Tonix Pharmaceuticals — Update 1 April 2016

Tonix Pharmaceuticals — Update 1 April 2016

Tonix Pharmaceuticals

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Tonix Pharmaceuticals

Fibromyalgia and PTSD data coming up

Outlook

Pharma & biotech

1 April 2016

Price

US$2.42

Market cap

US$46m

Net cash ($m) at 31 December 2015

43.0

Shares in issue

18.8m

Free float

79.8%

Code

TNXP

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.4)

(68.4)

(61.4)

Rel (local)

(8.6)

(68.5)

(61.0)

52-week high/low

US$10.5

US$2.3

Business description

Tonix is an emerging specialty pharmaceutical company focused on psychiatric and neurological disorders. It has two programs; TNX-102 SL for fibromyalgia is the most advanced of these in Phase III. The same drug is also being developed for PTSD in Phase II.

Next events

PTSD Phase II data

Q216

Fibromyalgia Phase III results

Q316

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 is developing TNX-102 SL, a sublingual formulation of cyclobenzaprine for two large indications, fibromyalgia and post-traumatic stress disorder (PTSD). The fibromyalgia program is the most advanced and we expect a read out of Phase III data in Q316. Due to previous data and clinical trial design improvements over its Phase IIb BESTFIT trial, we believe Phase III has a high chance of success. Data from a proof-of-concept Phase II trial in PTSD is expected in Q216, although we view this as very high risk because it is an exceptionally difficult indication.

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

(41.1)

(2.40)

0.0

N/A

N/A

12/17e

0.0

(48.1)

(2.70)

0.0

N/A

N/A

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

TNX-102 SL: A better and safer cyclobenzaprine

TNX-102 SL is a low-dose sublingual formulation of cyclobenzaprine, a muscle relaxant that has been approved for almost 40 years for the treatment of muscle spasms. A much cleaner safety profile without the next day somnolence should assist adoption.

Key fibromyalgia data forthcoming

Phase III for TNX-102 SL (aka Tonmya) in fibromyalgia should read out in Q316; we believe it has a high chance of success due to previous data and clinical trial design improvements. The active molecule in Tonmya has historically been used successfully to treat the disease. In addition, the FDA has approved the primary endpoint of the proportion of patients with a 30% reduction in pain, which Tonmya hit in the Phase IIb BESTFIT trial (although the drug missed the original primary endpoint in that trial).

Proof-of-concept PTSD data up next

We expect to see data from a Phase II trial for TNX-102 SL in Q216 for military-related PTSD, where the currently approved products have spotty efficacy. Military-related PTSD is considered by some to be particularly intractable and there is no prior data to give us an understanding of the potential effect size for TNX-102 SL; we therefore view this trial as very high risk.

Valuation: $15.92 per basic share

We have lowered our valuation to $300m or $15.92 per basic share from $348m or $18.48 per basic share, mainly due to the elimination of the episodic tension-type headache (ETTH) program with TNX-201, which failed a Phase II proof-of-concept trial in February. This was in part mitigated by rolling over our NPV to 2016. We note that Tonix is currently trading around net cash (based on end-FY15 cash of $43m) with a high probability of success Phase III program to read out in Q316.

Investment summary

Company description: One drug for two difficult disorders

Tonix is an emerging specialty pharmaceutical company that was founded in 2007 as Krele Pharmaceuticals. The company changed its name to Tonix Pharmaceuticals in 2010 and went public via a reverse merger in 2011. It uplisted in August 2013 and is now listed on the NASDAQ.

Tonix has two programs in development both involving TNX-102 SL as a small, rapidly disintegrating tablet version of cyclobenzaprine (CBP) administered sublingually. It is currently being developed as a bedtime therapy for both fibromyalgia and PTSD using the 505(b)2 pathway. CBP is a muscle relaxant that was first approved in 1977, but was never approved for use in fibromyalgia or PTSD. Frost & Sullivan estimates that approximately 50 million doses are prescribed each year for patients off-label in fibromyalgia, although the use in PTSD is unknown. Data from Tonix’s Phase III AFFIRM study in fibromyalgia is expected in Q316 and data from its Phase II AtEase study in military-related PTSD is expected in Q216.

Valuation: $300m or $15.92 per share

Using a risk-adjusted NPV model of its pipeline products, assuming a 12.5% WACC and no value past patent expiration, we value the company at $300m or $15.92 per basic share. On a fully-diluted basis, we value the company at $316m or $15.43 per diluted share. Key catalysts that would affect our valuation of the company would be the initial proof of concept Phase II data of TNX-102 SL in PTSD in Q216, although we view this trial as high risk, and Phase III data in fibromyalgia, which we view as having a high probability of success.

Financials: More funding is needed

Tonix ended Q415 with $43m in cash and equivalents, which should be enough to get the company into 2017. We have reduced our forecasts for R&D spend for 2016 to reflect the termination of the TNX-201 clinical program in ETTH as well as the fact that the PTSD Phase II should be wrapped up in Q216, most likely in late May. However, we have also removed the associated expected upfront and milestone payments for the ETTH program, which leaves a shortfall. We have therefore increased the time to profitability to 2022 (from 2020) and the amount of financing required to reach that point to $140m (from $80m). We expect the company to raise additional capital in Q316 following some or all of the remaining clinical data on the fibromyalgia and PTSD programs. Although we currently model the company licensing TNX-102 SL after approval, licensing the compound earlier in its development could provide a potential alternative source of financing.

Sensitivities: Clinical and financing risks dominate

Tonix is subject to various sensitivities common to emerging pharmaceutical companies, including formulation, development, commercialisation, manufacturing and financing risks. While the clinical risk to TNX-102 SL in fibromyalgia has been lessened by the release of the Phase IIb BESTFIT data, the profile of TNX-102 SL in PTSD is largely unknown and has a high risk of failure. Military-related PTSD is considered by some to be a particularly difficult indication to see improvement through pharmacological therapy. Another major risk to the company is financing. We expect Tonix will need to raise an additional $140m prior to profitability in 2022 and its ability to raise additional funds will be dependent upon positive clinical data. If both the PTSD and fibromyalgia programs fail, it is unlikely that Tonix will be able to raise the capital necessary to continue in its present form, if at all.


A small company with big potential

Tonix has a pipeline of one drug for two indications (see Exhibit 1). Its lead program, TNX-102 SL (Tonmya) for fibromyalgia, appears to be a very safe and effective treatment for the disorder. Tonix's Phase IIb BESTFIT results, despite missing the primary endpoint, indicate a high probability of success for its Phase III program, which should read out in Q316. Data on TNX-102 SL in anxiety and sensitivity as well as its impact on sleep, points to applicability in PTSD. The company's Phase II trial in military-related PTSD is expected to read out in Q216.

Exhibit 1: Tonix clinical trials

Drug

Indication

Phase

Dosage

Number of patients

Number of sites

Treatment duration

Primary
endpoint

Key inclusion
criteria

Expected timing

Tonmya

Fibromyalgia

III

2.8mg

500

35

Once daily for 12 weeks

Proportion of subjects with a ≥30% improvement from baseline to week 12 in average pain severity score.

Fibromyalgia diagnosis and clinically stable, with stable anti-depressant therapy.

Q316

TNX-102 SL

PTSD

II

2.8mg/5.6mg

240

24

Once daily for 12 weeks

DSM-5 symptom severity score among patients taking the 2.8mg dose.

Patients with traumas resulting in PTSD during military service, as a military contractor, in the Department of Homeland Security or law enforcement.

Q216

Source: ClinicalTrials.gov, Tonix

Fibromyalgia: A low-risk, near-term Phase III readout

The most advanced clinical program is for fibromyalgia, which is being investigated in a Phase III registration trial, AFFIRM, with results predicted in Q316 (a second Phase III trial is expected to commence in Q216 and will be of similar design). Fibromyalgia is a diffuse, chronic pain disorder where the areas of pain often fluctuate and there are a variety of comorbidities/symptoms, with sleep-related disorders (fatigue, stiffness, non-restorative sleep and difficulty falling asleep) being some of the most intense (see Exhibit 2). It is a relatively common problem from which approximately 2% of Americans suffer (3.4% of women and 0.5% of men)1 with prevalence highest among those between the ages of 55 and 64.

  D.A. Marcus, A. Deodhar, Fibromyalgia, DOI 10.1007/978-1-4419-1609-9_2.

Exhibit 2: Most intense symptoms of fibromyalgia patients

Symptom

Mean ± SD

Morning stiffness

7.2 ± 2.5

Fatigue

7.1 ± 2.1

Non-restorative sleep

6.8 ± 2.7

Pain

6.4 ± 2.0

Forgetfulness

5.9 ± 2.7

Concentration

5.9 ± 2.6

Difficulty falling asleep

5.6 ± 3.3

Muscle spasms

4.8 ± 3.2

Anxiety

4.5 ± 3.1

Depression

4.4 ± 3.1

Symptom

Morning stiffness

Fatigue

Non-restorative sleep

Pain

Forgetfulness

Concentration

Difficulty falling asleep

Muscle spasms

Anxiety

Depression

Mean ± SD

7.2 ± 2.5

7.1 ± 2.1

6.8 ± 2.7

6.4 ± 2.0

5.9 ± 2.7

5.9 ± 2.6

5.6 ± 3.3

4.8 ± 3.2

4.5 ± 3.1

4.4 ± 3.1

Source: National Fibromyalgia Association. Note: Symptom score based on 0-10 scale with 0 signifying no symptom and 10 signifying extreme symptom.

There are currently three approved drugs for fibromyalgia: Lyrica (also approved for neuropathic pain disorders); Cymbalta (an SNRI also approved for depression and anxiety); and Savella (also an SNRI, but only approved in the US for fibromyalgia). Importantly, Tonix has one of only three late-stage (Phase II/III or more advanced) developmental candidates in the pipeline (see Exhibit 3) and one of those is simply a longer-acting version of Lyrica, which is already approved.

Exhibit 3: Marketed and late-stage developmental products for fibromyalgia

Product

Company

Year approved

Mechanism

Doses per day

2012e Fibro. sales

30% responder rate

Placebo-adjusted responder rate

Mean pain change

Placebo-adjusted mean pain change

Lyrica (pregabalin)

Pfizer

2007

Alpha2-delta subunit binding

2

$475m

39-43%

11-15%

-1.5

-0.4

Cymbalta (duloxetine)*

Lilly

2008

SNRI

1

$600m

37-46%

9-26%

-1.6 to -2.2

-0.5 to -1.2

Savella (milnacipran)

Allergan

2009

SNRI

2

$100m

27%

8%

-1.5

-0.2

Mirogabalin

Daiichi Sankyo

Phase III

Alpha2-delta subunit binding

1-2

N/A

N/A

N/A

N/A

N/A

Pregabalin CR

Pfizer

Phase III

Alpha2-delta subunit binding

1

N/A

N/A

N/A

N/A

N/A

TNX-102 SL (Tonmya)

Tonix

Phase III

Muscle relaxant

1

N/A

33%

13%

-1.4

-0.4

Source: Company reports, FDA, BioCentury. Note: *Currently generic.

In addition to potentially being only the second product that is once-a-day, the advantage of Tonmya vs the competition is that it addresses the issues of muscle pain and sleep disturbances associated with the disease. Tonmya would be taken at bedtime daily to improve sleep and lower pain. Its active ingredient, cyclobenzaprine, is a muscle relaxant that has been approved for short-term use in muscle spasms since 1977. Cyclobenzaprine has historically been one of the most widely prescribed treatments for fibromyalgia, albeit off label. In a poll conducted in 2005, 64% of fibromyalgia sufferers had taken the drug and 58% found it helpful.2

  National Fibromyalgia Association.

The problem with cyclobenzaprine, however, was that it had very variable oral bioavailability of
33-55% and that was highly dependent on what food people had ingested. The 18-hour half-life led to a hangover effect in some patients while other patients did not receive enough. By making cyclobenzaprine sublingual, Tonix has been able to improve the pharmacokinetics and allowed it to use a much lower dose for patients (2.8mg vs the most commonly used 10-15mg doses). Based on the data for Flexeril, one of the brand names for cyclobenzaprine, TNX-102 SL does have a superior safety profile (see Exhibit 4) and may be preferred by physicians and patients over generic cyclobenzaprine. It is important to note, however, that this comparison is imperfect as cyclobenzaprine for muscle spasms was taken during the day, instead of at bedtime, so there would be more opportunity to feel side effects.

Exhibit 4: TNX-102 SL systemic toxicity vs cyclobenzaprine (3%)

Adverse event

TNX-102 SL

BESTFIT placebo

Cyclobenzaprine 10mg

Placebo

Somnolence

1.90%

6.90%

38%

10%

Dry mouth

3.9%

4%

32%

7%

Back pain

4.9%

3%

Headache

5%

8%

Source: Tonix, FDA

Building on BESTFIT

As Tonmya addresses both pain relief and sleep quality, the 500-patient Phase III AFFIRM trial is designed to measure each of those. The structure of the trial is largely similar to the previous 205-patient BESTFIT trial, which, although it missed its primary endpoint, met the endpoint that has been approved by the FDA for AFFIRM (the proportion of patients with 30% or greater reduction in pain).

At the American College of Rheumatology (ACR) conference in November 2015, the company presented data supporting the correlation between sleep quality and improvement in fibromyalgia/pain symptoms. These data extracted from the BESTFIT trial presented a series of strong correlations between sleep quality and pain outcomes (Exhibit 5) and how Tonmya demonstrated efficacy across multiple endpoints and time points.

The improvement in sleep quality during the BESTFIT trial was unequivocal (2.5x more improvement than placebo, p<0.001), and we believe with the higher powering in the AFFIRM trial it will be able to replicate the statistically significant improvement in the primary endpoint of increase in 30% pain responders. The FDA approved this as the primary endpoint for the trial following an analysis of the BESTFIT data. The primary endpoint for BESTFIT was mean change in daily pain scores, which achieved a p value of 0.172. This type of analysis statistically favors a small number of strong responders over the broader but more modest improvement that was witnessed in the trial. The 30% responder analysis is much better at capturing the observed drug effect, and we do not see a reason to expect these results to change in the larger AFFIRM trial.

Exhibit 5: Correlation between sleep and fibromyalgia/pain endpoints in the BESTFIT trial

Source: ACR 2015

We currently model $343m in peak sales, the equivalent of c 30 million doses pa (equivalent to
1-2% of the total treated fibromyalgia patient population) with an initial cost of $6 per dose, approximately in line with the branded cost of other fibromyalgia medications. As CBP is able to achieve 50 million doses off-label, without detailing and effectively without any clinical data, we believe this sales level is achievable. This would also make it more successful than Savella but less successful than Cymbalta and Lyrica in terms of peak sales, which makes sense given the relative efficacy profiles of the drugs.

Filling a niche for military-related PTSD

TNX-102 SL is currently fully enrolled in a Phase II study for the treatment of PTSD. AtEase is a 240-person, placebo-controlled study examining two dosage strengths of TNX-102 SL in veterans with PTSD over the course of 12 weeks.

According to the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), to be diagnosed with PTSD sufferers have to exhibit symptoms across four categories: intrusions, avoidance, mood and cognition and arousal (see Exhibit 6). Importantly for the development of TNX-102 SL in PTSD, according to the guidelines from the Department of Veterans Affairs the first signs come in the form of complaints of sleep and chronic pain (two areas where TNX-102 SL has shown efficacy, per the BESTFIT trial).

Exhibit 6: Diagnostic criteria for PTSD

Intrusions
(1+ symptoms present)

Avoidance
(1+ symptoms present)

Mood & Cognition
(2+ symptoms present)

Arousal
(2+ symptoms present)

Recurring nightmares, flashbacks

Avoid people, places, things

Alterations in cognition (negative)

Exaggerated startle response

Intrusive memories (images)

Avoid thoughts/conversations

Alterations in mood (negative)

"On guard" all the time

Physiological and psychological reactions to reminders

Loss of interest

Irritability or angry outbursts

Social withdrawal

Difficult sleeping, concentrating

Source: DSM-5

There are a number of shortcomings associated with available treatments for PTSD. There are currently only two products approved for the disorder, paroxetine and sertraline, both SSRIs with the associated side effects and only modest effect size. Based on the Cohen’s d statistic, where 0.2 is considered a small effect size, 0.5 is considered moderate and 0.8 is considered large,3 both approved therapies have only small to moderate impacts (see Exhibit 7). Among other pharmacological therapies, some of which are used off label after SSRI failure, meaningful effect sizes were generally seen only in small trials (the effect size for topiramate is heavily skewed by a 67-patient trial in Iran where the drug was tested as adjunct therapy rather than monotherapy for PTSD). Psychotherapies of various forms appear to be the only type of therapy today with consistent results; however, there is the issue of compliance as psychotherapies require frequent office visits.

  Cohen J, Psychological Bulletin, 0033-2909, July 1, 1992

Exhibit 7: Effect size for various PTSD therapies

Class

Drug

Sample size

Effect size (Cohen’s d)

SSRI

Paroxetine

1,070

0.42

Sertraline

1,123

0.26

Fluoxetine

889

0.31

Citalopram

35

-0.34

SNRI

Venlafaxine

687

0.12

TCA

Amitriptyline

33

0.9

Imipramine

41

0.24

MAOI

Brofaromine

48

0.58

Phenelzine

37

1.06

Anti-psychotic

Olanzapine

34

0.14

Risperidone

419

0.26

Anti-convulsant

Topiramate

142

0.96

Divalproex

85

0.06

Tiagabine

232

0.02

Other pharmacological therapy

Prazosin

50

0.4

Bupropion

30

-0.23

Mirtazapine

29

0.27

Psychotherapy

Cognitive processing therapy

299

1.4

Cognitive therapy

221

1.22

Cognitive behavior therapy – exposure

387

1.27

Cognitive behavior therapy – exposure

825

1.09

Eye movement desensitization and reprocessing

117

1.08

Narrative Exposure Therapy

227

1.25

Source: UK NICE National Clinical Practice Guidelines, US Department of Health and Human Services Agency for Healthcare Research and Quality

Furthermore, patients with military-related PTSD are considered more difficult to treat. Only 20% of military-related PTSD patients were effectively treated in previous SSRI studies.4 In one study of sertraline, which was able to get statistically significant results in the general PTSD populace, in 169 veterans in an outpatient VA setting, sertraline missed every primary and secondary efficacy measure.5

  “Pharmacotherapy for Post-traumatic Stress Disorder in Combat Veterans” by Walter Alexander, P&T, January 2012.

  Friedman et al, J Clin Psychiatry 2007;68(5):711-720

It is unclear exactly why military-related PTSD appears to be more difficult to treat. Tonix theorizes that it might be due to the fact that those in combat have repeated traumatic events during their tours of duty, which makes their form of PTSD more ingrained. There are some data that support this theory, including that the more deployments a soldier has, the greater the risk of experiencing psychological problems and being on mental health medication (see Exhibit 8).

Exhibit 8: Psychological problems and number of deployments

Source: Joint Mental Health Advisory Team 7

Another potential reason could be that 48% of veterans from Iraq and Afghanistan who have PTSD also have traumatic brain injury (TBI) according to the Rand Corporation. As TBI can involve physical damage to the brain, the underlying pathology may be different to non-military-related PTSD. In addition, TBI shares many of the same symptoms as PTSD, such as irritability, cognitive deficits, insomnia, depression, fatigue and anxiety – if those symptoms are caused by physical damage rather than PTSD, they may be more intractable.

Patients with “significant” TBI are excluded from Tonix’s AtEase trial. The company defines “significant” as those diagnosed with moderate or severe TBI, which means anyone with brain abnormalities on a scan and/or someone who was unconscious after a traumatic event for less than 30 minutes and had less than 24 hours of post-traumatic amnesia.

There are a few problems with these criteria, mostly due to underreporting and misclassification of TBI. In terms of underreporting, it is important to note that access to medical care for soldiers involved in blasts was not uniform. According to the Joint Mental Health Advisory Team 7 report from 2011, which investigated the mental health of soldiers in Afghanistan, only 57.4% who reported a head injury and only 55.6% who lost consciousness following a blast were seen by a medical professional.

Also, according to the Veteran’s Administration/Department of Defense Clinical Practice Guidelines, computed tomography (CT) is the method of choice for brain scans to diagnose TBI but it has a high rate of error. According to a study of 135 TBI patients, 27% of those with normal head CT had abnormal brain MRI scans.6 In turn, MRI can miss brain abnormalities that would be detected if diffusion tensor imaging had been used.7

  Yuh, E. 2013. Ann Neurol., 73: 224–235.

  MacDonald, C. N Engl J Med 2011; 364:2091-2100

Will TNX-102 SL succeed in military-related PTSD?

We currently assign a 30% chance of success for TNX-102 SL. Safety is not an issue and based on data from the BESTFIT trial in fibromyalgia, the drug has demonstrated benefits in anxiety, sensitivity and sleep quality, which are all issues for PTSD patients.

However, there are several reasons to be cautious:

According to the company, the AtEase trial has 80% power to detect an effect size (as measured by Cohen’s d) of 0.5, a target that would make TNX-102 SL one of the most efficacious drugs ever tested for PTSD (see Exhibit 7), especially in a trial this size. This level of efficacy would also be needed in military-related PTSD, which is thought to be especially difficult with potential TBI in some patients, potentially confounding results.

One of TNX-102 SL’s main attributes (assisting sleep) may be compromised in this population because of the high incidence of nightmares. According to the Veterans Administration, 60% of PTSD sufferers have a problem with nightmares, compared to only 4-8% of the general population. This makes the sufferer anxious about going to sleep, gives them a desire not to sleep and also tends to interrupt their sleep after they have a nightmare. As we have no data to indicate that TNX-102 SL has a positive impact on nightmares, this creates a big unknown.

The chemical structure of cyclobenzaprine is similar to the tricyclic antidepressants, which have shown efficacy in some studies but not consistently and not in any large scale trials, so the exact therapeutic benefit of this class of drugs in PTSD is anecdotal at best.

The primary endpoint is based upon a symptom severity score derived from the CAPS-5, which is a relatively new scale with little history within drug development (many of the historical trials were conducted under CAPS-2). It is therefore unclear how efficacy in certain symptom clusters will change the total symptom severity score. We would expect the most benefit to come in the arousal and intrusions sections, but it is unclear whether that is enough to translate into a statistical benefit if there is limited efficacy on mood or avoidance.

In summary, the AtEase trial is testing a product with an unknown effect size using a relatively unknown scale in a difficult to treat population. That said, given all of these unknowns and the fact that this is essentially a proof-of-concept trial, a p-value that comes close to statistical significance may be a win as a subsequent trial may be able to hit significance through some trial design enhancements and greater power. If AtEase does hit significance, Tonix is likely to apply for accelerated approval and we believe it would need to run a second confirmatory trial prior to FDA approval.

Commercially, if TNX-102 SL is shown to be effective in PTSD, it should be able to have meaningful sales given the size of the population, even when you adjust for those who are successfully being treated by SSRI therapy and those unwilling to seek treatment. We are currently assuming $113m in sales to the military-related PTSD market and $690m to the rest ($803m in total). These estimates assume that TNX-102 SL is able to capture 10% of the PTSD market (c 2% of the total patient population) that is refractory to SSRIs and with a price of $6 per pill at launch. We are currently assuming that Tonix will find a strategic partner to commercialize TNX-102 SL in PTSD with a focus on those that currently fail SSRI therapy.

Tension headache program discontinued

Until recently, Tonix had been investigating TNX-201 for the treatment of ETTH in a Phase II clinical trial. Tonix announced in February 2016 that the clinical trial failed to meet its endpoints and that it would discontinue development of the compound. The 147-person trial had three different primary endpoints with progressively more permissive requirements: resolution of headache pain, 70% reduction in pain on the Visual Analog Scale (VAS), or improvement from baseline on the VAS. None of these endpoints reached statistical significance and the company did not provide any more detail on the outcomes. It stated that TNX-201 was very well tolerated, but the failure of the trial and the company’s decision to discontinue the program strongly suggest that the compound has little clinical utility. The result raises some questions considering that TNX-201 is the R-isomer of isometheptene mucate, which has been marketed in combination with acetaminophen and dichloralphenazone (under the brand Midrin) for the treatment of tension and vascular headaches. However, the compound never underwent FDA approval as it was grandfathered in 1962. It is unclear at this point where this molecule failed, given the lack of information regarding its activity. Regardless, we have removed all forecasts related to TNX-201 from our model.

Valuation

Using a risk-adjusted NPV model of its pipeline products, assuming a 12.5% WACC and no value past patent expiration, we value the company at $300m or $15.92 per basic share. On a fully-diluted basis, we value the company at $317m or $15.49 per diluted share. Key catalysts that would affect our valuation of the company would be the initial proof of concept Phase II data of TNX-102 SL in PTSD in Q216, though we view this trial as high risk, and Phase III data in fibromyalgia, which we view as having a high probability of success.

Exhibit 9: Tonix valuation table

Product

Main Indication

Status

Prob. of success %

Launch year

Peak sales ($m)

Patent protection

Royalty

%

rNPV

TNX-102 SL

Fibromyalgia

Phase III

70

2019

$343

2034

25.0

151

TNX-102 SL

PTSD

Phase II

30

2020

$803

2034

25.0

106

Total

 

 

 

 

 

 

 

257

Cash and cash equivalents (Q415) ($m)

43.0

Total firm value ($m)

300

Total basic shares (m)

18.83

Value per basic share ($)

15.92

Stock options (12/2015, m)

1.7

Weighted average exercise price ($)

10.64

Cash on exercise ($m)

17.7

Total firm value ($m)

317

Total number of shares (m)

20.5

Diluted value per share ($)

15.49

Source: Edison Investment Research, company reports

Financials

The company reported a loss of $13.4m for Q415 and $48.1m for FY15. The loss for the quarter was in line with the previous quarter ($13.3m) as a slight reduction in R&D was offset by an increase in SG&A of approximately $1m. On a yearly basis, R&D was up 91% ($16.9m), reflecting the increase in spending with the advancement of the company’s clinical trials. With the discontinuation of the TNX-201 trial and the conclusion of both the AFFIRM and AtEase trials, we expect total R&D spend to be lower in the near term. G&A expenses for the quarter were up approximately $1m on a sequential basis to $3.9m. G&A for the year was up 40% to $12.7m, with the increase approximately equally split between compensation and professional services. Cash burn for the year was better than our expectations and Tonix ended 2015 with $43m in cash.

While the termination of the ETTH program has lowered R&D expenses, we have also had to remove the upfront and milestone payments associated with the program, resulting in a shortfall. We have therefore increased the time to profitability to 2022 (from 2020) and the amount of financing required to reach that point to $140m (from $80m). We expect the company to raise additional capital in Q316 following some or all of the remaining clinical data on the fibromyalgia and PTSD programs. Although we currently model the company licensing TNX-102 SL after approval, licensing the compound earlier in development could provide a potential alternative source of financing.

Exhibit 10: Financial summary

$000s

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

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)

(41,288)

(45,143)

Operating Profit (before GW and except.)

 

(10,888)

(27,656)

(48,162)

(41,288)

(45,143)

Intangible Amortisation

0

0

0

(9)

(9)

Other

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(10,888)

(27,656)

(48,162)

(41,297)

(45,152)

Net Interest

4

40

108

149

(2,976)

Other

0

0

0

0

0

Profit Before Tax (norm)

 

 

(10,884)

(27,616)

(48,054)

(41,139)

(48,119)

Profit Before Tax (FRS 3)

 

 

(10,884)

(27,616)

(48,054)

(41,148)

(48,128)

Tax

0

0

0

0

0

Deferred tax

0

(0)

0

(0)

(0)

Profit After Tax (norm)

(10,884)

(27,616)

(48,054)

(41,139)

(48,119)

Profit After Tax (FRS 3)

(10,884)

(27,616)

(48,054)

(41,148)

(48,128)

Average Number of Shares Outstanding (m)

3.2

10.0

16.8

17.2

17.8

EPS - normalised ($)

 

 

(3.37)

(2.77)

(2.86)

(2.40)

(2.70)

EPS - FRS 3 ($)

 

 

(3.37)

(2.77)

(2.86)

(2.40)

(2.70)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

45

373

527

443

400

Intangible Assets

0

0

120

120

111

Tangible Assets

45

328

350

266

232

Other

0

45

57

57

57

Current Assets

 

 

8,202

38,184

43,016

44,838

21,143

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

8,202

38,184

43,016

44,838

21,143

Other

0

0

0

0

0

Current Liabilities

 

 

(765)

(1,487)

(3,049)

(3,049)

(3,049)

Creditors

(765)

(1,487)

(3,049)

(3,049)

(3,049)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(13)

(68)

(106)

(40,106)

(60,106)

Long term borrowings

0

0

0

(40,000)

(60,000)

Other long term liabilities

(13)

(68)

(106)

(106)

(106)

Net Assets

 

 

7,469

37,002

40,388

2,126

(41,612)

CASH FLOW

Operating Cash Flow

 

 

(8,517)

(22,840)

(42,528)

(38,327)

(40,690)

Net Interest

0

0

0

149

(2,976)

Tax

0

0

0

0

0

Capex

(15)

(319)

(238)

0

(30)

Acquisitions/disposals

0

0

0

0

0

Financing

10,042

47,836

47,685

0

0

Dividends

0

0

0

0

0

Other

0

0

(11)

0

0

Net Cash Flow

1,510

24,677

4,908

(38,177)

(43,696)

Opening net debt/(cash)

 

 

(1,785)

(8,202)

(38,184)

(43,016)

(4,838)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

(1)

(3)

(4)

0

0

Other

4908

5308

(72)

0

0

Closing net debt/(cash)

 

 

(8,202)

(38,184)

(43,016)

(4,838)

38,857

Source: Edison Investment Research, Tonix Pharmaceuticals reports

Contact details

Revenue by geography

509 Madison Avenue
Suite 306
New York, NY 10022
USA
212-980-9155
www.tonixpharma.com

N/A

Contact details

509 Madison Avenue
Suite 306
New York, NY 10022
USA
212-980-9155
www.tonixpharma.com

Revenue by geography

N/A

Management team

CEO: Seth Lederman, MD

CFO: Bradley Saenger, CPA

Seth Lederman is a physician, scientist, and specialty pharmaceuticals entrepreneur. Prior to founding Tonix, from 2007-08 Dr Lederman co-founded and was a managing partner of Konanda Pharma Partners, LLC and Konanda Pharma Fund I, LP. He co-founded and served as director and chairman of its wholly-owned operating companies Validus and Fontus Pharmaceuticals Inc.

Bradley Saenger joined Tonix in May 2014, as director of accounting and was promoted to VP of accounting and to chief financial officer. Mr. Saenger has more than 10 years’ experience in large publicly-traded companies (eg Shire and Vertex) and an additional 10 years’ experience in public accounting (PricewaterhouseCoopers).

CSO: Bruce Daugherty, PhD, MBA

CMO: Gregory Sullivan, MD

Bruce Daugherty joined Tonix Pharmaceuticals as Senior director, drug development in April 2012, and was appointed chief scientific officer in August 2013. Dr Daugherty has extensive experience in drug development and basic biomedical research. For the majority of his career, Dr Daugherty was with Merck & Co., most recently as senior research fellow, where he was project leader for multiple drug discovery programs in the therapeutic areas of inflammation, immunology, respiratory, and cardiovascular diseases.

Dr Sullivan is a physician and scientist. Dr Sullivan joined Tonix from Columbia University (CU), where he was most recently an assistant professor of psychiatry in the Department of Psychiatry at Columbia University Medical Center. He was a research scientist at the New York State Psychiatric Institute (NYSPI), and a practicing psychiatrist. His areas of expertise include the diagnosis, treatment and neurobiology of anxiety and mood disorders, including PTSD.

Management team

CEO: Seth Lederman, MD

Seth Lederman is a physician, scientist, and specialty pharmaceuticals entrepreneur. Prior to founding Tonix, from 2007-08 Dr Lederman co-founded and was a managing partner of Konanda Pharma Partners, LLC and Konanda Pharma Fund I, LP. He co-founded and served as director and chairman of its wholly-owned operating companies Validus and Fontus Pharmaceuticals Inc.

CFO: Bradley Saenger, CPA

Bradley Saenger joined Tonix in May 2014, as director of accounting and was promoted to VP of accounting and to chief financial officer. Mr. Saenger has more than 10 years’ experience in large publicly-traded companies (eg Shire and Vertex) and an additional 10 years’ experience in public accounting (PricewaterhouseCoopers).

CSO: Bruce Daugherty, PhD, MBA

Bruce Daugherty joined Tonix Pharmaceuticals as Senior director, drug development in April 2012, and was appointed chief scientific officer in August 2013. Dr Daugherty has extensive experience in drug development and basic biomedical research. For the majority of his career, Dr Daugherty was with Merck & Co., most recently as senior research fellow, where he was project leader for multiple drug discovery programs in the therapeutic areas of inflammation, immunology, respiratory, and cardiovascular diseases.

CMO: Gregory Sullivan, MD

Dr Sullivan is a physician and scientist. Dr Sullivan joined Tonix from Columbia University (CU), where he was most recently an assistant professor of psychiatry in the Department of Psychiatry at Columbia University Medical Center. He was a research scientist at the New York State Psychiatric Institute (NYSPI), and a practicing psychiatrist. His areas of expertise include the diagnosis, treatment and neurobiology of anxiety and mood disorders, including PTSD.

Principal shareholders

(%)

Kingdon Capital Management

7.8

Deerfield Management

7.0

Millennium Management

4.8

Broadfin Capital

4.7

Opaleye Management

3.0

Vanguard Group

2.6

Franklin Resources

2.3

Companies named in this report

Pfizer (PFE), Lilly (LLY), Allergan (AGN), Daiichi Sankyo (4568)

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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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Egalet Corporation — Update 1 April 2016

Egalet Corporation

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