Toronto-based Cybin is set to acquire London-based Small Pharma in an all-share transaction, according to an announcement by Cybin this morning.
Small Pharma shareholders will receive 0.2409 Cybin shares for each share of Small Pharma, implying approximately CAD $0.10 per Small Pharma share: a price the company’s stock hasn’t seen since last winter. When all is said and done, Small Pharma shareholders might expect to own just over a quarter of Cybin.
It’s not entirely surprising. In the short-term: trading in the shares of both companies was halted on Monday morning, making speculation around an acquisition natural. More broadly: both companies are advancing deuterated DMT (and analogs thereof) candidates for neuropsychiatric indications and are seeking to navigate the complex IP landscape around them.
Pipeline Affinities: Deuterated DMT Candidates
Behind its CYB003 (deuterated psilocybin analog) lead candidate, Cybin’s second most developed candidate is CYB004, described as deuterated DMT.
CYB004’s lead indication is Generalized Anxiety Disorder (GAD). In May 2023 the company reported that it had dosed the first healthy volunteers in the CYB004 element of its Phase 1 study.
Still, Small Pharma’s deuterated DMT candidate, SPL028, was reported to have been first dosed in humans in February 2023, a few months prior to CYB004. This Phase 1 dose-escalating study evaluates both intravenous and intramuscular administration of the drug.
While Small Pharma had its deuterated DMT candidates first-in-humans a little ahead of Cybin, the company’s most mature clinical evidence is from its more conventional, “first-generation”, DMT candidate (SPL026). In January, Small Pharma reported topline results from its Phase 2a trial of SPL026 in major depressive disorder (MDD), whereby the DMT candidate was delivered intravenously alongside supportive therapy in 34 patients with moderate-to-severe MDD.
A few months later, the company announced further data from its SPL026 for MDD trial, prominently highlighting a “statistically significant improvement in anxiety symptoms” and noting that this, “offers potential in new indications beyond depression”.
Small Pharma’s CMO, Dr. Carol Routledge, mentioned that this data provides “an encouraging basis from which to further explore its potential as a treatment for anxiety-related disorders”, and that the data would “help inform our future clinical strategy as we think about the expansion of the SPL026 clinical program and broader pipeline.”
Might this have piqued the interest of Cybin, given that GAD is its own lead candidate?
Small Pharma’s Financial Headwinds
Last month, Small Pharma reported its Q1 2024 financials, reporting cash on hand as of May 31 at just north of $13m. With a cash burn of $5.8m for the preceding quarter, it’s clear that Small Pharma’s runway is dwindling. In light of this, the company announced an operational restructuring to reduce cash burn.
Given these financial constraints, it’s very unlikely Small Pharma could commence and sustain a Phase 2b program without a significant financial injection. And, achieving such an injection in today’s capital markets is a tall ask.
As such, the company has been an obvious acquisition target for quite some time. But, it was not clear that Cybin would be the acquirer, as there were a number of potential suitors.
Chief among these was atai Life Sciences, which has a relatively strong cash position (compared to other publicly-traded psychedelics companies, that is) and its own DMT program in Viridia Life Sciences. Viridia is running a Phase 1 single-ascending dose trial of VLS-01, its synthetic DMT candidate that’s delivered in combination with a digital therapeutic and has announced treatment-resistant depression as its lead indication.
Aside from atai, Biomind Labs is also looking at DMT for treatment-resistant depression and is currently sponsoring a Phase 2 trial. Algernon Pharmaceuticals is also engaged in a Phase 1 trial of DMT and hopes to use the drug to treat stroke/traumatic brain injury. However, neither of these companies has a strong cash position or market capitalisation.
Outside of companies already developing DMT-related assets, Small Pharma could have presented an opportunity to add a new candidate to the pipeline for any number of other companies. However, given the challenging financial backdrop, it’s a tough time for companies seeking acquirers.
Motivation for Combination
So, why would Cybin acquire Small Pharma, which is surely a competitor in the DMT drug development realm, as opposed to letting it run out of cash?
For one, the acquisition might give Cybin another leg-up and step ahead in its own deuterated DMT drug development progress. “The companies’ combined development portfolios are highly complementary and provide multiple opportunities to create operational and cost synergies”, Cybin explained in the announcement.
This isn’t the first DMT-related acquisition Cybin has made: back in June 2022, the company entered into an agreement to acquire Entheon Biomedical’s Phase 1 DMT study in a transaction valued at around $1m. The study replaced Cybin’s planned pilot study of CYB004. Management hoped this would speed up its DMT drug development efforts, with CEO Doug Drysdale claiming it could shave nine months off its previous Phase 1 timeline
Another plausible reason might be found in IP. Both Cybin and Small Pharma hold granted patents over their respective deuterated DMT candidates. Even if Small Pharma were unable to raise the funds needed to commence and sustain further clinical trials, its patents on certain deuterated forms of DMT might be worth controlling. Indeed, the press release announcing the acquisition described the company as having, “a highly robust intellectual property portfolio”.
The announcement further boasted that, following the transaction, the combined entity will have “158 pending patent applications, including two allowed applications, and 28 granted patents protecting the combined companies’ clinical and preclinical molecules.”
Commenting on the acquisition, Drysdale said that the “synergy of Cybin’s and Small Pharma’s development programs, intellectual property, and robust datasets enhances our leadership and expertise in developing potentially best-in-class, optimized psychedelic therapeutics, and positions the combined company to generate long-term value for all stakeholders.”
Small Pharma’s CEO, George Tziras, added that this acquisition “marks the beginning of an exciting new chapter for Small Pharma.”
On a conference call hosted by Drysdale and Tziras shortly after the announcement, the pair added further colour regarding the motivations behind the merger.
Drysdale explained that both companies had been working ‘on the same, or a similar, project’ for some time. Small Pharma and Cybin have been working on different analogs and routes of administration, he explained, which had led to a “patchwork” of IP that has led to a situation where both companies are “carefully stepping around each other”.
By combining, this careful tiptoeing might give way to strength in partnership.
The transaction is expected to close in late October 2023.
On the drug development side, we’re expecting data readouts from both companies’ Phase 1 deuterated DMT (analog) programs before the end of the calendar year. This data should help the company inform which analog, route of administration and indication to progress to future trials.