Analysis: Street doubts Neurochem's drug

WASHINGTON, May 24 (UPI) -- Some Wall Street analysts suspect Neurochem's recently issued $80 million in convertible notes and warrants is an indication the company's unreleased phase 3 trial of its Alzheimer's treatment Alzhemed yielded disappointing results.

UBS analyst Annabel Samimy said her suspicion was aroused because the timing and structure of Neurochem's convertible notes issuance earlier this month was unusual, coming as it does shortly before the company has said it plans to issue the phase 3 results.

"This issuance ahead of a high-risk data event, as well as the structure which provides downside protection to $6, in our view indicates a lack of certainty in the phase 3 outcome," Samimy stated in a research report.

On May 2 Neurochem issued an $80 million private placement of convertible notes, including $40 million with a minimum price of $6. The company was vague on what it planned to do with the net proceeds, saying the funds could be used for "advancing its current clinical development programs or initiating new ones, research for new or existing products and capital expenditures."

Samimy is also skeptical of Neurochem's announcement in April that it was making an adjustment to the initial statistical model of the phase 3 results. The company said it locked the database and was conducting a detailed analysis of potential confounding factors, including the baseline characteristics of the study population.

"This suggests to us that the read out from the initial statistical plan did not provide desirable results," Samimy stated.

Further fanning the flames of doubt is the company's lag in completing a European trial of Alzhemed.

"Given the above events, and that (Neurochem) will not complete the ongoing EU phase 3 trial until the outcome of the U.S. phase 3 is known, we think it's likely that the phase 3 missed its end point," Samimy stated.

This might not be entirely negative for Alzhemed, however. Neurochem could be trying to extract positive subgroup data from the trial and use that information to complete enrollment with a more appropriate patient population, Samimy said.

Even if that is the case, she remains sour on the stock. Samimy reiterated her "reduce" rating and lowered the price target to $6.

Neurochem did not respond to UPI's request for comment, but the company has previously said the data safety monitoring board gave five recommendations to continue the phase 3 trial of Alzhemed. The compound is an amyloid antagonist that is intended to prevent the buildup of plaques in the brain that are believed to play a role in causing the mental deterioration associated with Alzheimer's disease.

CIBC analyst Brian Lian also is suspicious of Neurochem's recent behavior. Lian downgraded the stock earlier this month due to the $80 million issuance and the company's plans not to announce the results of the phase 3 trial until the second quarter.

Lian thought the latter was a delay tactic that indicated the results were negative.

But Eun Yang, an analyst with Jefferies, told UPI she didn't think the company was stalling.

"I don't think it's a delay," Yang said. "The company already said it plans to release the results in the second quarter."

Yang, who thinks the potential for the drug is uncertain, says the phase 3 results could be released as soon as the end of this month or in June. But she's not anticipating positive results.

"We have a 'hold' rating and we told investors to stay away from it," Yang said. "Alzhemed, at best, has a 50/50 chance to work," she said.

However, she added that if the compound is proven effective in the phase 3 trial, the stock would shoot up significantly, so investors may want to consider buying shares on option.

Neurochem's potential treatment for the kidney disease amyloid A amyloidosis also recently suffered a delay. The Food and Drug Administration pushed the action date on Kiacta back three months to July 16 to give it time to review an amendment to the new drug application Neurochem filed in February.