THIS STOCK IS DEPRESSED DESPITE POSTING BEST DATA EVER GH RESEARCH (GHRS – NASDAQ)

GH Research (GHRS – NASDAQ) posted some extremely impressive results in a Phase 2 trial earlier this year to help patients with depression.

Results were VERY strong—they were 1. Fast 2. More effective than existing drugs and 3. Longer lasting

Yet the stock has dipped WAY below its recent high and financing price.

Their drug, called GH001, targets a HUGE part of this market – treatment resistant depression (TRD). The potential sales for an approved drug is going to be at blockbuster levels ($1B+ a year) at least.

After a recent share offering the company is cashed up. They raised $150 M at $15 / share–$6 more then they were trading at before the results!!!. That’s enough to take them through to the end of the next trial.

Sounds great, right? Well, look at this chart.

Source: Stockcharts.com

There are a few reasons for this, which I will get into, but they all revolve around ONE BIG matza ball.

Their drug is a synthetic, pharmaceutical grade form of DMT (Dimethyltryptamine), the psychedelic. DMT is a Schedule 1 drug in the United States – meaning it is considered to have a high potential for abuse and lacks accepted safety for use under medical supervision

HOWEVER – this may not be the death knell to approval it would have been a few years ago.

If it isn’t, then GH Research may indeed have a blockbuster on its hands.

The results are that good.

LET’S LOOK AT THE RESULTS

GHRS wanted to show not just that GH001 worked—meaning both patient and doctor thought the user was not as depressed as before (I explain more below), but also that it worked extremely fast. Almost all existing treatments take weeks (even months to work). Getting results quickly would be a differentiator.

The trial had an 8-day end point. There was a single dosing regime on the first day (patients could receive either 1,2 or 3 doses depending on how they tolerated the drug).

There was also a 6-month open-label extension to show on-going efficacy, which is still ongoing.

Source: GH Research Investor Presentation

Depression symptoms are measured based on a patient’s assessment using a questionnaire or scale.

One common scale is the Montgomery-Åsberg Depression Rating Scale (MADRS).

MADRS assesses 10 items (sadness, sleep, appetite, thoughts, etc) on a 0-6 scale.

GH001 showed a MASSIVE improvement in MADRS compared to placebo.

Source: GH Research Investor Presentation

The improvement led to a 57.5% remission rate among participants. More than half of patients were no longer depressed.

Source: GH Research Investor Presentation

A second measure is the Clinical Global Impression Severity scale. Unlike MADRS, this scale is measured by the clinician, not the patient.

The scale goes up to 7. The patients had a score going in of 5, which means they are “markedly ill”.

Source: GH Research Investor Presentation

Again, a big reduction of 2.4 points versus a placebo that increased 0.1 point.

The trial looked at two additional measures of depression with equally impressive improvement in symptoms.

The takeaway? The drug WORKS. This should be a slam dunk, right?

It should be. But there are a few wrinkles.

HOW DO YOU BLIND AN ACID TRIP?

DMT is a psychedelic compound.

It has been used for centuries in shamanic or spiritual ceremonies. Recently it has become popular with celebrities that have ayahuasca “journeys” in the rainforests of South America.

The popularity stems from its hallucinatory effects. For a short time, it changes your perception, consciousness, and self-awareness.

Which makes it difficult to not know you are taking DMT.

The placebo the patients took in the trial was some sort of inhaled sugar-pill equivalent. It didn’t do anything.

Which means the patient almost certainly knew whether you were getting the DMT or not.

This is a problem for the clinical trial. There was no placebo effect which you can see in the results. The impact of the placebo was basically zero.

Which is probably not accurate because the patients knew they were taking a placebo.

Now maybe the overall impact of taking GH001 was so significant that it doesn’t really matter. Basically – the drug clearly works, so who cares?

That could be enough. But the FDA will compare GH001 to the alternatives. And given the “functional unblinding” (the technical word for it), it is hard to parse that out.

HOW WELL DOES IT COMPARE?

Here is where things get interesting. The TRD treatment landscape is barren. Surprisingly, these patients DO NOT have many options. GH001 stacks up VERY well against what is currently on the market.

The most recently approved drug for TRD was SPRAVATO, which is owned by Johnson & Johnson (JNJ – NYSE).

It was approved in 2019 to be used along with another antidepressant. In January of this year, it was approved as a monotherapy, meaning it can be used without another anti-depressant. It is also indicated for major depressive disorder (MDD).

The only information on the monotherapy trial is from the press release. Where J&J says:

After 4 weeks, 22.5% of patients taking Spravato achieved remission (score ≤12 on MADRS) compared with 7.6% of patients taking placebo.

While its not a full comparison, GH001 compares well to that number. Remember that 57.5% remission rate I mentioned earlier? GHRS makes a point to highlight this in their investor presentation.

Source: GH Research Investor Presentation

SPRAVATO works quickly, as does GH001. Trial participants responded in only a couple hours.

The problem with SPRAVATO—that GHRS thinks it can solve—is LOGISTICS. Every dose needs to take place in a supervised medical facility. Patients average 40 visits per year for the first year and 18-28 visits thereafter.

GHRS believes they can bring this down to 1-6 visits with GH001.

Source: GH Research Investor Presentation

Which makes GH001 much, MUCH more efficient. And far more attractive to patients.

TARGETING DEPRESSION

TRD is clinical depression that isn’t responding to antidepressant treatments. While that makes it a subset of the overall depression population, it is still a VERY big market.

GHRS estimates that the population at more than 9M. The larger first line major depressive disorder is 48M!

TRD is a tough nut to crack. Once you fail with two lines of treatment, additional treatment options only work 15% of the time.

Source: GH Research January Investor Presentation

Which makes the results of the GH001 Phase 2 trial so impressive (remember those remission rates?).

Just how big can this market be? Let’s go back to SPRAVATO.

SPRAVATO sales topped $1B in 2024. That number is going higher this year now that SPRAVATO is approved as a monotherapy.

Source: Johnson & Johnson 10-Ks

LONG-TERM USE

As of the January update, there were 9 patients ongoing and 54 patients that had completed the open-label 6-month trial.

Source: GH Research Investor Presentation

There were 18 early terminations, which is inline with depression trials.

From the 54 that completed, the remission rate is 77.8%. Again, this is extremely good versus the <15% that is common. That remission rate has also gone UP since the double-blind portion of the trial, signaling the efficacy deepens over time.

A KENNEDY APPROVAL

The last time that the FDA commented on psychedelics was their June 2023 guidance called “Psychedelic Drugs: Considerations for Clinical Investigations”.

They focused on the risks. They also highlighted the need for careful study design due to the “unique psychoactive effects of these substances”.

That may have set the stage for last summer, when the FDA turned down Lykos Therapeutics MDMA-assisted therapy for post-traumatic stress disorder.

What worried investors about that decision was that Lykos had engaged the FDA beforehand and modeled the trial based on FDA guidance.

What has changed today is Robert F. Kennedy Jr.

RFK has been vocal that the FDA is “suppressing” potential treatments that use psychedelics from well before he was announced as the head of Health and Human Services (HHS).

In September RFK posted the following on X:

Source: X.com

RFK Jr is not the head of the FDA. The leap is that he will indirectly influence the FDA via his role with HHS, which effectively supervises the FDA.

It seems like a fair bet.

Compass Pathways (CMPS – NASDAQ) is tackling TRD with their own psychedelic compound. Their compound, called COMP360, is a synthetic version of psilocybin, which is the psychedelic found in some mushrooms.

Compass has completed a Phase 2 study and is ahead of GH Research in enrolling their Phase 3 study. But they had no placebo and used an additional anti-depressant, clouding their results a bit.

HOW I LOOK AT THE STOCK NOW

Look, this isn’t an easy story. This also isn’t an easy market right now.
Which means I’m fairly sure there will be time to pick this stock up at a discount if I’m patient.

Some stories can go from A to B to C and you connect all the dots and arrive at a clear answer.

That is not the case here. There is a lot of grey.

They are likely going to need two Phase 3 studies to get the drug approved. There is a long road ahead.

It could be 2030 before the drug sees any meaningful revenue.

What makes it worthwhile, even though its complicated, is that if GH001 works and can get approved it would be BIG. Again, SPRAVATO is a billion-dollar drug and its just getting started. Drug companies trade at 3-5x peak revenue.

GHRS trades at a market cap of $744M. That includes the offering of 15 million shares that put $141M of cash on their balance sheet (they have $240M in cash overall).

At $12 you are getting the stock 25% lower than the recent capital raise.

This is a blockbuster indication. It is well below what the stock should be worth if the drug is eventually approved.

TRD is just the start. The eventual target is the larger depression market and its 48M patients.

The landscape on psychedelics is shifting and we don’t know when the next domino will fall that will open up psychedelics even more.

Finally, and most important, the drug works really well. The reports I read are talking “best-in-class” potential.

The stock shot up to $20 on the news of the Phase 2B results. Given all the above points it could easily recapture that level on some positive sentiment alone.

That would be a 65%+ return.

Apart from an about face by RFK or just a big swoon in the stock market in general (always a risk), I’m not sure what drives the stock materially lower.Source: X.com

RFK Jr is not the head of the FDA. The leap is that he will indirectly influence the FDA via his role with HHS, which effectively supervises the FDA.

It seems like a fair bet.

YOU’LL PROBABLY GET IT CHEAPER IF YOU WAIT

Look, this isn’t an easy story. This also isn’t an easy market right now.
Which means I’m fairly sure there will be time to pick this stock up at a discount if I’m patient.

Some stories can go from A to B to C and you connect all the dots and arrive at a clear answer.

That is not the case here. There is a lot of grey.

They are likely going to need two Phase 3 studies to get the drug approved. There is a long road ahead.

It could be 2030 before the drug sees any meaningful revenue.

What makes it worthwhile, even though its complicated, is that if GH001 works and can get approved it would be BIG. Again, SPRAVATO is a billion-dollar drug and its just getting started. Drug companies trade at 3-5x peak revenue.

GHRS trades at a market cap of $744M. That includes the offering of 15 million shares that put $141M of cash on their balance sheet (they have $240M in cash overall).

At $12 you are getting the stock 25% lower than the recent capital raise.

This is a blockbuster indication. It is well below what the stock should be worth if the drug is eventually approved.

TRD is just the start. The eventual target is the larger depression market and its 48M patients.

The landscape on psychedelics is shifting and we don’t know when the next domino will fall that will open up psychedelics even more.

Finally, and most important, the drug works really well. The reports I read are talking “best-in-class” potential.

The stock shot up to $20 on the news of the Phase 2B results. Given all the above points it could easily recapture that level on some positive sentiment alone.

That would be a 65%+ return.

Apart from an about face by RFK or just a big swoon in the stock market in general (always a risk), I’m not sure what drives the stock materially lower.