In my previous article for Seeking Alpha about Soligenix (OTCQB:SNGX), I discussed the fundamentals of the company, and indicated that the company is undervalued at current market price. In this article, I am going to discuss the developments within the company from then until now, and how I evaluate the company at this time.
Soligenix Exited Second Quarter 2013 With Strong Balance Sheet
On August 12, 2013, Soligenix, Inc. reported its financial results for the quarter ended June 30, 2013. Revenues for the second quarter ended June 30, 2013 were $0.6 million as compared to $0.8 million for the quarter of 2012.
Research and development expenses for the second quarter of 2013 were $2.1 million as compared to $0.5 million for the quarter ended June 30, 2012. Included in the current quarter is a $1.5 million non-cash charge related to the collaboration with Intrexon (NYSE:XON).
General and administrative expenses for the second quarter of 2013 were $0.7 million as compared to $0.6 million for the quarter ended June 30, 2012. Net loss for 2Q13 was $3.4 million, or $0.28 per share as compared to $1.0 million, or $0.09 per share for 2Q12.
As of June 30, 2013, the company's cash position was $8.1 million. On June 21, 2013, Soligenix announced the pricing of a registered public offering of shares of common stock and warrants to purchase common stock.
In connection with the public offering, the company has entered into definitive agreements with institutional investors and certain members of the company's management and Board of Directors to sell approximately $7.0 million of the company's securities, consisting of an aggregate of approximately 6.7 million shares of common stock at a price per share of $1.05 and 5-year warrants to purchase up to approximately 5.0 million shares of common stock with an exercise price of $1.65 per share.
Institutional investors in the offering include, among others, an affiliated fund of Third Security, LLC, a venture capital firm founded by R.J. Kirk. In connection with Third Security's investment in the company, the company intends to appoint a Third Security designee to the Board of Soligenix.
The company plans to use the net proceeds from the offering to further develop its product candidates and for general working capital purposes.
Current cash balance will last through the end of 2014 according to our financial model. The strengthened cash runway allows the company to initiate a Phase II clinical study in oral mucositis as well as a Phase II/III study in pediatric Crohn's disease by the end of this year.
Soligenix also remains active and opportunistic in pursuing non-dilutive capital through government grants and contracts. Most notably, the company is awaiting response from the Biomedical Advanced Research and Development Authority (BARDA) on its contract proposal to support the development of OrbeShield™ for the treatment of gastrointestinal acute radiation syndrome (GI ARS), which if awarded, has the potential to be a multi-million dollar contract.
Soligenix is on track to advance SGX203 for pediatric Crohn's disease
Phase I Clinical Study with SGX203 for the Treatment of Pediatric Crohn's Disease has been completed
On June 28, 2013, Soligenix announced that it has enrolled and treated all patients in the Phase I Study BDP-PCD-01; the first clinical study for development of SGX203 (oral beclomethasone 17,21-dipropionate or oral BDP) for the treatment of pediatric Crohn's disease.
SGX203 has received Fast Track and Orphan Drug designations from the US FDA for the treatment of pediatric Crohn's disease.
As a reminder, Soligenix initiated the Phase I clinical study on May 15, 2013. The objective of the Phase I study BDP-PCD-01 is to determine the pharmacokinetic (PK) and pharmacodynamic (PD) profile of SGX203 in healthy young male and female adolescents and adults.
This study enrolled 24 subjects between the ages of 18-22, with all assessments completed in May 2013. Preliminary PK results indicate that the PK profile in this population is consistent with the profile established in previous studies in a broader population and supports a convenient twice a day dosing regimen. SGX203 administration (6 mg BDP twice daily over 7 days) was found to be safe and well tolerated.
The study in healthy male and female adolescents and young adults provided important complementary data to that previously obtained, to enable the refinement of the PK model that is fundamental to the pediatric Crohn's disease development program. In addition, the study confirmed the safety profile observed in all previous clinical studies with oral BDP.
Phase II/III trial is planned
Soligenix plans to start Phase II/III trial of SGX203 in 2H 2013. Primary endpoint data are expected in 2H 2014.
The PK data generated from the Phase I study will be used to refine the PK model previously established with Dr. Jeffrey S. Barrett, PhD, FCP, from The Children's Hospital of Philadelphia. The refined model will provide the justification for limited PK sampling in the planned Phase II/III pediatric clinical study and will help inform the dose selection for the Phase III component of the study.
There is currently no cure for Crohn's disease, and there is no one treatment that works for everyone. Drug therapies usually include anti-inflammatory drugs, immune system suppressors and antibiotics. There are currently no FDA approved corticosteroid therapies for pediatric Crohn's disease. 80% of patients with Crohn's disease are treated with steroids off-label as first-line therapy, which may suppress adrenal function and result in growth retardation. Remicade is the only approved product in pediatric Crohn's disease in the US, which is used in 30% of patients within first year of diagnosis. However, Remicade carries a black box warning for potential malignancy (T cell lymphoma). Two biologics, Cimzia and Tysabri and one corticosteroid Entocort (budesonide) are on the market to treat Crohn's disease in adult patients, and are currently in trials in pediatric patients.
SGX203 is designed to block inflammation of Crohn's disease throughout the GI tract and is positioned as a corticosteroid option with less toxicity than the current standard systemic steroid therapy - prednisone.
We believe SGX203 has the potential to meet an important medical need in children with this serious illness.
Commercial Collaboration with SciClone Pharmaceuticals in China for SGX942
On July 8, 2013, Soligenix announced a personalized medicine collaboration with SciClone Pharmaceuticals of China in the company's oral mucositis (OM) clinical program with SGX942. As part of this collaboration, Soligenix will receive access to SciClone's oral mucositis clinical and regulatory data library in exchange for commercialization rights in the People's Republic of China, including Hong Kong and Macau. Specific deal terms have not been disclosed at this time.
SciClone completed two sequential Phase II clinical studies in 2010 and 2012 evaluating its drug, SCV-07, for the treatment of OM caused by chemoradiation therapy in head and neck cancer patients, before terminating its program. As this is the same population that Soligenix is pursuing for its OM program, this information has the potential to increase the probability of success of its upcoming Phase II clinical study. By analyzing data available from the placebo subjects in the SciClone trials, Soligenix will acquire essential insight into disease progression, along with quantitative understanding of its incidence and severity in this patient population. This has the potential to enable the design of the SGX942 clinical trials to be optimized and may allow for novel and more robust response criteria to be defined. In addition, analysis of blood samples from these subjects has the potential to identify key biomarkers that could enable development of a prognostic enrichment tool capable of predicting patients expected to develop severe OM on the basis of their deoxyribonucleic acid (DNA) signature. The ability to identify the patient population most likely to develop severe disease increases the likelihood of observing a treatment response.
This collaboration is unique in that it is the first time that a personalized medicine approach has been comprehensively integrated with an oral mucositis development program. The extension of these biomarker approaches in the SGX942 clinical trials also has the potential to form the basis of a predictive enrichment tool and companion diagnostic to identify patients more likely to respond to SGX942 treatment, thereby increasing the likelihood of program success.
We think the collaboration with SciClone (NASDAQ:SCLN) is an ideal match for Soligenix. SciClone has a significant commercial presence and expertise in China, and their clinical and regulatory contribution to the SGX942 OM program has the potential to accelerate development while dramatically improving clinical response.
The SGX94 IDR Platform Has Potential To Targets Multiple Indications
Soligenix's BioTherapeutics segment targets two areas of inflammation: supportive cancer care and GI inflammation.
Soligenix is developing SGX94, which belongs to a new class of compounds called Innate Defense Regulators (IDRs), to treat infections and tissue damages. The SGX94 IDR platform represents a novel and innovative approach to therapeutically modulating the immune system by targeting the innate immune system and has the potential to target multiple indications.
IDRs provide a novel approach to the control of infection and tissue damage via highly selective binding to an intracellular adaptor protein, sequestosome-1, also known as p62, which has a pivotal function in signal transduction during activation and control of the innate defense system. Sequestosome is a recently identified target for modulation of innate defenses and is expressed in most cell types.
IDRs have no direct antibiotic activity but modulate host responses, increasing survival after infections with a broad range of bacterial Gram-negative and Gram-positive pathogens including both antibiotic sensitive and resistant strains, as well as accelerating resolution of tissue damage following exposure to a variety of agents including bacterial pathogens, trauma and chemo- or radiation-therapy.
Since IDRs target the host (and not the pathogen), IDRs do not engender resistance and are active against resistant pathogens. In vitro data indicate that the endothelium plays a significant role in SGX94 activity and animal studies show that IDRs selectively promote monocyte and macrophage recruitment to disease sites and accelerate resolution of disease. Though IDR action depends on monocytes and macrophages, there is no dependence on either the adaptive immune system (e.g., T cells and B cells) or neutrophils. This suggests that IDRs may be effective in immunosuppressed patients. Moreover, p62 functions downstream of signaling receptors (TLRs, NODs) responsible for sensing both infection and tissue damage, which gives it a role in innate immune modulation relevant to a wide range of diseases from infection (pathogen sensing) to colitis and mucositis (damage sensing).
Soligenix acquired SGX942 (formerly IMX942) in December 2012 from Inimex Pharmaceuticals of Canada. Soligenix is developing SGX942 for the treatment of oral mucositis in head and neck cancer patients following chemo- or radiation therapy. SGX94 is the research name for the active ingredient in SGX942, which is the research name for the finished drug product being studied in oral mucositis.
SGX94 is a fully synthetic, 5-amino acid peptide with high aqueous solubility and stability. Extensive in vivo preclinical studies have shown that SGX94 reduces tissue damage associated with chemotherapy, radiation, trauma and inflammation. Although SGX94 is not directly antimicrobial, it accelerates pathogen clearance and increases host survival in a broad spectrum of bacterial infections including Gram positive and negative bacteria, and both drug sensitive and resistant strains, by directly targeting the host innate immune system.
Extensive animal data set points to high potential for development of a broad spectrum of SGX94 products based on the following attributes:
- ameliorate injury;
- reduce inflammation;
- fight both antibiotic sensitive and resistant infections;
- complement antibiotics; and
- protect immune-compromised animals.
More specifically, SGX94 ameliorates tissue damage in models of chemotherapy- or radiation-induced mucositis as well as DSS-induced colitis and has shown accelerated healing in a murine model of skin infection and injury. SGX94 is not a growth factor and does not promote tumor growth or protect tumors against treatment in a breast cancer xenograft model using the MCF-7 cell line.
Studies in murine models of bacterial infection have shown activity against a broad range of pathogens including methicillin-resistant S. aureus (MRSA), K. pneumoniae, E.coli, P. aeruginosa, and B. pseudomallei. SGX94 enhances the activity of antibiotics administered at sub-optimal doses. Studies in a model of MRSA bacteremia indicate that SGX94 is effective both therapeutically and prophylactically. SGX94 is most effective when administered by IV injection and has a very short plasma half-life (~10 minutes). When administered prophylactically in the MRSA model, a single dose of SGX94 is protective when injected up to 5 days before bacterial challenge, indicating a prolonged pharmacodynamic effect despite rapid plasma clearance.
Inimex has completed a double-blind, placebo-controlled Phase I clinical trial of SGX942 in 84 healthy volunteers with both single ascending dose and multiple ascending dose components. SGX942 showed a strong safety profile when administered IV over 7 days and was consistent with safety results seen in pre-clinical studies. Drug clearance in humans is rapid and similar to results seen in pre-clinical studies.
Soligenix plans to start a Phase II proof-of-concept multi-center, double-blind, placebo-controlled trial in approximately 75 patients in the second half of 2013. This Phase II trial is designed to evaluate the efficacy of SGX942 (research name for oral mucositis indication) in reduction of the severity of oral mucositis in head and neck cancer patients undergoing fractionated radiation therapy and/or chemotherapy. The cGMP manufacture of drug product to initiate the Phase II studies is complete. Results are expected to be available in 2H14.
In addition to oral mucositis, SGX942 has the potential for multiple other indications as listed below.
Valuation Is Very Attractive
We maintain an Outperform rating for Soligenix and reiterate our 12-month price target of $4.50 per share.
Soligenix is a mid-stage development biopharmaceutical company focused on cancer supportive care and GI disorders, two large pharmaceutical markets both in the US and around the world. Soligenix also develops vaccines/oral therapeutics for biodefense.
Soligenix has built a diversified pipeline using three proprietary platform technologies. We are especially optimistic about its lead drug candidate SGX942 for the treatment of mucositis. SGX942 will enter into Phase II study in 2H13, which may serve as a major short-term catalyst. Results will be available in 2H14, which, if positive, would be a significant de-risking event for Soligenix. SGX942 has a new mechanism of action and will command a significant market share of the oral mucositis market if approved in our view.
The company's oral BDP has the potential to target multiple GI disorders such as Crohn's disease, radiation enteritis and GVHD as well as ARS.
Soligenix's vaccines and biodefense therapeutics are being developed under specific FDA regulatory guidelines called the "Animal Rule." The Animal Rule provides that under certain circumstances, where it is unethical or not feasible to conduct human efficacy studies, the FDA may grant marketing approval based on adequate and well-controlled animal studies when the results of those studies establish that the drug is reasonably likely to produce clinical benefit in humans. Demonstration of the product's safety in humans is still required.
We think the "Animal Rule" means a lot for Soligenix, because this can accelerate the development of the ricin and anthrax vaccines as well as OrbeShield. Once approved by the FDA, Soligenix will have the opportunity to negotiate a stock-pile contract with the US government. These stock-pile or procurement contracts have been very lucrative for other companies supplying similar drugs to the US government and will provide significant cash flow to Soligenix.
Based on our analysis, we think Soligenix shares are undervalued at this time. Currently, shares of Soligenix are trading at around $1.50 per share, which values the company at $27 million in market cap. We admit that it's always difficult to value a development stage biotech company. Soligenix is no exception. However, we do think that current market value of Soligenix is a deep discount compared to its peers in the same industry.
Most small biotech companies of development stage are valued from $50 million to $500 million depending on how advanced the pipeline is and which indications the company is targeting. Soligenix's SGX942 for oral mucositis will enter a Phase II clinical study later this year, and the company's SGX203 for pediatric Crohn's disease will also move to Phase II/III study later this year. Soligenix has multiple catalysts in the next 12 months or so.
Our price target of $4.50 per share values Soligenix at $86 million in market cap, which we think, is very conservative.