NASDAQ:GRCE
READ THE FULL GRCE RESEARCH REPORT
We are initiating coverage of Grace Therapeutics, Inc. (NASDAQ:GRCE) with a valuation of $12.50 per share. This value is based on our estimates for the successful development and commercialization of GTX-104 in patients being treated for aneurysmal subarachnoid hemorrhage (aSAH) in the United States and in developed regions throughout the globe, including China and Europe. About 40,000 persons per year suffer from an aSAH in the United States, and they receive a standard of care following surgery that presents several shortcomings that may be addressed with Grace’s lead candidate.
GTX-104 is an intravenous (IV) formulation of nimodipine that is a better alternative to the oral version for treating patients who are unconscious or unable to swallow, which is common for those suffering from an aSAH. Nimodipine is approved for subarachnoid hemorrhage due to its ability to prevent vasoconstriction following an aneurysm. In several studies, the drug has demonstrated that it can improve neurological outcomes and boost recovery in aSAH patients. Despite its benefits, the drug presents several shortcomings due to its oral formulation, which makes it difficult to deliver to unconscious patients. Low bioavailability and other drug characteristics contribute to highly variable blood plasma levels. The variability can lead to hypotension.
Nimodipine is a calcium channel blocker that is specifically classified as a dihydropyridine calcium channel antagonist. The drug is highly lipophilic which enables it to easily cross the blood brain barrier but prevents it from dissolving in solution to be used in IV administration. Grace has patented a formulation of nimodipine that captures the drug inside micelles allowing it to solubilize in an aqueous solution and be administered by IV.
Grace has completed two Phase I pharmacokinetic (PK) and PK bridging studies and has completed enrollment in its Phase III STRIVE-ON trial. Phase I demonstrated that GTX-104 is 100% bioavailable compared to 7.2% of the drug reaching the drug plasma in the oral formulation. Grace’s version produces lower dose variability, which has been associated with hypotension, and it has an improved safety profile with no serious adverse events.
STRIVE-ON is a 100-patient trial evaluating hospitalized aSAH patients in a randomized, open-label comparison between oral nimodipine and GTX-104. The primary endpoint is safety and is measured as comparative adverse events, including hypotension, between the two groups. The Phase III STRIVE-ON trial is now complete, and we expect to see topline results in early 2025. GTX-104 will subsequently be submitted in a new drug application (NDA) via the 505(b)(2) pathway. Assuming normal FDA review times suggests that approval could come by early 2026 with commercialization to follow shortly after.
While the majority of Grace’s funding and management are centered on the GTX-104 program, the company has two other products in its pipeline with identified indications. The first, designated GTX-102, is ready for a Phase III program in Ataxia-Telangiectasia, which is a rare inherited childhood neurological disorder that affects the part of the brain that controls motor movement and speech. The second program is called GTX-101, which has completed Phase I studies and is targeting Postherpetic Neuralgia, a common complication of shingles associated with pain on the skin. We do not include these assets in our valuation.
aSAH affects up to 40,000 individuals in the United States every year and has a global incidence ranging from 9 to 11 per 100,000 persons. Women are more likely than men to suffer the rupture and the highest incidence occurs around a person’s sixth decade. Symptoms of the condition include a sudden, severe headache, neck stiffness, nausea, and vomiting, among others. The patient should immediately go to the emergency room where he or she will be triaged to determine if they have suffered an aSAH and to transport them to a specialized center such as a neurointensive care unit (Neuro-ICU) staffed by neurosurgeons and neurointensivists. After diagnosis, treatment includes surgical clipping or endovascular coiling. After the patient is stabilized with an emphasis on strict blood pressure control, he or she is administered oral nimodipine to prevent vasospasm over the next two or three weeks. This allows sufficient blood flow in the brain to protect brain tissue and allow for effective healing.
While oral nimodipine is associated with better outcomes for aSAH patients compared to placebo, it has a number of shortcomings. The primary weakness is that the oral formulation is difficult to administer to patients that are unconscious or have a hard time swallowing. Many aSAH patients are semi-conscious or unconscious. Oral nimodipine should be administered every four hours due to its short half-life, and it should not be taken with food as this reduces its already low bioavailability. Blood plasma levels can vary widely as over 85% of the drug is lost due to breakdown in the stomach and extensive first-pass metabolism in the liver. Higher blood plasma levels can cause hypotension, which is associated with neurological impairment, organ damage, reduced kidney function, and other risks. In Europe, there is an IV formulation of nimodipine branded Nimotop; however, the product solubilizes the drug with high levels of ethanol and propylene glycol. These excipients have numerous negative effects and prevented the product from being approved by the FDA. Grace’s IV formulation uses excipients generally recognized as safe (GRAS), and provides a product which is able to improve upon the ethanol-based European version and the oral formulation’s primary weaknesses.
Grace offers an average balance sheet with $19 million in cash and equivalents as of June 30, 2024 (FY1Q:25) and approximately one-third warrant coverage. We anticipate that cash levels are sufficient to support operational activities until the submission of the new drug application. Management estimates that there is sufficient cash to support operations until spring 2026. Now that the majority of the work for the STRIVE-ON trial has been completed, cash burn should decline to about $2 million per quarter as we move into 2025.
Grace may internally commercialize nimodipine following approval, given the relatively less intense marketing effort required for a rare disease. But we see more value in partnering with an established pharmaceutical company. We base our model and valuation on the latter approach, given the efficiencies and lower capital intensity necessary if a partner is found. With the final method of use patent expiring in 2042, we see an attractive runway of sales beginning in calendar year 2026 that can rise to over $100 million in the US and developed world product sales in the first few years after launch.
Key reasons to own Grace’s shares:
➢ Aneurysmal Subarachnoid Hemorrhage (aSAH) represents an unmet medical need
o Annual incidence of ~40,000 in the United States
➢ Approved oral treatment has numerous shortcomings addressed by GTX-104
o Oral version does not work for patients unable to swallow
o Existing workaround requires pill crushing and feeding tube administration
o High first-pass metabolism makes accurate dosing difficult
o Narrow therapeutic index for oral nimodipine requires precise dosing
➢ Lead candidate GTX-104 provides improvements over oral administration
o Predictable drug concentration
o Effective hypotension management
o Reduced drug intake
o No food effects and fewer drug-drug interactions
➢ Delivery platform based on non-ionic surfactant micelles overcomes solubility limitations
➢ Pipeline offers other clinical assets
o GTX-102 for Ataxia-Telangiectasia
o GTX-101 for Postherpetic Neuralgia
➢ Robust intellectual property
o Patent for proprietary hydrophobic drug delivery platform
o All pipeline candidates granted orphan drug designation by FDA
In our initiation, we describe aSAH, how it occurs, and its implications on health and mortality. The report examines the mechanisms of injury and how often the condition occurs in the United States and around the world. Risk factors for aSAH, its symptoms, diagnosis, standard of care, and prognosis are detailed in the report. The following section describes the drug nimodipine, its chemical composition, and its drug class. We look at the approved formulations of the drug in the United States and in Europe and identify the related shortcomings, including side effects and why an oral pill is not the best way to deliver the drug to an aSAH patient.
Our initiation summarizes the company’s pipeline, including the lead candidate GTX-104 and its related pharmacokinetic and Phase III safety trial. We also review Grace’s other candidates GTX-102 and GTX-101 followed by a graphic of the company’s pipeline and stage of development for each. Another section reviews Grace’s intellectual property and summarizes several of its most important patents. The report explores peers and competitors highlighting other companies with varied nimodipine administration methods. This is followed by recent milestones, a brief corporate history, and financial results for Grace Therapeutics. We then introduce key management team members and highlight the risks faced by the company. The closing section provides our valuation discussion and details the assumptions behind our target price. Our work generates a valuation of $12.50 per share for Grace Therapeutics, Inc.
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