Please ensure Javascript is enabled for purposes of website accessibility

Down 76%: Is Cortexyme Stock a Bargain?

By George Budwell – Oct 28, 2021 at 10:00AM

Key Points

  • Biotech stocks that take steep dives on poor clinical trial news can be tremendous bargains.
  • After a failed trial for its lead Alzheimer's disease drug candidate, Cortexyme's management thinks there is still a way forward.
  • Patience will be required, but investors shouldn't necessarily write off this tiny drugmaker.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The biotech's stock took a big hit after its lead product candidate flunked a key clinical trial.

Yesterday, Cortexyme (CRTX 2.28%), a clinical-stage biotech, saw its shares drop by a whopping 76%. The drugmaker's stock crumbled after the company announced that the experimental Alzheimer's disease therapy, atuzaginstat, missed the co-primary endpoints of its phase 2/3 GAIN trial. Atuzaginstat, an experimental drug that blocks the secretion of an enzyme by the bacterium Porphyromonas gingivalis, was the company's best chance at becoming a revenue-generating biopharma in the near future. As such, this mass exodus by shareholders Wednesday afternoon may have been warranted. 

Biotech companies that fall sharply in the wake of disappointing clinical trial news can be manna from heaven for bargain hunters, however. As just one example, shares of Exelixis (EXEL 2.19%) have now risen tenfold since the devastating clinical failure of cabozantinib as a potential treatment for men with metastatic castration-resistant prostate cancer. Although it took almost two full years, Exelixis' stock eventually regained its footing after this exact same drug hit the mark in pivotal trials for both kidney and liver cancer. 

A brain puzzle missing two pieces.

Image source: Getty Images.

Can Cortexyme's stock be the next beaten-down biotech to produce stunning gains for risk-tolerant investors, or should shareholders throw in the towel for good? Let's dig deeper to find out. 

Management thinks shareholders should keep the faith 

Unlike the various plaque-busting Alzheimer's disease drugs from the likes of Biogen and Eli Lilly, among several others, Cortexyme's experimental therapy was attempting to tackle this devastating neurodegenerative disorder in a completely unique manner.

Namely, atuzaginstat was designed to block the release of gingipain proteases from the bacterium P. gingivali that have infected the brain. P. gingivali is the one of the microbes that causes severe gum diseases such as periodontitis.

This novel hypothesis fell totally flat in this combined phase 2/3 trial. The drug, in effect, failed to improve cognitive function, or a person's ability to perform everyday tasks such as eating without assistance, in patients with mild to moderate forms of the disease. 

The biotech's braintrust, though, had a slightly different key takeaway from these trial results. Specifically, the drugmaker's management called attention to the drug's ability to seemingly reduce cognitive decline by a healthy 57% in patients who both tested positive for P. gingivali and who had received a higher dose of atuzaginstat.

Now, these same patients did not show any improvement on the study's second primary endpoint, comprised of important daily living activities. Moreover, the drug exhibited a dose-dependent increase in key liver enzymes. Cortexyme's management team downplayed concerns about these elevated liver enzyme readings. But U.S. regulators at the Food and Drug Administration (FDA) generally take signs of potential liver damage very seriously.

Despite these unfortunate trial results, Cortexyme's leadership appears intent on moving forward with the drug's clinical program for Alzheimer's. That's not unusual in this field. Both Biogen and Eli Lilly resurrected their top Alzheimer's drugs after questionable trial results. Biogen, in fact, got Aduhelm approved by the FDA earlier this year. And Eli Lilly was recently granted an accelerated review by the agency for its early Alzheimer's disease candidate donanemab.

Is Cortexyme's stock a buy?

The FDA's regulatory process for Alzheimer's drug candidates is clearly not following standard operating procedures these days. Drugs that show serious safety signals, or that miss key primary endpoints, are rarely even reviewed by the agency. Yet Biogen and Eli Lilly have both been able to convince the agency to take a look at their mixed-bag Alzheimer's drugs. Cortexyme, for its part, could run the same play for atuzaginstat. So if you're super comfortable with risk, it might indeed be worth opening a small position in this beaten-down biotech following yesterday's steep drop. 

George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Biogen and Exelixis. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.