Early stage biotech can be a minefield, and investors that pick up exposures in the space do so knowing full well that there's every chance their investment can dwindle to nothing. This doesn’t mean there isn’t opportunity there, of course. As ever, the reward on offer generally mimics the risk, and the right selection can return handsomely on an early allocation.
The hard part is finding the right play. I've spent a lot of time over the last half decade analyzing biotechnology stocks, and every so often will dedicate some time to finding a punt play that – in the minefield of preclinical biotechs – might offer a substantial return if it navigates the development pathway successfully.
My general approach when I look for these very early stage biotech companies is to focus on the person, or persons, behind them. I like experienced inventors or scientists that have had some degree of experience in the biotech world, as opposed to manager or exec type leadership. If an exec is touting a preclinical asset, it's often tough to identify whether there's actual potential there, or whether the exec is just aiming to boost a company's stock. If an inventor or a scientist has spent the time creating a company through which to develop an asset he or she has created, however, the motive is easier to identify. If that inventor didn’t feel it was any good, they would move on to something else.
I then look for something that is simple enough for me to understand – at least on a conceptual level. When these companies take their assets to conferences and put out prospectuses to raise cash for trials, it's far easier to attract capital with something simple. That's the same in any industry, really, but even more so in biotech, where the vast majority don't understand all but the most rudimental concepts.
Finally, I look for a big industry target. One with plenty of potential patients. More than anything, this is near term logic. When you pick up shares in one of these size of companies, the returns are going to be substantial whether it gets to commercialization in a $50 million market or a $1 billion market. It helps along the way, however, from a pre commercialization market capitalization boost potential, if there's a big market to target at the end of the road. Markets get more excited about big potential, and naturally, those companies that have this sort of big target market potential draw higher levels of speculative buyers.
With all that said, here's one that fits the profile.
The company is called Blake Insomnia Therapeutics Inc (OTCMKTS:BKIT), and the inventor of the product that the company is attempting to carry through the clinical trial pathway is called Birger Jan Olsen. He's of Danish nationality, and his resume includes the development of an osteoporosis medication compliance device which he carried through to the commercialization phase then sold to Roche Holding Ltd. (VTX:SIX:ROG). For an inventor in the biotechnology or medical device space to successfully carry a product through design, development and achieve an exit like a sale to a company such as Roche is a big tick on the preclinical biotech checklist.
The product is called Zleepax. Just as I stipulated earlier, it's a very simple concept. Current sleep medication results in what's called residual daytime fatigue (RDF). Basically, a patient that took a sleeping pill to get to sleep one night is tired during the day after. That's a serious issue for many, as it translates to poor performance at work, safety concerns when driving, inability to concentrate when studying, that sort of thing. Olsen wanted to create a pharmaceutical grade sleep aid that didn’t result in RDF, so he invented a product that takes a different approach than current standard of care treatments. Specifically, he has taken one of the latest generations of beta blocker as a core active ingredient, and packaged it as Zleepax. Beta blockers have vasodilative properties (that's the primary mechanism of action of most beta blockers) and this vasodilation alleviates the physical expression of mental stress. By alleviating the physical symptoms of stress, the cycle that results in stress related insomnia (the specific type of insomnia Blake is targeting with Zleepax) is interrupted. The theory that underpins Zleepax is that by interrupting this cycle, patients taking the drug should be able to sleep better. Further, with the drug being a latest generation beta blocker, it doesn’t cause RDF, and doesn’t create sleep issues like the earlier generations of beta blockers.
That's the mechanism of action and the inventor.
What about the market?
I don't need to go in to too much detail here – likely many reading will have experienced the negative side effects associated the so-called hypnotic pharmaceutical sleeping aids. For those that haven’t, RTD affects 80% of those taking sleeping pills, and a similar number of those are unhappy with, or would prefer an alternative to, their current treatments. The CDC estimates up to 60 million individuals in the US suffer with a sleep disorder, and that 9 million of these are currently on medication. Further, that this number could double if there were no serious side effects (read: RDF) associated with taking pharmaceutical grade sleep aids.
As mentioned earlier, this is an extremely high risk play in a high risk space. The company is valued at just $25 million at last close, and is attempting to raise capital to take Zleepax through a phase II trial.
With that said, it checks each of the boxes on my preclinical biotech checklist, and for an investor looking for a punt in the space, it might not be a bad choice.