I’m building a position in Achieve Life Sciences (ACHV-NASDAQ). It is a simple thesis. They have a drug candidate, Cytisinicline, in final P3 confirmatory testing for smoking cessation. They’ve also begun P2 testing on the drug for Vaping cessation.

Results from Initial P3 testing for smoking cessation are excellent. The drug demonstrated a high degree of efficacy and minimal side effects on patients. So far, the results are superior to the very limited number of other smoking cessation prescription medications.

There is a lot of detail I could blog about. The company is fully cashed up through the finish of the P3 study; The vaping cessation P2 trail coming hot on the heels of the P3 smoking cessation trial is well timed. The potential market is absolutely massive. From a current market cap of 42.9 million the opportunity seems ‘Asysmmetrical’.

‘Asymmetry’ is a term that is currently in vogue in the investment world. Simply put, it means having two sides that don’t match. In investing parlance, it means when potential reward is higher than the risk assumed, or vice versa.

A 50/50 bet is symmetrical. A 75/25 bet is asymmetrical. Logically, to determine asymmetry one needs to determine odds.

Back to ACHV. What are the ‘odds’ that P3 confirmatory trials come back positive? Well, initial P3 results were excellent (amongst many other factors), so I’m attaching positive odds to a positive outcome on the confirmatory study. Say, 65%.

So we’ve got favourable odds. Next comes the interesting part. How much should be allocated to it? Here, we have to introduce another element – Valuation. If the potential rate of return on an investment is larger, with all other things being equal, the position size should be larger as well (at least in my strategy as a venture investor with a concentrated portfolio).

As an equation, this looks something like this: Position Size = Odds x Prospective Rate of Return.

I think the prospective rate of return on ACHV could be significant. Successful confirmatory P3 is step 1, FDA approval is step 2, and significant sales revenue is step 3. Success at each will likely deliver a higher valuation.

So I think in the case of ACHV there are positive odds of success in advancing past P3 trial to FDA approval, and then to commercialization. I also think the potential rate of return from the current valuation could be substantial. As such, its a starter in the DTM5 strategy.

In summary, I’m looking for asymmetrical opportunities – That have both positive odds of success and higher potential rates of return. To do this successfully, one has to be comfortable assigning odds AND determining current and future valuations. Get either one wrong and you are assuming more risk than you realize – and you’ll lose money. I’ll dive into the topic of projecting valuations – and how I use third party research successfully – In a future blog post.

For more information about Achieve Life Sciences you can check out their webpage or investor presentation. And remember – do your own due diligence and be careful! The world of early stage biotech / pharma investing is very risky.

GLTA!