Tonix Pharmaceuticals — Update 23 January 2017

Tonix Pharmaceuticals — Update 23 January 2017

Tonix Pharmaceuticals

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Tonix Pharmaceuticals

Breakthrough Therapy Designation in PTSD

Regulatory update

Pharma & biotech

23 January 2017

Price

US$0.53

Market cap

US$21m

Net cash (US$m) at 30 September 2016

26.7

Shares in issue

39.2m

Free float

86.2%

Code

TNXP

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.1

(23.1)

(89.2)

Rel (local)

5.1

(27..5)

(91.1)

52-week high/low

US$7.79

US$0.365

Business description

Tonix Pharmaceuticals is an emerging specialty pharmaceutical company focused on psychiatric and neurological disorders. It is advancing TNX-102 SL for the treatment of PTSD for both the military and civilians, following positive Phase II results.

Next events

Military-related PTSD Phase III start

Q117

Phase III interim analysis

H217

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Tonix Pharmaceuticals is a research client of Edison Investment Research Limited

Tonix has announced that it has been granted Breakthrough Therapy Designation (BTD) by the FDA as its Phase II AtEase data for TNX-102 SL in military-related PTSD indicate the drug may successfully treat a serious condition, a key requirement for BTD. Key benefits of BTD are intensive guidance from the FDA on the drug development program, an organizational commitment involving senior managers at the FDA, and the submission of portions of the NDA on a rolling basis.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/14

0.0

(27.6)

(2.77)

0.0

N/A

N/A

12/15

0.0

(48.1)

(2.86)

0.0

N/A

N/A

12/16e

0.0

(37.6)

(1.45)

0.0

N/A

N/A

12/17e

0.0

(29.0)

(0.71)

0.0

N/A

N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Designation granted for all of PTSD

By granting BTD for the entire indication, the FDA may be signaling that it does not view military-related and civilian post-traumatic stress disorder (PTSD) as fundamentally different and hence only one application will be necessary. Currently, Tonix expects to start a second Phase III in predominantly civilian PTSD sufferers after the start of the HONOR study. While the FDA may not view military and civilian PTSD as different, the trial will likely be required to gain sufficient exposure in female PTSD sufferers.

Awaiting comments on Phase III protocol

The Phase III in military-related PTSD patients (the HONOR study) is expected to begin in Q117 and to enroll up to 550 patients with a CAPS-5 of ≥33 upon entry, who will receive either 5.6mg of TNX-102 SL or placebo. Tonix has proposed two interim analyses with the first expected in H217, encompassing approximately 180 patients. At that point the trial may be stopped for efficacy (though the exact statistical hurdle rate has not been determined yet) or the sample size adjusted.

Approval timeline may be accelerated

BTD includes eligibility for priority review, which may mean a six-month instead of a 10-month review period. Also, the potential exists for the HONOR study to be halted for efficacy at one of the interim analyses. We project approval in 2020, although this might need to be accelerated to 2019 in the future.

Valuation: $207m or $5.27 per basic share

We are maintaining our valuation of $207m or $5.27 per basic share. Tonix ended the third quarter with $26.7m in cash and raised an additional $4.6m in October. We expect a funding requirement of $80m before profitability in 2023.

A regulatory win for Tonix

With BTD, Tonix will benefit from a number of features of the program. First, due to the expectation by FDA that the development program will be shorter than for non-breakthrough drugs in the same indication, the FDA will provide the company with intensive guidance on what data would be necessary to demonstrate the drug is safe and effective, which would reduce the probability of a regulatory delay due to data omission. Second, the FDA has committed senior managers to be intensively involved in the review to coordinate the review to make the process more efficient. Third, rolling submissions of parts of the NDA will be possible. All of this coupled with the possibility that the HONOR study will be halted for efficacy at an interim analysis indicates that our current estimate for approval in 2020 may be too conservative.

It is also important to note how selective BTD is. Unlike orphan drug designation, which is more of an exercise in population statistics due to its requirement for prevalence of fewer than 200,000, BTD requires the existence of preliminary clinical evidence indicating a substantial improvement in safety or efficacy over existing therapies. Since BTD was enacted in July of 2012, 404 requests for the designation were made at the FDA's Center for Drug Evaluation and Research (CDER) and only 35% of those were granted (see Exhibit 1). Also, just 4% of the BTD requests granted by CDER were in the field of psychiatry.

Exhibit 1: Breakthrough therapy requests at CDER

Fiscal year

BTD requests received

Granted

Denied

Withdrawn

Pending

% granted

2012

2

1

1

0

50

2013

92

31

52

9

34

2014

96

31

51

14

32

2015

93

32

43

18

34

2016 + first 2 months of FY17

121

46

51

12

12

42

Total

404

141

198

53

12

35

Source: FDA, at 30 November 2016

Details on preclinical assets

The company has also announced information regarding two preclinical assets. TNX-601 is a novel salt of tianeptine, which the company may develop for PTSD. Tianeptine was first approved in France in 1987 and has been marketed for depression in Europe, Asia and Latin America under various brand names. Previous studies in Croatia,1 Russia2 and Turkey3 indicate that tianeptine may alleviate some of the symptoms of PTSD.

  Franciskovic T et al., Psychiatria Danubina, 2011; Vol. 23, No. 3, pp 257–263.

  Rumyantseva G et al., Neuroscience and Behavioral Physiology, Vol. 38, No. 1, 2008.

  Onder E et al., European Psychiatry 21 (2006) 174–179.

TNX-801 is a novel live virus vaccine for smallpox and the company believes that only animal studies may be required to establish efficacy per the FDA Animal Rule, as it would be unethical to expose humans to smallpox (however, safety and pharmacokinetic/pharmacodynamic studies would be required). While the process to receive a government contract is rather murky, Tonix may be able to profit from Section 3086 of the recently enacted 21st Century Cures Act. According to that law, companies developing medical countermeasures to material threats to national security would be able to receive priority review vouchers if approved by the FDA. If used, a priority review voucher would require the FDA to aim to render a decision on a drug application within six months rather than the standard 10 months. As vouchers are transferrable, a number of them have been sold in the past, with prices ranging between $67.5m and $350m per voucher.

We are not including either TNX-601 or TNX-801 in our valuation at the present time as the development path for both is unknown, although we expect minimal spending on both over the course of the next 12 months. We will update our model on receiving further clarity from the company.

Valuation

We are maintaining our valuation of $207m or $5.27 per basic share. We await regulatory clarity on the drug development program for TNX-102 SL before updating our probability of success and the timeline of expected approval.

Exhibit 2: Tonix valuation

Product

Main indication

Status

Prob. of success

Launch year

Peak sales ($m)

Patent protection

Royalty

rNPV
($m)

TNX-102 SL

PTSD

Phase II complete

50%

2020

803

2034

25.0%

175

Total

 

 

 

 

 

 

 

175

Cash and cash equivalents (Q316 + public offering) ($m)

31.3

Total firm value ($m)

207

Total basic shares (11 November 2016, m)

39.18

Value per basic share ($)

5.27

Dilutive warrants (m)

5.7

Weighted average exercise price ($)

1.22

Cash on exercise ($m)

6.90

Total firm value ($m)

213

Total number of shares (m)

44.9

Diluted value per share ($)

4.76

Source: Edison Investment Research

Financials

Tonix ended the third quarter with $26.7m in cash and raised an additional $4.6m in October. We expect a funding requirement of $80m before profitability in 2023, including $20m through the end of 2017.

Exhibit 3: Financial summary

US$000s

2013

2014

2015

2016e

2017e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

0

0

0

0

0

EBITDA

 

 

(10,888)

(27,656)

(48,162)

(37,796)

(29,115)

Operating Profit (before GW and except.)

 

(10,888)

(27,656)

(48,162)

(37,796)

(29,115)

Intangible Amortization

0

0

0

0

(9)

Other

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(10,888)

(27,656)

(48,162)

(37,796)

(29,124)

Net Interest

4

40

108

149

107

Other

0

0

0

0

0

Profit Before Tax (norm)

 

 

(10,884)

(27,616)

(48,054)

(37,646)

(29,008)

Profit Before Tax (FRS 3)

 

 

(10,884)

(27,616)

(48,054)

(37,646)

(29,017)

Tax

0

0

0

0

0

Deferred tax

0

(0)

0

(0)

(0)

Profit After Tax (norm)

(10,884)

(27,616)

(48,054)

(37,646)

(29,008)

Profit After Tax (FRS 3)

(10,884)

(27,616)

(48,054)

(37,647)

(29,017)

Average Number of Shares Outstanding (m)

3.2

10.0

16.8

26.0

40.7

EPS - normalised (c)

 

 

(337)

(277)

(286)

(145)

(71)

EPS - FRS 3 ($)

 

 

(3.37)

(2.77)

(2.86)

(1.45)

(0.71)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

45

373

527

441

398

Intangible Assets

0

0

120

120

111

Tangible Assets

45

328

350

265

231

Other

0

45

57

56

56

Current Assets

 

 

8,202

38,184

43,016

21,301

15,494

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

8,202

38,184

43,016

21,301

15,494

Other

0

0

0

0

0

Current Liabilities

 

 

(765)

(1,487)

(3,049)

(944)

(944)

Creditors

(765)

(1,487)

(3,049)

(944)

(944)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(13)

(68)

(106)

(76)

(20,076)

Long term borrowings

0

0

0

0

(20,000)

Other long term liabilities

(13)

(68)

(106)

(76)

(76)

Net Assets

 

 

7,469

37,002

40,388

20,722

(5,128)

CASH FLOW

Operating Cash Flow

 

 

(8,517)

(22,840)

(42,528)

(37,309)

(25,778)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(15)

(319)

(238)

(66)

(30)

Acquisitions/disposals

0

0

0

0

0

Financing

10,042

47,836

47,685

15,641

0

Dividends

0

0

0

0

0

Other

0

0

(11)

0

0

Net Cash Flow

1,510

24,677

4,908

(21,734)

(25,808)

Opening net debt/(cash)

 

 

(1,785)

(8,202)

(38,184)

(43,016)

(21,301)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

(1)

(3)

(4)

(7)

0

Other

4,908

5,308

(72)

26

0

Closing net debt/(cash)

 

 

(8,202)

(38,184)

(43,016)

(21,301)

4,506

Source: Tonix Pharmaceuticals data, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Tonix Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Tonix Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Abzena — Update 20 January 2017

Abzena

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