Relief for Cancer Patients in Artelo BIoscience Pipeline

Motoring along through clinical stage, Artelo Biosciences (ARTL: Nasdaq) is a biotech with its corporate eye on the shortfall in effective therapies for cancer suffers.   Management calculates as much as $29 billion in sales value is generated around target cancers for two of the compounds in Artelo’s pipeline.  Additional compounds in its portfolio have potential to alleviate other maladies as well, adding another $14 billion to the company’s aspired markets.   Entering just this year its first clinical trials with a compound aimed at cancer patients, Artelo must navigate a long and possibly bumpy road to bring its first therapy to market  - and get a share of this impressively large pie.  Indeed, even just a bite could be a lucrative reward. 

The U.S. equity market has made a measure of Artelo’s prospects, recently valuing Artelo’s shares at $27.6 million in market value or $1.16 per share.  Investors have their work cut out for them in deciding whether this is fair treatment.  In this article we look at three critical drivers of success along Artelo’s road to market:  technology, expertise and capital.   

Endocannabinoids and Lipids

Artelo’s therapeutic candidates hinge on lipid signaling pathways found in the endocannabinoid system.  To fully appreciate the potential in the company’s innovations it is worthwhile to step back for a look at lipids as well as sort out just what endocannabinoids are all about.

Lipids were first identified in the early 1800s following the invention of the microscope.  Yet, it was not until the late 1970s that research began to home in on bioactive lipids.  As it turns out, lipids are more than just fatty globs that are good sources of energy.  Lipids are everywhere in the human body, playing vital roles as mediators of a variety of processes in cells, tissues and organisms.

Few cellular actions have been more fascinating than those triggered by mood altering substances such as cannabis.  A flurry of cannabis studies began in the 1970s stumbled upon a family of cellular receptors that have turned out to be great significance in human physiology.  Forever linked to cannabis with the name ‘endocannabinoid’, the receptor system goes far beyond the euphoria-creating plant.  As it turns out the Cannabinoid One or CB1 receptor is one of the most abundant receptors in the human central nervous system.  It is found is several parts of the brain as well as in the eye, vascular system and the spleen.  CB2 receptors are resident in the immune system.  Indeed, researchers have found hundreds of these endocannabinoid receptors, all of which have a common trait:  a type of lipid called a fatty acid bound to a protein.

The point of this history lesson is that the realm of the endocannabinoid system, with its fatty acid and protein dynamic, is still wide open for inquisitive researchers and developers.  Researchers are only just beginning to understand the role of the endocannabinoid system in helping the body deal with adverse conditions such injury, disease, obesity or loss of appetite.  This means even small biotechnology companies entering the competitive field with viable intellectual property have a fair chance to gain a market foothold  -  and get a bite of that big pie.        

Promise for Cancer Patients

Artelo has established its beachhead with a synthetic, small molecule that targets G protein-coupled receptors (mercifully short for guanine nucleotide-binding protein).  Specifically, these are the CB1 and CB2 receptors discussed above with their characteristic protein-fatty acid composition. 

Called ART27.13 by Artelo, the patent protected product candidate was originally developed by AstraZeneca Plc (AZN:  NYSE).  Artelo’s scientists believe ART27.13 shows promise for cancer patients with severe loss of appetite or anorexia.   

The pain and stresses of cancer often severely suppresses appetite, which the company estimates afflicts as many as 60% of later-stage cancer patients.  A report published in April 2021, by Research and Markets, an industry research firm, suggested the candidates for cancer anorexia treatment number near seven million patients annually.  Unfortunately, there is no standard of care for cancer-related anorexia, requiring doctors to find creative alternatives.  Research and Markets estimates a market value near $314 million in 2020, based largely on revenue generated by off-label treatments such as progestogens or corticosteroids. 

Remarkably, Research and Markets expects a compound annual growth rate near 10% through 2030, for cancer-related anorexia treatments.  The absence of an established, regulatory-approved standard of care could mean a wide-open door to this fast-building market.

In April 2021, Artelo began enrolling cancer patients in a Phase Ib/2a clinical study of ART27.13 called the Cancer Appetite Recovery Study or CAReS.  The candidate ART27.13 has already been through several Phase I clinical trials involving over 200 healthy individuals.  These early trials found dose-dependent increases in body weight among participants.  During a recent conversation Artelo leadership expressed confidence the new Phase Ib/2a study with cancer patients could also deliver favorable results.

In late June 2021 at the International Cannabinoid Research Society Symposium, the company presented a poster discussing the current clinical trial.  For investors seeking more due diligence material, the poster provides a diagrammatic explanation on how ART27.13 promotes appetite through the endocannabinoid system.   (The poster is available on the company’s corporate website at www.artelobio.com.)

Artelo is not alone in a quest to solve the appetite problem for cancer patients, but it appears to have a commanding lead in the clinical trial effort required for regulatory approval.  NGM Biopharmaceuticals (NGM: Nasdaq) is targeting the same patient group with an antagonistic antibody that blocks the interaction between GFRAL and GDG15, two cellular actors that play roles in weight loss and tumor growth.  In April 2021, NGM reported the completion of enrollment for a Phase 1a/1b dose-finding clinical trial with the expectation of data before the end of 2021.

More in the Pipeline

Importantly, Artelo has additional candidates in its pipeline.  The company also in-licensed from Stony Brook University a platform of small-molecule inhibitors of the Fatty Acid Bind Protein 5 (FABP5), which is believed to regulate one of the endocannabinoids called anandamide or AEA.  The company calls it ART26.12 and believes this candidate shows promise for treating prostate cancer and anxiety disorders such as Post Traumatic Stress Syndrome (PTSD).  Artelo’s contracted researchers are still optimizing leads in this program, but management indicates the first clinical trials could begin in late 2022 or early 2023.

Artelo also has also contracted with researchers for its own discovery projects, one of which has produced a proprietary cocrystal composition of cannabidiol as an active pharmaceutical ingredient (API) coupled with tetramethylpyrazine (TMP) as the coformer.  Artelo has named its cannabidiol cocrystal candidate ART12.11.

A cocrystal is a solid, crystalline structure composed of two or more different molecular compounds.  While time consuming to produce, cocrystals are attractive to use for drug production.  The bioavailability of the active pharmaceutical ingredient (API) can be dramatically increased by the unique crystalline structure that improves solubility and dissolution rates.

Cannabidiol’s calming effects and sleep promotion capability have suggested it could have value in treating anxiety disorders such as PTSD.  ART12.11 is expected to deliver results superior to cannabidiol obtained directly from the cannabis plant.  Additional pre-clinical work is underway that management believes could lead to a new drug study in the future. 

The company may be in a bit of a race with its ART12.11.  At least one other biotech, Spain-based Enantia, claims to be working on a cannabidiol cocrystal.  Enantia specializes in cocrystal development and has applied for patent protection in the European Union.  

Importantly, Artelo has already been awarded a composition of matter patent in the U.S. for its cannabidiol cocrystal, a legal protection that could generate value for Artelo.  Organically derived CBD has no intellectual property protection, leaving the door wide open for competitive encroachment.  Future licensees or commercial partners could find ART12.11 economically preferrable over a natural source for CBD.    

Expertise

Like any clinical stage company, Artelo is entirely dependent upon is management team to raise capital, deploy resources and protect intellectual property.  At this time Artelo does not employ full time scientists.  Instead, the company contracts for research and clinical trial work.  The financial function is also contracted to a third party.

A review of biographies for senior officers, board of directors and advisory group members, reveals the group has significant, senior level experience in the pharmaceutical and biotechnology industries.  The group claims successes in all stages of drug development from pre-clinical to regulatory approval and commercial launch.  Importantly, members of management and the board of directors have had direct responsibility for at least a dozen drug approvals in the U.S., Canada and Europe.  The company also benefits from the experience of a scientific advisors who have been recognized for critical work on the endocannabinoid system and in cannabinoid pharmacology.     

The following table depicts the current and previous industry affiliations of selected team members.

Capital Resources

Adequate financial resources are of particular importance for early-stage biotechnology companies.  Of course, Phase III efforts are costly and time consuming, commanding at least a third of the development budget and time to complete.  The average drug requires as much as $1.4 billion to support development from the discover stage through pre-clinical and all regulatory-required clinical stages.  Investors may need to wait as long as 10 or even 15 years to see a drug candidate finally reach commercial phase.  Thus, biotechnology companies begin with considerable uncertainty that weighs on valuation until milestones are reached and the future cash flows from a drug candidate become more certain.

So far Artelo leadership has kept spending well in control.  In the most recently filed financial report for the quarter ending February 2021, Artelo reported spending $1.9 million for operating activities, including $663,359 for research and development work.  Notably, operating expenses in the quarter included $342,449 in non-cash expenses related to stock-based compensation.  As with most early-stage companies, a view on cash usage is a valuable measure to monitor financial health.  In the February 2021 quarter, the company reported using $1.5 million in cash resources to support operations.       

With $10.7 million in cash on its balance sheet and a spending rate near $1.5 million per quarter, Artelo appears to be relatively well capitalized  -  for the present.  In recent interviews, leadership guided that planned research and development work is fully funded through the first half of 2022.  Research milestones are expected within that time frame that could provide management with favorable data to present to investors when next it will be necessary to go hat in hand to the capital market.

Valuation Catalysts

The Phase1B/2a clinical trial for ART27.13 currently underway could be a significant valuation catalysts for ARTL.  With data on the outcome of the CAReS clinical trial related to appetite in cancer patients, investors could find it easier to focus on a particular patient population and even begin to peg a more precise time to regulatory approval and commercial stage.  The first whiff of cash flow is often attracts new investors who bid stock prices higher. 

Risks

While the first clinical trial for ART27.13 could peel away some of the uncertainty in the Artelo story, other risks for the company will remain.  It is expected that investors will still anticipate dilution from additional rounds of capital raises and will extract compensation for it at the stock price.  Of course, the SARS-COVID 19 pandemic will continue to cast a shadow over the world economy, perhaps through 2022.  The pandemic appears to be abating, but the risk of resurgence is likely to still trim value off all biotechs planning clinical trials over the next year.

 

Opportunity weighed against risk, Artelo appears to have the technology, expertise and capital deliver value to investors.  The stock merits consideration for patient investors with an extended investment horizon.    

 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Underwriters of the Prime series may have a beneficial interest in, serve as agents of, or act as advisors to the companies mentioned herein.