By David Bautz, PhD

Financial Update

On July 30, 2015, MediciNova, Inc. (MNOV) filed form 10-Q with financial results for the second quarter of 2015. As expected, the company did not report any revenues for the quarter. Operating expenses for the quarter totaled $2.3 million and were composed of $0.8 million in R&D and $1.5 million in G&A expenses, compared with $0.8 million in R&D and $1.3 million in G&A expenses for the corresponding time period of 2014. The increase in G&A expense was driven mainly by an increase in stock compensation expense for performance options granted in January 2015.

Net loss for the second quarter of 2015 was $2.3 million, or $0.09 per share. Cash burn for the quarter was approximately $1.2 million and the company exited the second quarter of 2015 with approximately $8.6 million in cash and cash equivalents. We view this as sufficient to fund operations through the first quarter of 2016. On May 22, 2015, the company entered into an at-the-market (ATM) issuance sales agreement with MLV & Co. through which sales of the company’s common stock may occur from time to time up to an aggregate offering price of $30 million. We remind investors that there are approximately 2.4 million warrants with an exercise price of $3.56, 0.75 million warrants with an exercise price of $3.15, and 0.12 million warrants with an exercise price of $3.38 outstanding that could provide an additional $11.3 million to the company.

MN-001 Clinical Development Update

MN-001 is a novel, orally available small molecule compound that works through several mechanisms to produce anti-fibrotic and anti-inflammatory effects in preclinical models. The compound is a leukotriene (LT) receptor antagonist, a PDE inhibitor (mainly 3 and 4), and also inhibits 5-lipoxygenase (5-LO). The 5-LO/LT pathway is though to be a pathogenic factor in fibrosis development (Zeldin et al., 2002). Previously, the company had tested MN-001 as a treatment for asthma and completed a Phase 2 study with positive results. The compound has been tested in over 600 subjects and was considered generally safe and well tolerated.

Medicinova has recently announced clinical trial details for MN-001 in the treatment of both idiopathic pulmonary fibrosis (IPF) and nonalcoholic steatohepatitis (NASH).

Details of Phase 2 Study of MN-001 in IPF

On July 21, 2015, MediciNova announced the company was in late-stage discussions with Penn State University to conduct a Phase 2 study of MN-001 for the treatment of moderate to severe IPF under the direction of principal investigator Dr. Rebecca Bascom. We anticipate that MediciNova will be funding the trial.

The study will be a randomized, placebo controlled, double blind 6-month study followed by a 6-month open-label extension phase to examine the safety and efficacy of MN-001 in moderate to severe IPF patients (NCT02503657). The drug will be administered twice daily at 750 mg per dose over a 26-week period. The study is expected to enroll 15 patients that will be randomized 2:1 to receive MN-001 or placebo. After the 26-week double-blind period, there will be a 26-week open label extension phase where patients who received placebo will be administered drug and those who previously received drug will be allowed to stay on treatment. The primary outcome of the study is change from baseline in forced vital capacity (FVC) at 26 weeks, a measure of lung function. There are a number of secondary outcomes including safety and tolerability of MN-001 and various measures of the rate of decline in disease activity. We anticipate results from the double-blind portion of the study to be available in the first half of 2017.

Details of Phase 2 Clinical Plan in NASH

On July 27, 2015, MediciNova announced that the FDA has approved a second protocol for evaluating MN-001 in NASH patients. The Phase 2 trial will be a single center, proof-of-concept, open label study designed to evaluate the efficacy, safety, and tolerability of MN-001 in NASH patients with hypertriglyceridemia. Approximately 20 patients between the ages of 21 and 65 with a histologically confirmed diagnosis of NASH within 6 months prior to the baseline visit and an elevated serum triglyceride level (> 150 mg/dL) will be enrolled. Patients will be given 250 mg MN-001 orally once a day for the first 4 weeks and then 250 mg twice a day for an additional 8 weeks. The study timeline consists of a 4 month screening phase followed by a 12 week treatment phase and a follow-up visit one week after the last dose.

The primary endpoints of the study are to evaluate the effect of MN-001 on triglyceride levels and cholesterol efflux capacity in NASH subjects with hypertriglyceridemia. Secondary endpoints include safety and tolerability of MN-001, pharmacokinetic profile of MN-001/MN-002 (a metabolic by-product of MN-001), effects of MN-001 on high-density lipoprotein cholesterol (HDL-C), low-density lipoprotein cholesterol (LDL-C), and total cholesterol level, and effects of MN-001/002 on liver enzymes and percent fat in liver assessed using MRI at week 12.

As a reminder, in April 2015 the company announced the FDA had granted Fast Track Designation for MN-001 for the treatment of NASH patients with fibrosis. Fast Track designation is given to drugs that are intended for the treatment of a serious or life-threatening disease or condition and that demonstrate the potential to address unmet medical needs for the disease or condition. Importantly, a company with a drug that receives Fast Track designation may be eligible for some or all of the following:

MN-166 Receives Orphan Drug Designation for Krabbe Disease

On June 3, 2015, MediciNova announced that MN-166 has received Orphan Drug Designation (ODD) for the treatment of Krabbe disease. The company had previously opened an investigational new drug (IND) application with the Division of Neurology Products for MN-166 under which a clinical trial for Krabbe disease would fall and a clinical trial protocol is currently being finalized for submission to the FDA.

Krabbe disease is a degenerative disorder caused by deficient activity of the lysosomal hydrolase galactosylceramide beta-galactosidase (GALC) (Suzuki et al., 1970). GALC degrades galactosylceramide, a major component of myelin, and other terminal beta-galactose containing sphingolipids, including psychosine (galactosylsphingosine). Increased psychosine levels are believed to lead to widespread destruction of oligodendroglia in the CNS and to subsequent demyelination (Graziano et al., 2015).

Symptoms of Krabbe disease typically begin before the age of 1 (infantile form) with initial signs typically including irritability, muscle weakness, feeding difficulties, and slowed mental and physical development. Disease progression is accompanied by continued muscle weakness leading to an inability to move, chew, swallow, and breathe. The disease is quite rare and affects only 1 in 100,000 individuals in the U.S.

Update on MN-166 in Treating Dependence

In June 2015, MediciNova announced a number of updates in regards to MN-166 (ibudilast) in the treatment of addiction, including a new article published in the journal Addiction Biology, the presentation of interim clinical data for the treatment of alcohol dependence, and the completion of enrollment for the alcohol dependence study.

Conclusion and Recommendation

In addition to treating dependence, MN-166 is also currently being tested as a treatment for progressive multiple sclerosis (MS) and amyotrophic lateral sclerosis (ALS), two indications that we covered in great detail in our previous article on MediciNova. Both of these indications represent blockbuster opportunities for the drug, with potential peak sales of $5 billion for MS and $2.5 billion for ALS. The company recently announced that data from the on-going Phase 2 study of MN-166 in ALS will be presented in December, so we may get an early indication as to the potential efficacy of MN-166 in ALS at that time.

MediciNova has decided to utilize investigator-sponsored early-stage clinical trials for testing the company’s compounds as this serves to conserve cash reserves and allows for a large number of clinical trials to be conducted at very little expense to the company, as most of those trials are small and costs can be easily contained. The flip-side to this strategy is that development is somewhat slower than what could be accomplished were the company to fund larger trials, however this would require substantially dilutive financing. Once data begins to be collected for the compounds in the early-stage trials, the company can then go and look for corporate partnerships, which should increase the pace of the development process. We feel this is a prudent strategy for the company to pursue. Our probability adjusted discounted cash flow model gives a target price of $8 per share, and we continue to have a ‘Buy’ rating on the stock.

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• Increased interactions with the FDA to discuss the drug's development plan and ensure collection of appropriate data needed to support approval.

• Accelerated Approval - approval based on an effect on a surrogate, or substitute endpoint reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality.

• Priority Review - with an FDA goal for completing review within six months of submission.

• Rolling Review - which means that a sponsor can submit completed sections of its New Drug Application (NDA) for review by the FDA, rather than waiting until every section of the application is completed before the entire application can be reviewed.

• The article published in Addiction Biology reported results from an in-patient, double-blind, placebo controlled study of MN-166 in non-treatment-seeking heroin-dependent volunteers (Cooper et al., 2015). Patients were maintained on morphine for 14 days and placebo for 7 days of the 3-week study. In addition, they received placebo capsules on days 1-7 and either MN-166 (20 or 40 mg twice a day) or placebo on days 8-21. All patients experienced withdrawal symptoms during the third week of the study compared to the first two weeks, however a pooled analysis of both MN-166 groups showed lower ratings of withdrawal symptoms during deotoxification compared to the placebo group.

• On June 24, 2015, principal investigator Dr. Lara Ray presented interim data from the ongoing study of MN-166 in alcohol dependence at the 38th Annual Research on Alcoholism Scientific Meeting. The data was compiled from the first 22 subjects enrolled in the study. Encouragingly, the data showed that the drug was very well tolerated with no serious adverse events or drug-related dropouts. In addition, the preliminary results indicate that MN-166 has beneficial effects on mood (p