Acasti Pharma, Inc (ACST)

[crudeoil24]

This article appeared on Seeking Alpha. Is Acasti a threat to Amarin?

https://seekingalpha.com/article/4271991-home-run-hitters-bat-acasti-pharma


Home-Run Hitters, At Bat With Acasti Pharma
Jun. 25, 2019 11:47 AM ET|
7 comments
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About: Acasti Pharma Inc. (ACST)
Gene Katz
Gene Katz
Long/short equity, special situations, arbitrage, activist investor
(15 followers)
Summary

ACST’s drug, CaPre, promises to be the best-in-class Omega 3 play, used to lower triglycerides. It was recently trading at $1.01/share, with a market cap of $79M.

The biggest competitor to CaPre is Amarin's drug Vascepa. After September 2018 study results, AMRN increased from $3/share to $19.01/share recently, or a market cap of $6.29B.

The triglyceride-lowering market is large, but CaPre also potentially improves cholesterol, unlike any other Omega 3 play. If this is confirmed, CaPre becomes a game-changer.

Two of the biggest investors in ACST are arguably two of the smartest investors in biotech: Joe Edelman of Perceptive and the legendary George Haywood. Both have been accumulating.

If positive Phase III Trial results are a 30% probability (and it would appear that it's significantly higher), then the price should be $8.29/share (leading into December 2019).

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Acasti Pharma (ACST) is a small biotech that few people in the market know about. However, two of the biggest investors in ACST, are arguably two of the smartest investors in biotech. Joe Edelman of Perceptive and the legendary George Haywood have both accumulated large positions, and seem to have increased share ownership recently. Legendary biotech investor, George Haywood, has scored home runs with Sarepta Therapeutics (SRPT) and others.

Haywood added 2.7M shares in his Dec. 31st filing, taking his total to 5.1M shares. In addition to ACST shares, Haywood and Edelman are large shareholders of Neptune (NEPT), which is one of the biggest shareholders of ACST. Why are these home-run hitters accumulating ACST? It appears that this little biotech might just be offering a realistic 30-to-1 payoff, with a fraction of the risk.
Phase II Trial Summary

This is a summary of the results, per ACST, from September 2014:

Statistically significant mean placebo-adjusted reduction of triglycerides of 36.4% at 1 gram and 38.6% at 2 gram daily doses of CaPre
Statistically significant reduction of 5.3% in non-HDL-C using 2 grams of CaPre daily (considered the most accurate risk marker for cardiovascular disease)
No increases in LDL-C (bad cholesterol) and slight increases in HDL-C (good cholesterol)
Clinically meaningful mean placebo-adjusted reduction in VLDL-C of 10.9% and 13.5% at 1 gram and 2 gram daily doses CaPre, respectively (VLDL-C is considered a highly significant predictor of cardiovascular disease)
Statistically significant dose dependent improvement in Omega-3 Index (a risk factor for coronary heart disease)
CaPre shown to be safe, well tolerated and effective

If confirmed in Phase III Trial, these results would make CaPre the best-in-class Omega 3 play.
Phase III Trial Update

Management states that Phase III Trial results will be announced in December 2019. Randomization has been achieved, per management. There have been fewer than expected dropped patients from the highly subscribed trial, and per management, there have been no adverse reactions. Management has announced multiple international patents, demonstrating a readiness to go to market after the trial's announcement in December.

Initially, the approval will be for high triglycerides (greater than 500 mg/dl). This is a 4 million person market in the U.S., with another 13 million globally. The next step would be for the 50 million people in the U.S. that have mildly high triglycerides (greater than 150 mg/dl), with another 333 million people globally.

Phase III Trials may confirm that CaPre has significantly high bio-availability, allowing for the drug to be absorbed with a low-fat diet, as opposed to competing drugs, which should help CaPre succeed in the high and mildly high triglyceride market. Phase III Trials may also confirm that CaPre offers the possibility of improving cholesterol, among other benefits, making it the only Omega 3 play to offer this advantage, which again should solidify its dominant position in the high and mildly high triglyceride market.

In addition, there is a further chance that the Phase III Trial data will also confirm previous findings, of improving cholesterol and/or the lowering of diabetic sugars. The triglyceride opportunity is large on its own, but if Phase III Trial data also confirms these other medical applications, CaPre might just become one of the biggest blockbusters in the market.
Competitor

The most notable competitor to ACST's CaPre, is Amarin's (AMRN) drug Vascepa. In September 2018, Vascepa demonstrated positive results in a study regarding Cardiovascular Disease, and the stock consequently increased from $3/share to $19.01/share recently, or approximately $6.29 billion market capitalization. CaPre and Vascepa are both Omega 3 plays. CaPre is made from krill oil, whereas Vascepa is made from fish oil.
CaPre Vs. Vascepa

Advantages:

Trials have shown that CaPre not only maintains cholesterol, but in fact, from the first two clinical trials, it appears that CaPre may improve cholesterol. Vascepa does not have this capability.
Both CaPre and Vascepa have been targeted for patients with high triglycerides (greater than 500 mg/dl), but also offer viability for patients with mildly elevated triglycerides, due to the limited side effects of the medicine. This label expansion to mild elevation of triglycerides (greater than 150 mg/dl) would offer an enormous market opportunity. 50 million people in the U.S. have mildly high triglycerides (greater than 150 mg/dl), with another 333 million people globally. CaPre has the potential to dominate this mild elevation of triglycerides market, due to the minimal adverse side effects, and outright medical benefits.
CaPre has shown promise in Phase I and Phase II Trials of lowering diabetic sugars, and in fact, 40% of patients in Phase III trials have diabetes, which should offer more validity to this claim. Vascepa does not have this capability.
CaPre has significantly high bio-availability, allowing for the drug to be absorbed with a low-fat diet. Vascepa requires a high-fat diet, which has further implications on cholesterol levels.

Disadvantages:

Vascepa has first-mover advantage. While CaPre has the potential to dominate the market in mild elevation of triglycerides (greater than 150 mg/dl), per above, it will likely need further studies on cardiovascular disease, to fully challenge Vascepa, which may take several more years. That said, if Phase III Trial data is highly successful, this may lead to off-label prescriptions. Also, there might be a chance to piggy back off the outcome studies done by others in the Omega 3 space.
CaPre may cause an allergic reaction in patients that are allergic to shell fish.

The Science, As Per Haywood

Back in 2014 in an interview with Propthink, George Haywood described the science of CaPre and the specific advantages of CaPre versus Vascepa. Since that time and the completion of Phase II Trials, Haywood has become a larger and larger investor in ACST, and today, Phase III Trial results are just months away. Since I am not a scientist, let me defer to Haywood in this section alone, by summarizing Haywood's findings at the time, in these six interesting bullet points that reflect his exact thoughts:

Vascepa is stripped out fish oil. It takes fish oil, which is a healthy ingredient, healthy substance, and strips out half of what's in it. They take out the DHA, and DHA is a very healthy, helpful ingredient.
The nutritional superiority of krill oil is conferred by two ingredients that are not in fish oil: phospholipids and astaxanthin, which is the very powerful antioxidant that's in krill oil.
If you take studies out there that look at the effects of phospholipids on lipid profile (and phospholipids are extremely effective at lowering triglycerides and LDL) and you look at sort of the witch's brew - EPA, DHA, phospholipids, and astaxanthin, which is what krill oil contains - you have that one ingredient that tends to raise LDL, DHA, which Amarin decided to get rid of. But at the same time you have an abundance of phospholipids which are very effective at lowering LDL.
So net-net with krill oil, you get a lowering of LDL and a raising of HDL. And at the same time, you get a very effective lowering of triglycerides.
If you are going to rank four ingredients in descending order of effectiveness at lowering triglycerides, you would start with phospholipids number one most effective; number two DHA; number three EPA; and number four astaxanthin - common sense kind of says that if you've got a drug that consists entirely of number three on the list of effectiveness at lowering triglycerides, and I've got a combination of the most effective, the second most effective, the third most effective, I just want to take a wild guess and say, "My drugs are going to work better." And early work, sort of preliminary results, seem to back up that thesis.
The risks involved in the data here are substantially less than the risks that people in the biotech world are accustomed to when they're waiting for clinical trial results.

Other Support for the Investment Thesis

The former CEO and founder of the company who left ACST several years back, was asking for a large settlement for a dispute over his separation from the company. Just recently in May 2019, he settled his dispute, for an issuance to him of 900,000 new shares of ACST. Assuming that the former founder knows a lot about the CaPre, it would appear likely that he is expecting these shares to be worth a great deal, heading into December's Phase III trial results.

While ACST trades at $1.01/share, Haywood's average price seems to be closer to $1.40/share, but it doesn't seem to bother him and in fact, Haywood has continued to add to his position in a massive way. We have the chance to get better prices on ACST, than one of the best investors in the world.