Clearmind Medicine: Exploring a Pathway out of Alcohol Abuse

 PRIME SERIES

Clearmind Medicine (CMND) is a clinical stage pharmaceutical company with the promising CMND-100 candidate at the front end of its pipeline.  CMND-100 is based on the psychoactive compound MEAI, shorthand for the synthetic molecule 5-MEthoxy-2-AminoIndine.  The Company purchased the compound in 2021, and has since completed several pre-clinical studies in animals to establish safety and metabolic profiles.  

One of the pre-clinical studies tested MEAI as a curb for alcohol cravings in ‘binge drinking’ mice.  The MEAI compound interacts with central nervous system elements, specifically serotonergic receptors 5-HT1A and 5-HT2B as well as adrenergic receptors α2A, α2B and α2C.  The receptor 5-HT1A is particularly important in alcohol dependence, so agonists of this receptor could help in reducing alcohol intake.  Importantly, MEAI may have application for other binge-like diseases such as cocaine abuse and overeating.

Results for early tests have been promising, prompting the Company to make plans for human clinical trials.  In early 2023, an Investigational New Drug (IND) application was submitted to the U.S. Federal Drug Administration (FDA) for the first human clinical trials of MEAI as CMND-100 aimed at patients with Alcohol Abuse Disorder or AUD. 

The U.S. trials will be conducted at the Yale School of Medicine’s Department of Psychiatry and Johns Hopkins University School of Medicine.  A similar application has been submitted to Israel’s Pharmaceutical Division of the Ministry of Health, which regulates the drug registration process in that country.

 

Speculative and Compelling

Shares of Clearmind Medicine offer a stake in a promising compound aimed at diseases with increasing incidence and few effective treatments.  The bull case for the stock balances the risks of an early-stage company with the opportunity of large, but underserved patient groups. 

In this author’s view, the stock is best suited for investors with a palate for the unique risks inherent in pharmaceutical development  -  an average 10% probability for successful completion of clinical trials and regulatory approval of newly discovered therapeutic compounds.  Yet, once the details are hammered out, regulatory approval of CMND-100 could open the door to a market primed for effective therapies of binge behavior.  As is discussed below, sales and profit potential in the AUD market alone is compelling.         

Taking psychoactive therapies seriously

Mention psychedelic drugs and many people might think first of LSD and the drug fueled 1960’s and 1970’s  -  not a therapy to be taken seriously by the medical community.  It is time to recalibrate!  Psychoactive compounds may have effective properties for the treatment of numerous medical conditions. 

Indeed, the U.S. Federal Drug Administration has taken note and is ready to entertain regulatory petitions for potential drug products.  In August 2023, the FDA issued draft guidance for drug developers entitled “Psychedelic Drugs:  Considerations for Clinical Investigations – Guidance for Industry”.  The FDA followed this publication with a virtual public workshop entitled “Advancing Psychedelic Clinical Study Design” for researchers and industry.  

Perhaps Clearmind scientists could have benefited from the new guidance if the FDA had published it a few months earlier.  Nonetheless, in January 2024, a Type A meeting with Clearmind scientists and FDA representatives has apparently tightened up and refined the Company’s IND application to proceed with tests of its CMND-100 in humans.  In recent conversations with this author, Clearmind management expressed confidence in winning the FDA go-ahead for a Phase I clinical trial in 2024.

Lucrative target market for profit….or critical community service

The poignant difficulties experienced by AUD suffers in terms of disruption in relationships, loss of employment and costs of illness might be enough to attract some scientists to work on the problem.  However, for profit-oriented companies and their investors, the market presents a particularly lucrative investment opportunity.

Alcohol abuse is among the most frustrating and costly diseases suffered by humans.  The National Center for Drug Abuse Statistics (NCDAS) estimates AUD along with alcoholism kills over three million people each year, representing 6% of global deaths.  Additionally, the financial burden of alcohol misuse is enormous.  Indeed, the UNC School of Medicine Bowles Center for Alcohol Studies estimates over 15% of the entire national health care budget in the U.S. is spent on treating conditions related to substance abuse, including alcohol.  The Centers for Disease Control and Prevention takes a view from a higher vantage point, estimating excessive alcohol use results in an economic loss of $249 billion annually from the U.S. economy alone. 

With an economic significance of such import, it follows that the market opportunity for AUD solutions is large and growing.  Future Market Insights, an industry research firm, estimates the global AUD treatment market generated $700 million in value in 2023.  Within the next ten years the firm estimates the rising incidence of AUD and binge drinking could drive the market value to $1.3 billion by 2033. 

Competitors and Peers

Presently there are a handful of medical treatments for AUD.  Despite long-time approval by the U.S. FDA, none have captured dominant market share. The segment may have also lost a participant.

Sanofi announced in April 2023, it would be taking its Antabuse (disulfiram) off the market citing supply chain issues.  However, thin margins on a low-priced product probably also played a role.  Disulfiram stops the body from breaking down ethanol in alcoholic beverages, leading to such severe headaches, nausea and vomiting.  The effects are so severe patients are dissuaded from consuming alcohol.  The fact that many patients are disappointed in Sanofi’s decision reveals the lengths to which AUD suffers will go to get relief.    

Notably, two companies have naltrexone-based therapies on the market.  Originally intended for emergency treatment of opioid overdose, naltrexone has its own side effects, such as stomach cramping, anxiety, headache and trouble sleeping.  Naltrexone packaging also carries the hated FDA black box with a warning for potential liver damage if taken at doses higher than recommended.  Despite the side effects, naltrexone branded as Vivitrol in 2023 earned an estimated $410 million in annual sales for its owner Alkermes plc (ALKS).

Regulatory Approved Therapies for AUD
Compound Name	Brand Name	FDA Approval	Manufacturers
Disulfiram	Antabuse	1949	Sanofi (SNY:  NYSE)
Naltrexone	ReVia	1994	Teva Pharma (TEVA:  NYSE)
Acamprosate	Campral	2004	Forest Sub of Allergan (AGN:  NYSE)
Naltrexone	Vivitrol	2006	Alkermes, plc (ALKS:  NYSE)

 Source:  Crystal Equity Research, company reports filed with sec.com

There are other developmental stage companies vying for the next FDA approved AUD treatment.  For example, Adial Pharmaceuticals (ADIL) is working on AD04, a serotonin-3 antagonist targeted at certain genetically qualified patients suffering from AUD.  Currently, the company is planning two Phase III trials to satisfy regulatory applications in both the U.S. and European Union. 

Bootstrapping to Higher Valuation

The aspirations of Clearmind’s scientists are all just talk without adequate capital to complete required development work and clinical trials.  In January 2024, the Company raised a total of $2.4 million in new capital through the sale of 1.5 million shares of common stock and another 1.5 million warrants.    

After the recent capital raise capital resources are estimated near $6.05 million.  (Cash at the end of July 2023:  $3.85M + Exercise of warrants:  $3.50M  + Offering proceeds:  $2.4M – Estimated cash used to support operations through Jan. 2024:  $3.70M)  Management has guided for current cash reserves closer to double digits, suggesting a significant reduction in cash usage in the last six months while the Company has hammered out details for its IND application to the U.S. FDA.

In a recent conversation with this author, the Clearmind team expressed confidence in having the resources to complete planned clinical trials for CMND-100.  This would be an important achievement, given that management would have data from Phase I clinical trials to cite if additional capital is needed for the next step.  The Company can thus artfully accomplish what sometimes eludes developmental stage companies:  minimizing dilution by raising only just enough capital to achieve measurable results and then using those results to bootstrap to a higher valuation in the next financing effort.

Value drivers…multiple treatment applications

This article has focused on the AUD treatment application.  However, that might be selling the Company short on the potential in CMND-100.  The MEAI compound may have applications for obesity and drug addiction as well. 

Clearmind recently cooperated with research scientists at the Bar-Ilan University in Israel in conducting pre-clinical trials of the Company MEAI molecule in animals conditioned with cocaine.  The trial results suggested MEAI could be helpful in reducing cravings and altering behaviors.  Importantly, the trials established the MEAI compound is not itself addictive.  Clearmind has a long-term license agreement with BIRAD, the university’s research and development arm, to use a joint patent for cocaine treatment.

Additionally, Clearmind is collaborating with SciSparc Ltd. (SPRC), a clinical-stage pharmaceutical company focused on disorders of the central nervous system.  The SciSparc relationship is wide-reaching, anticipating therapeutic applications for a lengthy list of mental health disorders in addition to binge-like and addiction diseases.    

Clearmind has already filed six provisional patent applications with the U.S. Patent and Trademark Office for combinations of psychoactive compounds using the Company’s MEAI molecule alone as well as in combination with SciSparc’s proprietary anti-inflamatory compound palmitoylethanolamide (PEA). 

In November 2023, the partners announced results from a pre-clinical trial aimed at determining optimal dosage of the MEAI-PEA combination.  The animals in the trial were observed for metabolic factors such as fat oxidation, weight loss and reduced appetite.  The mice showed high tolerance at all dosage levels, reduction in food consumption and improvement in fat oxidation.  Clearmind leadership thinks the study is encouraging for use of the MEAI compound for obesity and metabolic disorders with the results supporting further study with animals and eventually humans.     

Clearmind has a growing portfolio of patent protected intellectual property  -  27 granted patents in the U.S., Europe and China with 24 patent applications pending.  Applications and awarded patents cover both method of use and composition of matter, giving the Company the means to prevent competitors from elbowing in with a competing MEAI compound or from imitating the Company’s proprietary chemical mixtures.

Back of envelope intrinsic value

It is possible to value Clearmind’s entire patent portfolio, estimating sales and earnings potential for each of the protected compounds.  To reduce the number of assumptions to a more manageable level, a valuation exercise was undertaken based only at the Company’s lead candidate and primary target application, CMND-100 as a treatment for AUD.

The preferred approach for valuing pharmaceutical companies is the discounted cash flow method.  Industry averages for an early-stage companies were used for the critical assumptions.  In this calculation, the discount rate is used primarily to reflect the time value of money.  Additionally, estimated cash flows were adjusted to reflect business perils, i.e. the possibility of failure at the principal development stages.  (Key assumptions and data points are detailed below.)

The exercise found a risk adjusted intrinsic value of $4.78 per share for Clearmind, almost four times the current stock price.  Aside from the effects of one assumption or another in the final outcome of the valuation exercise, the difference between market and estimated stock value is probably large due to investors’ view on execution risk.            

Much potential, many possible stumbling blocks

And pre-clinical trials have demonstrated its principal therapy CNMD-100 based on the psychoactive compound MEIA shows promise as a safe treatment for binge drinking.  Nonetheless, there is still plenty of opportunity for the Company to stub its corporate toe. 

Successful pre-clinical trials do not guarantee smooth sailing in human clinical trials.  The Company has lined up research partners at ‘blue ribbon’ universities, but even if execution is perfect, the MEIA compound could fall short of expectations as the Phase I trials unfold. 

Clearmind has established at least two strong development partnerships, one of which is with SciSparc, another public pharmaceutical developer with complementary intellectual property.  It is notable that Clearmind Medicine’s chief executive officer, Dr. Adi Zuloff-shani, is also the lead science officer at SciSparc Ltd.  So far, the dual role has created some efficiency for Clearmind as in her role at SciSparc Zuloff-Shani has already completed some required steps in Clearmind’s development agenda.  For example, qualification of manufacturers for active ingredients is common to both firms.  However, in the future potential conflicts could arise as the two companies more forward to more advanced development work.

The FDA’s recently issued guidance for psychedelic compound development has also helped shine a bright light on the therapeutic value of such compounds.  Certainly, the FDA’s initiative is a plus for CNMD shareholders, but there is still room for confusion or misstep.  The FDA is still perfecting it position vis-à-vis psychoactive compounds and could change its suggested plan of action to the detriment of development projects already underway at Clearmind.   

Conclusion

Besides new fortifying financial resources, the Company’s recent capital raise helped elevate Clearmind’s visibility in the pharmaceutical sector as a developer with the capacity to deliver favorable early-stage clinical trial results.  In the current year, the Company’s principal compound CNMD-100 is likely to begin dosing and safety trials with humans suffering from alcohol addiction.  Investors with an extended investment horizon and the tolerance for significant risk may find this inflection point is a compelling opportunity for a stake in a

·        potentially undervalued company with a

·        promising compound CMND-100 aimed at a

·        large and growing market for alcohol dependence treatment.

 

 

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.

 

 

Valuation Assumptions

Commercial Stage:  Model Year 6

AUD market value:    current $700 million rising to $1.2 billion in Year 6

Market share:            10%

Cash earnings margin:        8%

Commercial stage growth rate:     10%

Cost of capital:         18%

Cash flow discount rate:     11%                

Risk Adjustments:    Phase I - 63%, Phase II - 58%, Phase III - 85%

Commercial stage balance sheet:             No cash, no debt

Cash reinvestment in commercial stage:             None

Current shares outstanding:           3.2 million

 

Risk adjusted estimated net present value:  $15.29 million

 

Risk adjusted intrinsic value per share:  $4.78