In 2014, Dr. Thomas Insel, the former director of the National Institute of Mental Health (NIMH), wrote in a blog post that intravenous ketamine “might be the most important breakthrough in antidepressant treatment in decades”. This is quite a statement, given the fact that the prevalence of lifetime major depressive disorder in the United States is estimated to be about 13%.
Further, about 20% of these people have what is known as treatment-resistant depression, or TRD. Current standard therapies like Prozac and Zoloft do not work for them, and only recently has ketamine, an anesthetic, been discovered as a fast-acting solution. Recent estimates pin the number of TRD patients in the US currently being treated at 4.9 million.
The problem with ketamine though is that it’s dangerous, addictive, and prone to abuse. Using ketamine to treat TRD is something akin to using heroin to treat chronic pain. It works, yes, but at a cost.
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A lot of investor attention in biotech is now being focused on abuse-deterrent formulations of opioid pain killers. The concept is of course straightforward. The mechanism of action for these drugs works, so keeping that mechanism but making the drug less prone to abuse makes intuitive sense. Yet, in the flurry of new trials for abuse-deterrent pain medications, similar developments in the depression space have been overlooked.
Granted, there aren’t nearly as many companies working on abuse-resistant drugs targeting TRD, simply because ketamine was only recently discovered as an effective treatment for the condition. This does present advantages from an investment perspective though from a combination of lack of attention and market concentration in the event of an approval.
There are two companies working on the problem. One is Naurex Inc., which was acquired by Allergan plc (NYSE:AGN) in 2015 for $571 million in cash plus milestone payments. That gives us a good general idea of the capital value of such a drug to pharmaceutical leaders, but unfortunately, the ship has sailed on Naurex in terms of any outsized speculative gains. One may of course buy Allergan to capitalize on any success here as a conservative choice, but the more speculative option in terms of high return potential is Vistagen Therapeutics Inc. (NASDAQ:VTGN), a small $32 million company that was unable to take advantage of the media generated by the Naurex acquisition last year. It is still a relatively unknown company.
Returning to the abuse-deterrent opioid comparison, both Naurex’s and Vistagen’s candidates are not exactly abuse-deterrent ketamine, but they work in a similar way. Ketamine works by blocking a neural pathway called the NMDA receptor and is typically used as an anesthetic. This receptor is very important for normal mental function, so blocking it does cause serious mental and physical side effects, hence the danger. What Naurex’s Rapastinel and Vistagen’s AV-101 do instead is modulate the NMDA receptor instead of block it, changing the way it works but keeping it functional. Both companies believe that the slight change in the mechanism will translate to less side effects with similar efficacy, hopefully providing a fast-acting and safer solution to TRD.
Allergan plc (NYSE:AGN) has already stated its opinion on the matter by acquiring Naurex after a successful Phase IIb trial, and Vistagen Therapeutics Inc. (NASDAQ:VTGN) is right behind with a Phase IIa, with topline results scheduled for Q2 of next year. The Phase IIa is fully funded by the NIMH, and this after its parent National Institutes of Health (NIH) already funded preclinical and Phase I development.