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Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.

I wrote two articles on Soligenix (OTCQB:SNGX) in June and August 2013 respectively. In my previous articles, I discussed the fundamentals of the company, and developments within the company in the past few months. In this article, I am going to discuss an important event, a huge contract awarded to Soligenix by the US government.

A Huge Contract for Soligenix

Last Friday (September 19, 2013), Soligenix announced that it has been awarded a contract valued at up to $26.3 million by the US Department of Health and Human Service's Biomedical Advanced Research and Development Authority (BARDA). The contract is awarded for the advanced preclinical and manufacturing development of OrbeShield™ (oral beclomethasone 17,21-dipropionate or oral BDP) as a biodefense medical countermeasures (MCMs) for the treatment of gastrointestinal acute radiation syndrome (GI ARS).

The potential five year contract contains a two year base period, with two contract options that would extend the contract an additional three years. According to management, funding for the two year base period is slightly over $10 million, with potential $5 million for each year for three years following the base period as long as the program meets targeted milestones.

This contract is a huge win for Soligenix in our view. It not only provides non-dilutive funding for the development of the OrbeShield program for GI ARS, but more importantly validates the technology the company has developed over the years related to OrbeShield. Securing a highly competitive BARDA contract provides important recognition as to the innovative quality and potential therapeutic impact of OrbeShield.

The total award will support the preclinical and manufacturing development activities necessary to successfully navigate and complete the FDA approval process for use of OrbeShield™ to treat GI ARS.

OrbeShield™ - For Treating GI ARS

OrbeShield™ is an oral immediate and delayed release BDP formulation that is being developed for the treatment of GI ARS (gastrointestinal acute radiation syndrome).

OrbeShield in GI ARS has FDA Fast Track and Orphan Drug designations.

ARS occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the GI tract and later the lungs. In the event of a nuclear disaster or terrorist detonation of a nuclear bomb, casualties exposed to >2 Gy are at high risk for development of clinically significant ARS. Exposure to high doses of radiation exceeding 10-12 Gy causes acute GI injury which can result in death in 5-15 days. The GI tract is highly sensitive due to the requirement for incessant proliferation of crypt stem cells and production of mucosal epithelium. The extent of injury to the bone marrow and the GI tract are the principal determinants of survival after exposure to TBI. Although the hematopoietic syndrome can be rescued by bone marrow transplantation or growth factor administration, there is no established treatment or preventive measure for the GI damage that occurs after high-dose radiation. Therefore, there is an urgent need to develop specific medical counter measures against the lethal pathophysiological manifestations of radiation-induced GI injury.

The GI tract is highly sensitive to ionizing radiation and the destruction of epithelial tissue is one of the first effects of radiation exposure. The rapid loss of epithelial cells leads to inflammation and infection that are often the primary cause of death in acute radiation injury. This is the same type of toxicity that occurs in Soligenix's acute radiation enteritis clinical program with SGX201. As a result, there is a dual avenue of development for Soligenix, and OrbeShield™ is potentially a "dual use" compound, a desirable characteristic which is a specific priority of Biomedical Advanced Research and Development Authority (BARDA) for ARS and other medical countermeasure indications.

In preclinical studies, OrbeShield™ has demonstrated positive results in a canine GI ARS model which indicate that dogs treated with OrbeShield™ demonstrated statistically significant (p=0.04) improvement in survival with dosing at either 2 hours or 24 hours after exposure to lethal doses of total body irradiation (TBI) when compared to control dogs. The median survival was 100 days (p=0.04) when canines were treated 2 hours post exposure, 87 days (p=0.048) when canines were treated 24 hours post exposure. OrbeShield™ appears to significantly mitigate the damage to the GI epithelium caused by exposure to high doses of radiation.

Soligenix plans to conduct a follow-on replication dog study in 1H14 with results available also in 1H14. The FDA has cleared the IND application for OrbeShield™ for the mitigation of morbidity and mortality associated with GI ARS.

OrbeShield has other advantages beyond the efficacy seen in the canine model to date:

  • OrbeShield is an oral formulation, as opposed to injectable like many of the other biodefense vaccines and therapeutics; therefore, if a catastrophic event was to occur, the general population could dose themselves without the need for medical personnel to administer;
  • OrbeShield has demonstrated excellent safety profile in about 350 human subjects with the company's oral BDP formulation;
  • cGMP Manufacturing process already at large commercial scale to produce sufficient quantities of OrbeShield, as needed.

The Animal Rule Advantages

Soligenix's OrbeShield and other vaccine programs 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.

Given the above, Soligenix is only left with the primary and important task of showing efficacy in pivotal large animal (NHP) studies per the FDA "animal rule".

We think the "Animal Rule" means a lot for Soligenix, because this can accelerate the development of OrbeShield and other vaccines. 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.

There Are More to Come for Soligenix

In addition to the OrbeShield program, Soligenix also plans to start Phase II/III trial of SGX203 in 2H 2013 for pediatric Crohn's disease. Primary endpoint data are expected in 2H 2014.

SGX203 is a two tablet delivery system of BDP specifically designed for oral use that allows for administration of immediate and delayed release of BDP. One tablet is intended to release BDP in the upper sections of the GI tract and the other tablet is intended to release BDP in the lower sections of the GI tract. The FDA has awarded SGX203 Orphan Drug designation for the treatment of pediatric Crohn's disease as well as Fast Track designation.

Crohn's disease is an ongoing disorder that causes inflammation of the GI tract. Crohn's disease can affect any area of the GI tract, from the mouth to the anus, but it most commonly affects the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into the lining of the affected organ. The swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea. Because the symptoms of Crohn's disease are similar to other intestinal disorders, such as irritable bowel syndrome and ulcerative colitis, it can be difficult to diagnose.

Crohn's disease can appear at any age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people with Crohn's disease develop symptoms before 20 years of age. It is estimated, based upon published studies and reports, that Pediatric Crohn's disease is a subpopulation of approximately 80,000 patients in the U.S. with a comparable number in Europe. Crohn's disease tends to be both severe and extensive in the pediatric population and a relatively high proportion (~40%) of pediatric Crohn's patients has involvement of their upper gastrointestinal tract.

Crohn's disease presents special challenges for children and teens. In addition to bothersome and often painful symptoms, the disease can stunt growth, delay puberty, and weaken bones. Crohn's disease symptoms may sometimes prevent a child from participating in enjoyable activities. The emotional and psychological issues of living with a chronic disease can be especially difficult for young people.

Soligenix already completed a Phase I Study of SGX203 for the treatment of pediatric Crohn's disease. The PK data generated from the Phase I study will be used to refine the PK model. 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.

Further, 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.

There is More Room for Price Appreciation

Since we initiated our coverage of Soligenix in late June 2013, share price of the company has appreciated 46%. But we think there is more room for further price appreciation. Our call is based on the fundamentals of the company and recent positive developments within the company.

The multi-million and multi-year contract awarded by the US government is certainly a huge win for Soligenix. The contract will provide non-dilutive funding for the development of OrbeShield as a MCM for the treatment of ARS. The contract also validates the technology Soligenix has developed over the years for oral BDP formulations.

The "animal rule" will accelerate the development of OrbeShield and greatly reduce the risks of clinical trials.

In addition to OrbeShield, its lead drug candidate SGX942 will enter into a Phase II study in 2H13 for the treatment of mucositis, 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.

Further, Soligenix plans to start a Phase II/III trial of SGX203 in 2H 2013 for pediatric Crohn's disease. Primary endpoint data are expected in 2H 2014.

In terms of cash burn, we think Soligenix has a strong balance sheet to carry its clinical programs to the next stage.

As of June 30, 2013, the Company's cash position was $8.1 million. 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 or early 2014.

Our price target is $4.50 per share, which values Soligenix at $86 million in market cap which we think is very conservative at this time.

Source: There Are More To Come For Soligenix