French nanocap Sensorion inks deal with Aussie implant-maker Cochlear for €1.6M capital infusion, R&D collaboration. Pearl by the Mediterranean?

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The News:

Sensorion SA (Montpellier FRA), a tiny biotech company pioneering novel treatments for inner-ear diseases, and Cochlear Ltd. (Sydney), the global leader in implantable hearing devices, in a joint press release announced a strategic collaboration focused on improving hearing outcomes in patients with cochlear implants.

The collaboration will evaluate therapeutic approaches using the French firm’s SENS-401 med in combination with cochlear implants, with preclinical studies initiating in 2018, and potential clinical trials to begin as soon as 2019.

As part of this strategic collaboration, Cochlear will invest €1.6 million in shares of Sensorion. In exchange, Cochlear will receive a right of first negotiation for a global license to use SENS-401 in patients with certain implantable devices.

Cochlear is the global market leader in cochlear hearing implants and invests more than AUD$150 million a year in research and development. The company is also involved in more than 100 research collaborations in 20 countries.

These devices replace the function of the damaged inner ear, converting digitally-coded sound into electrical impulses that stimulate the hearing nerve and then the brain, where they are interpreted as sound.

Sensorion bills itself as a clinical-stage biopharmaceutical company with strong academic and partner networks, scientific excellence and execution capabilities. The company, founded in 2009, is focused on delivering first-in-class therapeutics for debilitating inner ear disorders, which represent a global market of more than $10 billion.

The preclinical combination studies will evaluate SENS-401’s therapeutic effect on hearing achieved with Cochlear’s implantable devices. SENS-401 has demonstrated in preclinical models (noise and drug-induced hearing loss) the capacity to enhance survival and preserve functional integrity of hair cells in the inner ear. It also has the potential to improve hearing outcomes for patients undergoing cochlear implant surgery.

“This innovative approach of combining SENS-401 with cochlear implants may allow for better hearing outcomes,” said Lawrence Lustig, MD, Howard W. Smith Professor and Chair, Department of Otolaryngology-Head & Neck Surgery, Columbia University Medical Center. “SENS-401 has the potential to provide cochlear protection following the implantation procedure, to support long-term functional stability of the implant, and to prevent continued degeneration in some patients.”

“Addressing hearing loss is a societal priority” said Frank Lin, MD, PhD, Associate Professor of Otolaryngology, Head and Neck Surgery, Johns Hopkins University School of Medicine. “In particular, it has substantive implications for the cognitive and physical well-being of older adults that will likely have broader effects on public health.”

Steve’s Take:

As an aging boomer, I’m well aware that my hearing has gradually been worsening. I’m periodically reminded of it, mostly in a kind manner. Woe is me, I know.

But to learn that millions of people world-wide suffer sudden, total deafness? That’s unimaginable.

That’s why I’m so stoked on this teeny-weeny biotech, flying far below the market’s radar, tucked away in what some believe is the most seductive city in the French South, both elegant, cultured and tolerant. But unknown to me, Montpellier also is the seventh largest city of France, and the fastest-growing metropolis over the past 25 years.

Here are some additional facts that augment and reinforce the salient points made in the joint press release above.

Simply put, cochlear is making the $1.9 million investment Sensorion to get the alliance started. Both have what the other needs to make this venture a potentially huge success. FiercePharma notes that in the very near future, Cochlear could fork over more money if it takes up its option of first negotiation on the global right to use Sensorion’s SENS-401 in combination with certain implantable devices.

Between now and that particular decision, Cochlear and Sensorion will investigate the effect of combining their technologies. Preclinical tests will start next year, with a midphase clinical trial to follow by the middle of 2019 if the combination clears that early hurdle.

“SENS-401 has the potential to provide cochlear protection following the implantation procedure, to support long-term functional stability of the implant and to prevent continued degeneration in some patients,” Columbia University Medical Center’s Lawrence Lustig, MD, said in a statement.

The alliance moves Cochlear well outside of its traditional area of focus. Cochlear grew into a firm with a market cap north of $7 billion on the strength of its implants, which use electrical signals to stimulate nerves. That enables people to hear despite the mechanism by which the ear transforms sound waves into electrical signals being damaged.

Having established itself as the dominant force in the cochlear implant sector, the risk for Cochlear is that other interventions will improve on its offerings. The hookup with Sensorion is part of an attempt by Cochlear to ensure it is the source of improved interventions, even if that means moving outside of its historic technological specialty.

Bottom Line:

Sensorion’s drug can protect sensory hair cells from dying, says That’s a pretty big deal. And the company has received orphan-drug designation from the FDA for its application to protect the hearing of children receiving chemotherapy drugs that cause deafness, such as cisplatin.

A similar rationale is behind the collaboration with Cochlear. The surgery used to implant hearing aids itself can cause hearing loss, but SENS-401 could help prevent the sensory hair cells from dying in the process.

“The idea is that if we use SENS401 at the right moment during the surgical procedure for cochlear implantation, the combination of SENS-401 and Cochlear’s device may improve the hearing outcomes for patients,” Nawal Ouzren, CEO of Sensorion, said.

Ouzren remarks there is a bigger need for hearing loss solutions than many of us realize.

“There are more than 300 million people suffering from hearing loss in the world, [but] only 5% of the people who need an implant actually receive it,” she says.

The combination of drugs and implants is a relatively new approach in the area of hearing disorders. According to Ouzren, Autifony Therapeutics, in the UK, is the only other industry player that has attempted to explore this type of combination.

What do analysts and investors think of Sensorion? Let’s do some numbers.

The company closed Thursday (December 28, 2017) at €3.50, up 11% on the Euronext in Paris. It’s up 30% over the past three weeks prior to December 28, 2017.

Shares have a 52-week range of €3.012 to €7.74. YTD return is -27.23%; 1-year return is -27.69%.

The company has a market cap of €28.01, placing it squarely in the nanocap bracket.

Analysts have an average Buy rating, with a 12-month price target of €6.85. That represents a potential upside of 96% based on today’s closing price.

In addition to the UK’s Autifony Therapeutics, Sensorion’s two main competitors are Swiss behemoth Novartis AG and Denmark’s NeuroSearch A/S.

Steve's Take: @CochlearAsiaPac sees something opportunistic in @SensorionPharma. Yet it's beyond risky, but an incredible opportunity for the highly risk-tolerant investor. Click To Tweet

In my opinion, Cochlear, who’s been around for over 30 years in this specialized space, sees something opportunistic in the French upstart. Enough to make a small investment. Which either will lead to early successful clinical results for their combination approach and a huge payday, or a flop–which is by far the usual result.

It’s beyond risky, but an incredible opportunity for the highly risk-tolerant investor. I don’t see it as a pure gamble but a rational bet, especially with a 12-month price target nearly double today’s closing price. And who can tell how much more a windfall, if early trials get to Phase 3.

The name is worth a modest buy for portfolios that can stand to see the investment go poof. Shares trade under the symbol “ALSEN” on the Euronext Alternext in Paris.

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