A recent NIH report cites, drug overdose deaths rose from 16,849 in 1999 to 70,237 in 2017. Approximately half of those overdoses involve opioids. President Trump declared the opioid crisis a national health emergency and is seeking $17 Billion in 2019 in opioid related spending.

While opioids are highly addictive, they remain the most potent, thus prescribed painkillers for severe pain. Opioids additional side effects include constipation and respiratory depression. In 2016, the global opioid market size was almost $23 Billion.

The solution to the opioid crisis is a perfect drug, more potent than morphine, no euphoric effect (what leads to addiction), minimal respiratory depression, and no constipation. Sounds great, but it is just a dream… or is it?

Phoenix Pharmalabs (PPL) is finishing animal trials and barreling towards phase 1 human trials to gain FDA approval for their promising compound, PPL-103. Opioid compounds currently in use, activate only one, the Mu, of the three opioid receptors in the brain to gain pain relief. Fully activating the Mu receptor results in pain relief but it also provides the brain euphoria, which drives the addictive behaviors, among other nasty side effects. PPL-103, delicately balances minimal stimulation of each of all three opioid receptors in the brain to gain pain relief but none of the side effects.

The biggest competitor is the massive Mu stimulating compounds. The market size of opioids is a challenge for combating the opioid crisis. Regulators continue searching for a legal framework to protect against the opioid crisis, but there is still no reasonable medical alternative to Mu stimulating opioids to relieve severe pain. Doctors would quickly shift to a more potent pain killer with no side effects.

Nektar Therapeutics’, NKTR-181, is currently in fast tracked phase 3 trial for FDA approval. NKTR-181, like the other opioids on the market targets the Mu receptor. What makes NKTR-181 different is it is slow to react. The slow reaction time results in much lower level of euphoria, and longer half-life, dosing is every 12 hours. NKTR-181 may be FDA approved as early as May 2019. It is unknown whether the slow rate which NKTR-181 relieves pain will be too slow to be effective. Additionally, while Nektar has licensing agreements with other pharmaceuticals to market and sell their other compounds, no pharmaceutical has entered into a licensing agreement for NKTR-181.

Cara Therapeutics’ compound CR845, is in phase 3 clinical trials. CR845 trials focus on providing anti-itch relief. The trials had mixed results. CR845 appears effective as an anti-itch solution to a diabetes related condition. CR845 failed to meet FDA criteria in phase 2 clinical trials to relieve pain in hip and knee. The results proved 89% effectiveness while the FDA requires 95%. It was 95.7% effective in relieving hip pain, so Cara is redoing the trial to only focus on hip pain.

Much of the leadership team is industry leaders who have some personal connection to opioid addiction through a family member or friend.

For a decade, Dr. John Lawson, founder, chairman and chief scientific officer, and Dr. Lawrence Toll, founder, board member and chief neuropharmacologist, collaborated while at Stanford Research Institute (SRI) on analgesics compound research under NIH funding.

After twenty years at SRI, Dr. Lawson left to found PPL with the mission to develop non-addicting opioid compounds. Dr. Toll is the author of more than 130 peer reviewed scientific papers, and a nationally recognized expert in addiction neuroscience.

William Crossman is the president, CEO, and board member. According to the company documentation, Mr. Crossman has a wide range of leadership experiences from start-ups to Fortune 100 level companies. The rest of PPL staff is consultants with experience in navigating the juggernaut FDA approval and bringing compounds to market.

1. Market: There is clearly a market demand for a non-addictive opioid product which is as strong or stronger than the addictive versions currently available. While human clinical trials may narrow PPL-103’s usages, Mr. Crossman reports thus far, the research is strongly indicating, in addition to pain relief, PPL-103 can treat those addicted to opioids as well as cocaine.
2. Funding: PPL-103 has received about $3 million of grant funding from NIH and the US Army. This funding will last through phase 1 human clinical trials, expected to begin in 15 months. Despite having a month left in the current crowd funding offering, PPL has raised 85% or over $900k. Simultaneously to the crowd funding raise, PPL has a $3.5 million-dollar equity raise for a minimum of $10,000. This raise focuses on bigger investors who might want to make a larger investment to get a seat on the board. Mr. Crossman reports the need to pursue both the grant and equity route to raise funds for clinical trials. He said if PPL solely pursued the grant route, they would have to wait until the end of phase 1 of human trials to start the grant process to begin phase 2. Equity funding enables PPL to move quickly into phase 2 once phase 1 completes.
3. Exit Strategy: Mr. Crossman said PPL is not planning to pursue the marketing and distribution of PPL-103. The plan is to enter into a licensing agreement at the end of phase 1 human trials, referred to as the proof of concept. Mr. Crossman said PPL is open to a licensing agreement or for a large pharmaceutical to purchase PPL outright.
4. Exit Strategy – FDA Approval: Theoretically, Mr. Crossman’s exit strategy sounds great, but there are issues. Drugs which enter phase 1 human trials have a 14% chance of FDA approval. While there is tremendous excitement from researchers, NIH and the US Army about the potential of PPL-103, investors should be clear the statistical probability of PPL-103 being approved for public release is low. Then again, Mr. Crossman is interested in a phase 1 exit which has a 66% success rate of compounds moving from phase 1 to phase 2 clinical trials. Why is there such a low success rate? Rats and primates do not have the same biology as humans. Despite animal testing being standard protocol prior to human testing, there is little evidence of the correlation. In one review of clinical trials it was determined using animals prior to humans resulted in slightly better outcomes than flipping a coin. Mr. Crossman is excited about the promising rat and primate results on PPL-103. While these may be encouraging, the study Mr. Crossman cites in his presentation reinforcing this point, states while there is a high correlation in animal testing for addiction, those attributes are subjective and may vary. Mr. Crossman mentioned pursuing the clinical trials in Australia. It sounds strange for the US Army to fund clinical trials in Australia, especially when the average path to approval in Australia takes 391 days as opposed to the average 304 in the US.
5. Exit Strategy – Marketing: Mr. Crossman’s plan to pursue licensing/sale to a large pharmaceutical at the end of phase 1 trials sounds great. Opioids is a huge market. If there is going to be a blockbuster disruption to the opioid market, one of the big pharmaceuticals would want to jump on it. Right? It seems so. Then why is Nektar, who has partnerships with big pharma on their other compounds not able to secure a partnership for NKTR-181? There are some reasonable explanations such as the nature of the NKTR-181 compound being slow acting and potentially requiring an anti-abuse mechanism. Nektar announced several times they were in discussions with partners and close to a deal, yet nothing materialized. Cara Therapeutics, CR845, which is also in phase 3 clinical trials does not have a marketing and distribution partnership in place.

Phoenix Pharma is a Deal To Watch. If PPL-103 gains FDA approval for all the uses expected it will be a blockbuster drug. It will dramatically alter the opioid market and crisis in a positive manner. This has the potential to be incredibly lucrative to early investors.

Investors who are excited about PPL-103 must be realistic about the 14% statistical probability of PPL-103 clearing FDA approval. PPL’s plans are to cash out at the end of phase 1.

Assuming, PPL-103 is one of the 66% of clinical trial drugs who clear phase 1 trials, is there a deep pocketed pharma interested in licensing or buying PPL-103? Investors should not ignore the lack of partnership in the two phase 3 opioid compounds NKTR-181 and CR845.

There are significant differences in these two opioid compounds and PPL-103 which might make this comparison unfair. It is possible based on the difference in PPL-103’s compounds, balanced focus on all three opioid receptors in the brain as opposed to NKTR-181’s focus on just one, and CR345’s focus on two, might be the miracle drug big pharma will be clawing to own once it clears phase 1.

The good news is PPL has funds through the current plan for PPL-103’s phase 1 human trials. The question is how PPL-103 will perform in phase 1, and whether it will be successful enough to attract big pocketed pharma’s.

For the sake of solving the increasingly difficult opioid crisis, I hope this is the miracle opioid. Be clear, investing in pre-human trial pharmaceuticals is a big gamble. I know I will be crossing my fingers the animal results on PPL-103 mirror the human testing as this would be an amazing solution to the opioid crisis tearing through many families.

The returns and time horizon of the upside scenario for PPL-103 is incredibly attractive for investors. If you have an appetite for more risk, this is an incredibly intriguing investment opportunity, which can also have major positive societal impact as well.