you can make it identically, every time.

The culmination of two years of background work was announced yesterday:

IND secured.

There's a second risk that NTI had to overcome.

Intellectual property.

What did they own?

Cannabis is genuinely hard to protect. 

(people have been smoking it for hundreds of years)

You can't easily patent a plant strain itself, and because cannabis extracts have sat under federal prohibition, the usual protections, including federal trademark registration for the scheduled extract, have been off the table in the US.

So a full-spectrum plant drug faces the double whammy: hard to standardise for the FDA, and hard to fence off from copycats.

But NTI solved for this too with a method-of-use patent (reducing neuroinflammation) with NTI-164:

Patent, ready to be granted.

So within a fortnight, Neurotech resolved the two biggest regulatory risks hanging over the company: The IP, and the IND.

If you've followed any ASX-listed cannabis stock, you'll have seen this packaging:

That’s Epidiolex.

Made by GW Pharmaceuticals, it is the only cannabis based medication, derived from a cannabis plant, approved in the US.

It was on every single slide deck from an ASX-listed cannabis company in 2021.

Why?

In 2021, Jazz Pharmaceuticals bought GW Pharmaceuticals for US$7.2 billion, setting a price tag for such medication.

Every company was looking to become the “Next Epidiolex”

But since then, no one has been able to replicate the success.

This is because, up until this year, cannabis was not federally regulated.

It sat on Schedule I, alongside heroin, which kept institutional money, banks and acquirers at arm's length from anything touching the plant.

That's changing. 

Late last year Trump moved to down-schedule cannabis at the US federal level, taking it off Schedule I and formally recognising it has "acceptable medical uses.":

Then, in April, the US Justice Department actually reclassified cannabis as a Schedule 3 drug:

This is beneficial for NTI for two key reasons.

FIRST, institutional money likes clarity. 

US federal law currently makes cannabis a legal minefield, so large investors and banks keep their distance. 

But with cannabis now federally regulated, companies like NTI become “bankable” (literally) from large US institutions.

SECOND, it makes for a cleaner M&A target. 

Federal recognition gives acquirers a framework for what they're buying. 

Big Pharma tends to avoid grey areas, and tends not to avoid de-risked, 

The next move for NTI in the US is likely to be a large clinical trial for autism… 

However, I expect it will wait until the results of its Australian Phase 3 clinical trial are available first.

THEN, I suspect NTI will shop its product around and seek a big pharma partner to take it to market in the US.

In particular, now that medical cannabis products are “in play” for banks and acquirers.

(oh, and because they have their IND and IP sorted too)

Neurotech is running its pivotal Phase 3 "Beyond Harmony" autism trial.

150 patients. 75 on the drug, 75 on placebo.

This is the trial design:

While the trial is designed as a registrational (or register-enabling) trial, there is no guarantee that the drug could be registered based on this trial alone.

(Although this is what NTI is aiming for)

The first site was set up in March this year; recruitment has begun, but NTI is yet to dose the first patient.

First data scheduled for the end of this year:

The main question is…

Do they have enough money to complete the trial?

At the end of the March quarter, the company had ~$4.1 million in the bank.

Another quarter down, and that bank balance is starting to look pretty thin.

I suspect that the company will need to answer the financing question mark before it progresses to dose its first patient.

A genuine risk over the company.

The trial has a short turnaround time, 12-weeks, so I think there will be a few investors that will want to “bet” on the outcome of that trial once it begins.

Australia has a very large problem.

It’s called the National Disability Scheme.

The biggest driver of NDIS cost growth?

Autism.

Autism-related supports run to roughly $10 billion a year.

It’s not the cost of treating autism. But all of the costs associated with managing autistic people.

Therapy, behaviour support, living assistance… etc.

(These have doubled in the last four years)

NTI’s product takes the most severe autism cases (the ones that cost the system the most money) and helps the system manage.

Moving them from severely autistic to borderline.

Just listening to the families from those who have taken NTI’s drug, you can hear how much an impact this has on them.

If the drug works (still needs to be proven in a large clinical trial), is registered, and is sold across Australia, I see this as a big benefit to the Australian healthcare system and an answer to our big NDIS problem.

In particular, what NTI’s product can do to reduce the cost burden on autism support.

I've been watching this one for a while, and I'm genuinely stoked for the NTI team to finally get the monkey of its back

Between the IP Notices of Allowance and the IND clearance, the two biggest risks to the US market have come off the table inside a fortnight.

The data has always stacked up for me. 

Moving a child from "markedly" autistic toward "borderline" is incredibly good data.

What was missing was in the grind.

The unglamorous work of actually getting the product ready to bring to market.

Now that's done.

I’ve always liked the opportunity - both in the US (as a potential cannabis medication) and in Australia (to solve the ballooning autism costs on the NDIS).

Now that it has resolved the manufacturing challenges, it is closer than ever to realising an actual product in market.

There is still the financing issue.

Which, once resolved, is the final de-risking lever before the company can move through its potential registrational trial.

But the Phase 3 trial is ready to go, with a readout scheduled for the end of this year.

A big thank you to the NTI Chairman, Mark Davies, and the CEO, Anthony Filippis, for sharing the NTI story with me.

See you all tomorrow,

The Armchair Analyst

But first…

Dimerix Limited (ASX: DXB) initiates a trading halt pending announcements regarding a non-dilutive funding agreement and an asset acquisition. (DXB, not held)

🪑 A lot of money is sitting on the sidelines for DXB, waiting to see what this could look like. Let’s see if it's the US$50 million flagged in the quarterly report.

Good luck! 

(Asset acquisition out of left field too)

Cyclopharm (ASX: CYC) secures an agreement for immediate Technegas® installations at 11 University Hospitals locations in Cleveland, Ohio. (CYC, not held)

🪑 Nice deal.

The US Department of Veterans Affairs and Health and Human Services just signed a partnership to prepare the VA for future veteran care of psychedelic medicine:

🪑 The MoU calls for the department to “Train therapists, nurses and physicians involved in psychedelic-assisted therapies.”... 

I wonder if there is an Australian company that has been doing this for more than two years that could help 🤔

… Emyria (ASX: EMD | Held) perhaps.

Starpharma (ASX: SPL) announces a fully underwritten entitlement offer to raise $32 million at $0.57 per share. (SPL, not held)