Last week, Ovid Therapeutics (Nasdaq: OVID) announced data from its Phase 1b pharmacodynamic (PD) study with OV329, its next-generation GABA-AT inhibitor, along with a concurrent $81 million private placement. “Earlier” this year, in a note titled “Ovid and Xenon: Too Early to Draw Parallels?”, we highlighted Ovid as a compelling name heading into these Phase 1b data. Last week’s PD data more than met expectations, especially the transcranial magnetic stimulation (TMS) results for OV329, which showed statistically significant cortical inhibitory activity likely predictive of anti-seizure efficacy. Importantly, across multiple TMS metrics used in the study, OV329 exhibited effects that were equal to or better than the first-generation GABA-AT inhibitor, vigabatrin. The magnetic resonance spectroscopy and EEG data were also promising for OV329, but were noisier than TMS. Overall, the Phase 1b PD results offered strong proof-of-mechanism and proof-of-concept evidence, reducing risks for OV329 as it moves into several Phase 2 trials.
More Drug, More Data
Based on the very clean safety profile and predictable pharmacokinetics of OV329, Ovid has decided to administer a higher dose of 7 mg in Phase 2. Before starting Phase 2, the company will conduct a small Phase 1 study with healthy volunteers using the 7 mg dose, with data expected in 1Q2026. Shortly afterward, in Q2, the company will initiate a randomized controlled trial (RCT) with 45 patients experiencing focal onset seizures (FOS). Top-line data from this study are expected in mid-2027. Ovid will also run a Phase 2 open-label study involving approximately 20 FOS patients treated with OV329. Similar to how Ovid followed a page from the Xenon Pharmaceuticals (Nasdaq: XENE) playbook with their Phase 1b TMS study, this open-label study resembles the approach of Rapport Therapeutics (Nasdaq: RAPP), which recently reported Phase 2 open-label data from 30 FOS patients with their drug, RAP-219. Positive seizure results from that study caused Rapport’s stock to rise by over 100%. Ovid is expected to have data from its Phase 2 open-label FOS study by late 2026.
Funding The Pipeline
Beyond OV329, we believe that Ovid’s KCC2 pipeline is also attracting significant investor interest. A year ago, privately held Axonis Therapeutics raised $115 million in a Series A financing led by notable life science institutions to fund its early-stage KCC2 pipeline. In Ovid’s most recent financing, there is a $54 million tranche of warrants (38.5 million @ $1.40) that are exercisable within 30 days upon the company receiving IND (or IND equivalent) clearance for its oral KCC2 activator, OV4071. Ovid expects to have its IND cleared for OV4071 in 1Q2026. Therefore, last week’s financing can be viewed as comprising $81 million to fund OV329 and $54 million to fund OV4071 and the KCC2 pipeline. While OV329 is clearly the company’s lead asset, the importance of KCC2 is increasing.
Even More Data
The company currently has its first KCC2 activator, OV350, an IV formulation, in a Phase 1 study. This study is the first to test a KCC2 activator in humans. Even though the focus here is on safety, there should still be interest in the outcome, given that this is a first-in-human test for KCC2 activation.
As mentioned, the company expects to have its first oral KCC2 activator, OV4071, in the clinic by 2Q2026. Data from the Phase 1 study with OV4071 should be available late in 2026; however, even before Phase 1 concludes, the company plans to initiate two small proof-of-concept studies with OV4071—one in schizophrenia and another in psychosis related to Parkinson’s disease or Lewy body dementia. Data from both studies are expected early in 2027.
During the company’s call last week, we also learned that they plan to conduct a ketamine challenge study with OV4071 in healthy volunteers. A ketamine challenge test can provide valuable proof-of-mechanism for drugs in development for psychotic disorders like schizophrenia. Ovid is expected to have data from the ketamine challenge test by mid-2026.
Momentum Lost…Temporarily
Ovid’s stock was surging heading into the Phase 1b results. It appears the private placement announced last week, which included two tranches of warrants, may have slowed this momentum. The financing was for convertible preferred stock, but for our purposes, we will discuss the deal on an as-converted basis. The company sold 57.7 million shares at $1.40 each, generating upfront proceeds of $81 million. Investors in the deal received two warrants. The first tranche, as mentioned earlier, is for 38.5 million shares struck at $1.40, which would bring in approximately $54 million in proceeds. This warrant is callable, with a 30-day exercise window, upon Ovid receiving IND clearance for OV4071. The second tranche is for 28.9 million warrants struck at $1.40. These are five-year warrants, but they are callable by the company if its stock trades at $4.20 or above for twenty of any thirty consecutive trading days.
As of today, Ovid has 128.8 million shares outstanding, pro forma cash of over $100 million, and a market cap of approximately $215 million. It probably makes sense to include the first tranche of warrants in our calculation since they are likely to be exercised in the near term. In that scenario, Ovid would have 167.2 million shares outstanding, pro forma cash of about $155 million (although it will have spent some money by the time these warrants are exercised), and a market cap of around $265 million. Whether or not the first tranche of warrants is included, Ovid has a modest enterprise value of ~$110 million. A quick look at the valuations of Ovid’s epilepsy peers—Praxis Precision Medicine (Nasdaq: PRAX) at $1.1 billion (~$600 million EV), Bright Minds Biosciences (Nasdaq: DRUG) at $435 million (~$400 million EV), and the aforementioned Rapport at $1.2 billion (~$700 million EV)—shows that Ovid remains very affordable.
***Ovid’s October 5th Corporate Presentation
Let The Data Parade Begin
Over the next 18 months, Ovid is expected to have an impressive cadence of clinical data and news. By our count, the company will release data from eight different clinical trials and receive two IND clearances. After the recent financing, and assuming the first tranche of warrants is exercised, the company should have a cash runway into 2028. Although the recent financing may have slowed momentum temporarily, this is only a short-term phenomenon. Given the valuation gap with its epilepsy peers, we believe that once Ovid’s data parade begins later this year, momentum will pick up again.
Topped Up
Last month, Eupraxia Pharmaceuticals (Nasdaq: EPRX) also completed a financing, raising $80.5 million (14.6 million shares @ $5.50) to support its ongoing clinical efforts in eosinophilic esophagitis (EoE). A large portion of the proceeds will be allocated toward an expanded Phase 2b EoE study and the development of a second GI indication with EP-104GI. With the balance sheet topped up, the company is now positioned for a data-rich year ahead, including multiple data releases from the ongoing open-label Phase 2a study and top-line results from the Phase 2b RCT in 2H2026.
Expansion
Eupraxia announced that it plans to expand its ongoing Phase 2b RCT in EoE from 60 to 120 patients. Increasing the sample size will enhance study power and also allow the company to include a second, higher dose of EP-104GI. Under the amended protocol, patients will be randomly assigned evenly across three groups: 120 mg EP-104GI, 160 mg EP-104GI, and placebo. The company believes this expanded Phase 2b study will be valuable for their End of Phase 2 meeting with FDA, where they advocate for a single Phase 3 registrational trial.
The company also plans to expand into a new indication with EP-104GI and has suggested fibrostenotic Crohn’s, benign esophageal strictures, and the prevention of strictures in Barrett’s esophagus as possibilities. The recently released data for EP-104GI’s impact on the Eosinophilic Esophagitis Histology Scoring System (EoEHSS) has encouraged them to pursue indications that are more fibrotic than EoE. EoEHSS is a more comprehensive histological score than peak eosinophil count (PEC), as it incorporates tissue pathology. The company recently shared EoEHSS data from the Phase 2a study, which, despite a small sample size, shows EP-104GI’s potential to reverse fibrosis.
***Eupraxia’s October Corporate Presentation
Eupraxia plans to formally announce its new indication(s) shortly and has guided that the first patients should be dosed in 1H2026.
It Just Makes Sense
Atopic diseases are generally treated locally with corticosteroids before resorting to systemic therapies. Asthma is treated with inhaled corticosteroids, atopic dermatitis with topical corticosteroids, and allergic rhinitis with intranasal corticosteroids. Why should EoE, another atopic disease, be any different? However, the two currently approved therapies for EoE, Eohelia and Dupixent, are both systemic.
EP-104GI, intra-esophageal injections of extended-release fluticasone, can address the need for local therapy in the EoE treatment paradigm. There’s no debating that fluticasone, when delivered locally, works for the management of atopic disease; look no further than the remarkable success of Flovent/Advair and Flonase.
The Phase 2a data suggest that EP-104GI is showing efficacy, both histological (EoEHSS, PEC) and patient-reported (SDI, DSQ), as good, if not better, than Dupixent. Early data from patients followed for 52 weeks indicate that the extended-release formulation might enable once-a-year treatment with EP-104GI. Investors still need to see well-controlled data from Eupraxia, which is why the ongoing Phase 2b RCT is so important. Still, it isn’t that big a leap to expect EP-104GI to succeed in Phase 2b. Local delivery of corticosteroids works for atopic disease, so it should work in EoE; it just makes sense.