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FDA action on cannabis firm’s drug for COVID-19 patients sends Philly pharma firm’s stock soaring

But investors may be overvaluing FSD’s tidbit of news.

FSD Pharma's ticker is HUGE on the Canadian Stock Exchange and the NASDAQ.
FSD Pharma's ticker is HUGE on the Canadian Stock Exchange and the NASDAQ.Read moreFSD (custom credit)

Shares in Philadelphia-based cannabis company FSD Pharma spiked 324% in premarket trading this morning on news that it had been granted approval by the Food and Drug Administration to submit an application for a clinical trial using a synthetic drug that mimics the action of a molecule found in marijuana to treat COVID-19.

FSD Pharma (NASDAQ: HUGE) is led by Raza Bokhari, a Philadelphia-based physician and serial entrepreneur. The company is headquartered in Toronto, though most of its principals reside in Pennsylvania.

FSD stock jumped from its Tuesday close of $3.10 to a high of $14 on Wednesday. When the market closed, shares had fallen back to $7.39, a rise of about 138.39%.

Investors may be overvaluing FSD’s tidbit of news.

Getting approval to submit an application does not mean the application has been approved by the FDA, said Dan Hoffman, a consultant to the pharmaceutical industry.

“The FDA is going to want to see any number of things before that happens,” Hoffman said. “Everything from HIPAA [patient privacy] protections to what contractors and testing sites they’re going to use.”

Nor does it mean the drug will soon be sold. Clinical trials are expensive and fail more often than not. And FSD would likely face many competitors even if its effort succeeds.

The drug, called ultramicronized palmitoylethanolamide (micro PEA), is believed to act as an anti-inflammatory. It currently is sold in Italy by Epitech as a prescription nutraceutical and dispensed to treat chronic inflammation, Bokhari said.

FSD spent $17.5 million to purchase the worldwide license for the drug from Epitech earlier this year and rebranded it as FSD-201. In Europe it is known as Epitech markets it, as Normast and Pelvilen

“We became aware of it because some Italian health-care providers were advocating the use of micro PEA to treat COVID-19 patients and they were discovering some success,” Bokhari said.

Bokhari said that FSD is not making any claims that synthetic or plant-based cannabis derivatives can be used as an alternative to treat COVID-19.

FSD-201 is a “a naturally occurring fatty acid” similar to an endocannabinoid, one of a suite of molecules found in cannabis in that targets CB2 receptors, Bokhari said. CB2 receptors are thought to modulate both inflammation and pain throughout the human body.

“Severe COVID-19 is characterized by an over-exuberant inflammatory response that may lead to a cytokine storm," Bokhari said. “[FSD-201] is not a virus killer. But we believe it can mitigate that immune response, which can be fatal.”

Cytokines are proteins produced by the immune system to attack invading viruses. But the body can overreact, producing a “storm” of cytokines that catastrophically damage the body’s own cells and tissues.

The result can be massive organ failure as cells begin to kill themselves. In the lungs, tissue breaks down and causes the air sacs to fill with fluid. That causes pneumonia and patients effectively drown in their own fluids.

Many researchers are scrutinizing the cytokine storm caused by the coronavirus. University of Pennsylvania researchers, including immunologist Carl June, just launched a clinical trial of generic cyclosporine to study its effects on calming the immune system in COVID-19 patients. Cyclosporine is an immune suppressant that has long been used to prevent organ rejection in transplant patients.

“If they’re just getting ready to request authorization for starting clinical trials, [FSD Pharma is] going to be well behind any number of companies with compounds to control cytokine storms," Hoffman said. “You’ve got to wonder if there is going to be much global demand for anything to do with coronavirus by the time they’re ready.”

A Phase 1 clinical trial for FSD-201 is currently underway in Australia, where patients with both active and suspected COVID-19 symptoms receive a dose of 1,200 milligrams orally a day, Bokhari said.

“When the results come in, then we’ll go to the FDA for a Phase 2 trial,” Bokhari said. “As soon as the FDA responds, we plan to present the design [for the proof of concept phase] to them. Since [the drug] has been used in Europe for 20 years, and we’ve done part of the rat study, we expect that to move quickly."

A Phase 2 study would take about two weeks and be conducted at multiple sites in the United States, he said.

“When the FDA says you can submit an [investigational new drug] application, it means you are good to go,” he continued.