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Allon Therapeutics Remains On-Track to Capitalize on an Unmet Multi-Billion Dollar Market for Alzheimer’s Disease and other Brain Illnesses

By Marc Davis, Managing Editor
November, 2007

Accordingly, Allon has received strong support from the investment communities in both Canada and the U.S. There are currently five biotechnology analysts that cover Allon, all with “BUY” ratings on the Company’s stock with ranges from $1.95 to $3.00 set in place.

To put this opportunity in perspective, it is worth noting that an estimated $100 billion dollars is already spent each year on the treatment of central nervous system disorders. This constitutes the largest pharmaceutical market in the world. Amazingly, most of these drugs merely treat the symptoms of such conditions, not the underlying causes.

This is particularly the case for a sub-category of neurodegenerative diseases that includes Alzheimer’s disease, cognitive impairment, and neuropathy, among others. Allon’s disease-modifying drugs have shown the potential to address a number of these diseases, as well as provide protection from insults to the brain such as those caused by traumatic brain injury. Notably, this neurodegenerative market generated $37 billion in sales in 2005 even while only treating symptoms not causes.

However, what makes SmallCapMedia regard Allon as a stand-out investment selection is the fact that this small biotechnology company is well on its way to a major medical breakthrough.

The breakthrough is the expectation that Allon’s most-advanced drugs will be able to help arrest the progression of these growing diseases. Already, the efficacy of the company’s two lead products drugs, AL-108 and AL-208, has been validated in numerous of the most severe animal models conducted at over 15 independent laboratories around the world and proven to be safe and well tolerated in four separate Phase I human trials. Now the Company has three Phase II efficacy trials well underway.

Key to these trials is the fact that Allon’s drugs appear to have a very low toxicity profile. This benign profile is largely due to the fact that they are formulated from naturally-occurring proteins – ones that the human brain uses to protect itself from stress, disease and traumatic injury.

In essence, Allon is using or reinforcing the brain’s own self-defense mechanisms to spearhead a whole new product pipeline for numerous neurodegenerative diseases. As we discussed above, these are large market opportunities of completely unmet medical need – that is the current drugs do not meet the needs of patients suffering from diseases such as Alzheimer’s. The implications of this scenario are profound and could make Allon a future star in the biopharmaceutical industry.

Phase II Clinical Trials Help Allon Zero-in on a Multi Billion Dollar Marketplace
Allon is moving forward effectively toward the commercialization of its compounds/products. Significantly, Phase II clinical trials are well underway for the treatment of three separate conditions. These trials are aimed at showing the effectiveness of the compounds, AL-108 and AL-208, corroborating their safety and toxicity profiles established in large Phase I trials, as well as helping to determine optimum dosages for future clinical trials.

Specifically, we are talking about Alzheimer’s disease, schizophrenia-related cognitive impairment (for which trials are being funded by the U.S. government) and the mild cognitive impairment associated with coronary artery bypass graft surgery (MCI post-CABG surgery) commonly known as heart bypass..

The most advanced Phase II clinical trial is evaluating AL-108 as a treatment for Alzheimer’s disease with enrolment completed at the end of September 2007 and data expected in Q1 2008. The Phase II trials evaluating AL-108 in schizophrenia-related cognitive impairment and AL-208 as a treatment for the Mild Cognitive Impairment associated with Coronary Artery Bypass Graft surgery are also expected to report data in 2008.

SmallCapMedia is most interested in the large market of Alzheimer’s disease, which affects at least 5.1 million Americans. And it’s growing at an alarming rate. Deaths, alone, from this terrible disease rose by 5% in the U.S. between 2004 and 2005, according to a recent report prepared by the U.S. Center for Disease Control and Prevention’s Center for Health Statistics.

At least 400,000 new Alzheimer’s patients each year are exerting an increasing strain on the healthcare system, according to the Alzheimer’s Society in the U. S. And an equal number of new cases are often undiagnosed in the early stages.

It is very significant that among the five leading causes of death in the U.S. – which include heart disease, stroke and cancer – only Alzheimer’s and Parkinson’s diseases are continuing to steadily increase, the report also shows. This situation heightens the need for innovative forms of treatment that do more than merely address the many debilitating symptoms of Alzheimer’s and Parkinson’s diseases.

Notably, the advent of successful results from the Phase II Alzheimer’s trial will be crucial to giving Allon the proof-of-concept that it needs to move AL-108 forward in their clinical development program.

The likelihood of Allon succeeding in revolutionizing the treatment of neurodegenerative diseases is being bolstered by some very compelling scientific breakthroughs. As previously mentioned, the company has already proved the efficacy of its compounds, Al-108 and AL-208, in the treatment of laboratory animals.

Scientific Community Validates Allon with Funding and Prestigious Accolades
In August of 2007, Allon announced that its Alzheimer’s program has been selected as one of the top 10 biotech programs in the world that had yet to enter into a developmental partnership with a major pharmaceutical company.

Allon was selected by an expert panel of scientists and collaborators from hundreds of candidates worldwide as a “Top 10 Neuroscience” company and was invited to present at the Windhover Therapeutics Area Partnership conference in Philadelphia in October.

This is an important industry gathering in which Allon will be able to continue to increase its exposure to the majority of the world’s top biotechnology and pharmaceutical companies. Given the overwhelming need of major pharmaceutical companies around the world to find new innovative therapies, Allon anticipates that it will seek a partner to fund future development. This selection and conference should provide a great opportunity to further advance this process.

Earlier this year, Allon also received major validation in the form of sponsorship with Treatment Units for Research of Neurocognition and Schizophrenia (TURNS) to conduct a Phase II clinical trial in schizophrenia-related cognitive impairment. This is a project funded by the United States National Institute of Mental Health with a mandate to select, fund and conduct Phase II trials. AL-108 was the only drug selected for clinical development from more than 50 drug candidates around the world.

The commencement of patient enrolment for this trial was announced in September 2007 and the trial is expected to be completed in 2008.

According to TURNS, this condition is the primary limiting factor affecting recovery for approximately 75% of schizophrenia patients and is not impacted by the first and second generation anti-psychotic drugs currently used to treat schizophrenia – a $16 billion marketplace.

This development allows Allon to defray the vast majority of the multi-million dollar cost of conducting a Phase II trial, while also tapping into the most sophisticated minds working towards an effective treatment for schizophrenia.

“The TURNS group is comprised of some of the best minds in psychiatric practice and schizophrenia research in the world today,” Allon President and CEO Gordon McCauley told the Vancouver Sun daily newspaper earlier this year after hearing the news of Allon’s selection in January.

Furthermore, Allon also announced in January 2007 that the company had also received funding from The Michael J. Fox Foundation for Parkinson’s Research (MJFF) to evaluate AL-108 in preclinical models as a potential treatment for Parkinson’s disease. Allon was selected from over 300 applicants.

Parkinson’s afflicts many individuals globally and has no effective therapy that can alter the underlying course of the disease. Hence, a drug like AL-108 may end up seeing a great deal of use in non-approved indications for which there are currently few (or no) effective alternatives. Studies are already underway and, if the results are positive, Allon could define a human clinical program for Parkinson’s in 2008.

How Do Allon’s Drugs Work?
Keeping the brain’s cells (or neurons) alive is the ultimate objective of neuroprotection. Simply stated, neurons are cells that send and receive electrochemical signals to and from the nervous system. Natural aging, neurodegenerative conditions, and trauma in the brain all lead to the death of neurons. The result is cognitive decline, memory failure, loss of motor coordination and, ultimately, death.

By way of differentiation, AL-108 and AL-208 are two different formulations of the same eight amino acid peptide fragments (termed NAP). NAP’s neuroprotective activity is based on its ability to bind to and repair damaged microtubules (clusters of proteins in tubular structures that are key to the health of neurons).

The neurodegenerative conditions targeted by Allon cause a breakdown of the microtubular network within the neuron. The company’s compounds have been shown to enter the brain and protect the neurons against these multiple neurodegenerative conditions by protecting the microtubules maintaining their ability to transport nutrients and chemical signals.

Damage to microtubules often manifests itself in the form of neurofibrillary tangles, particularly in case with Alzheimer’s disease. However, Allon’s neuro-therapies have been shown to dramatically decrease neurofibrillary tangles that impair the transport of neurotransmitters by an estimated 80% in Alzheimer’s studies on the most severe animal model of Alzheimer’s available. And it also reduced the onset of toxic amyloid plaques by 20%.

Investment Summary
From a technical perspective, Allon has about 58.5 million shares outstanding, and about 75.5 million on a fully diluted basis. Such a relatively tight share structure (at least for an emerging biomedical company) represents a potent catalyst to much higher share prices. Of course, this is predicated by the advent of plenty of positive news flow being generated in the coming months. Certainly this scenario appears to be very much in the offing.

Furthermore, since Allon has a market capitalization of less than $60 million at this juncture, the company’s share price is obviously undervalued. This is especially the case in light of the fact that Allon has a treasury of about $19 million. Such a healthy war chest will also negate any need to dilute the company’s share structure before the human efficacy data is released.

With regards to upbeat news flow, there will be no less than three sets of Phase II clinical trials reporting human efficacy data over the next year. Each of these milestone developments represents a key value driver that should build considerable intrinsic value into the company’s share price.

To reiterate some of Allon’s key competitive advantages, the company benefits from a multi-application product pipeline involving two drug platforms that targets a multi-billion dollar blockbuster drug marketplace.

In addition, Allon has a very strong management team that combines very accomplished scientists with adept business professionals who have a proven track record for building successful companies. This goes a long way towards explaining why Allon has met all of its major milestone developments over the past four years, thereby earning a loyal following in the investment community.

The continuation of this solid track record for performance should therefore set Allon’s share price on a sustained trajectory to higher share price multiples. And in a best-case scenario, the prospect of commercializing Allon’s product AL-108 compound within five years clearly offers patient investors potential for “home run” investment return.