The only sensible way to approach an early stage biotechnology play is with a critical eye. Pump and dump schemes are perhaps more prevalent in micro cap biotech than they are in any other industry, and this means that, if you come across something that looks like a great opportunity – something that, as yet, wider markets seem to have missed – chances are, it’s nothing but hype. A few times a week I’ll rifle though my screener to see what’s moving at this end of the sector, and pick a few that catch my eye. At the same time, I’ll run through the promotional tab on my Gmail account and see what the touters are putting out (I sign up to as many of the penny stock mailers as I can, as I find it serves as a sort of red flag indicator).
Penny stock promotion is often a danger sign, but at this end of the biotech sector, investor relations is a must if a company wants to raise capital, and so while it’s a red flag, it’s not always a nail in the coffin.
Ninety-five percent of the time, scratch off the surface of the company that is moving, and that is the subject of email communications’ pitch, and the stock turns out to be worthless. This becomes evident very quickly with even the loosest of due diligence. Still, of course, thousands of have-a-go investors take the bait, and end up on the buy side of a market into which sellers are offloading their shares for a quick take. Five percent of the time, however, and even that’s probably a generous proportion, I come across something that stands up to due diligence (as much as a preclinical biotech company can, that is) and I consider taking a punt.
Here’s one that has popped up a few times over the last couple of weeks in my mailbox, but that – when I take a closer look – seemingly falls into that 5%.
First, a bit of background.
In the US, right now, millions of people are struggling to get to sleep, or are tired because they didn’t get a good night’s sleep last night. Millions more are suffering from what’s called residual daytime sedation (RSD), a symptom of sleeping pills that results in what is colloquially referred to as “zombification” – an overhang of the active ingredient in the pills that individual took to help them get to sleep the night before. For the former group, those who are struggling to sleep unaided, the only real option is to take prescription sleeping pills. Of course, this results in them then falling into the second category, and having to endure RSD the day after dosing.
The question is, how do these individuals choose between the two situations? Both options result in daytime tiredness, one drug induced, and one induced through lack of sleep. There are certain non-pharmaceutical grade remedies available – herbal teas, herbal medication, meditation, that sort of thing – but none that are FDA approved and have proven beyond doubt in clinical trials that they are effective across the general population.
This choice is very real, and one that a large portion of the US population is having to make every day. It’s not just about tiredness, either. RSD in an active or labor-based workplace can be dangerous and – in turn – costly to an employer. The same condition in a more formal workplace, an office for example, can result in a lack of productivity, and, again, cost to an employer. Some of the bigger names in the pharmaceutical sector have tried to come up with a solution to the problem, but none have succeeded to date.
Blake Insomnia Therapeutics Inc (OTCMKTS:BKIT) is a small cap biotechnology company attempting to bring a treatment to market that, if successful, would remove the necessity for the millions of Americans having to make the above discussed choice. Perhaps not surprisingly, it’s taking a completely different route than those that have tried and failed in the past. What is surprising, however, is the route it is taking. Blake Insomnia is trying to get a beta blocker approved as a pharmaceutical grade sleeping aid for individuals suffering from stress-induced insomnia.
First, a bit about stress-induced insomnia. This condition is by far and away the most common insomnia in the US, and as its name suggests, it’s associated with mental stress. Basically, it is when a person is unable to switch off at night, be it as a result of work pressures, money, family, all that sort of thing. There’s a relatively well-known process these sufferers go through, and it is one that – at diagnosis – a physician will explain to the patient in order to try and get the patient to naturally break the process as a first-line therapy before moving on to medication.
The process is as follows:
The patient is stressed, and is unable to get to sleep because of the thoughts and worries running through their head at night.This mental stress results in what’s described as physical stress – increased blood pressure, increased heart rate, muscle tightening, headache, etc. When the patient becomes aware of the physical stress symptoms, these symptoms aggravate the mental stress symptoms, which in turn, aggravate the physical stress symptoms.
Essentially, the patient is stuck in a loop of increasing physical and mental stress symptoms, and this is the root of their insomnia.
Blake Insomnia is attempting to break this link, and in doing so, attempting to help stress-induced insomnia sufferers get to sleep. Why is this noteworthy? Well, because the company is doing it using an asset called ZLX-1 – a beta blocker.
Beta blockers are known for inducing sleep issues as a primary side effect. They inhibit the production of melatonin, which is a hormone that controls sleep, and this inhibition means that patients who take beta blockers chronically generally struggle to sleep (most also take a complementary pharmaceutical grade sleeping pill to overcome this side effect).
Blake Insomnia has taken a beta blocker called Nebivolol, and it is this drug that forms the core active ingredient of ZLX-1. Nebivolol is a β1 receptor blocker that induces what’s called a nitric oxide-potentiating vasodilatory effect. Being a β1 receptor blocker means it is selective to this receptor (β1), and doesn’t block β2 receptors. The vast majority of the side effects associated with standard of care beta blockers (Propranolol, Carteolol, Bucindolol, etc.) derive from the active ingredient’s blocking of the β2 receptor. Included in this “vast majority” is the inhibition of melatonin, and in turn, the sleep issues and daytime fatigue associated with β2 receptor blockers.
In other words, by using a β1 receptor blocker, Blake Insomnia can give patients beta blockers without negatively affecting sleep. Of course, that’s not enough on its own. These are patients who already struggle to sleep, so just giving them a drug that doesn’t make it worse isn’t going to do much good. That’s not where it ends, however. Take a look at the list of stress related insomnia symptoms listed above, those associated with the physical side of the condition – increased heart rate, increased blood pressure, muscle tightness etc. All of these symptoms are symptoms that current standard of care beta blockers aim to negate in their efforts to treat things like hypertension and minimize cardiovascular risk in heart attack patients.
What Blake Insomnia is doing is taking the mechanism of action of beta blockers, and applying it to physical stress symptoms, rather than hypertension.
The company is about to move into a phase 2 trial investigating the efficacy and tolerability of ZLX-1 in patients suffering from stress-induced insomnia, and this trial should complete by late this year, or early 2018 at the latest. Beyond that comes a pivotal trial or (and this is optimistic, but very realistic) a partnership with big pharma, and the taking over of development of the drug by the acquirer.
On an optimistic timeline, Blake Insomnia could have this asset with the FDA before the end of next year, with a potential green light for commercialization before the close of the decade.
As I’ve said earlier in this piece, this one is nothing more than a punt. While the science behind the mechanism of action for ZLX-1 seems sound, and there is an undeniable unmet need waiting to be filled, these things alone far from guarantee the drug’s success as it navigates the development pathway. Most drugs fail, and that’s just the reality of biotechnology. The chances of failure are amplified given that, while this one is about to undergo phase II trials, in its current formulation, it’s as yet to be offered to human volunteers. Additionally, Blake Insomnia needs cash if it is going to reach a pivotal trial, and shareholders are going to have to bear the brunt of any capital raise, in terms of what any such raise might do to the proportional value of their holdings, as and when the company seeks to raise.
There are many emails floating about right now promoting this Blake Insomnia, and so buyers should proceed with caution. As the communication stops, chances are we will see a drop off. This isn’t necessarily, however, representative of long term potential.
For the risk-averse investor, it is probably worth waiting until Blake Insomnia has some solid phase 2 data in place, and weighing up the opportunity at that stage. With that said, for those who are willing to take on a little bit of extra risk, given the potential for increased returns farther down the line, this one could be well worth a look.