In my prior article on Soligenix (OTCQB:SNGX) which was appropriately titled "Kirk Seal of Approval...and Government Contract Catalyst Imminent", I wrote of a pending BARDA contract that I estimated could be worth >$20mm in funding that should be announced imminently. As it turns out, SNGX announced on the 19th a contract with BARDA that is worth $26m. Following that, on the 25th they announced a $6m NIAID contract as well. In this article, I will give the backdrop for the announcements, as well as implications going forward.
The Contract Wins & Implications
As outlined above, SNGX announced that it was awarded a BARDA contract that is valued at up to $26.3m, including the components of a 2 year base period, and 2 contract options for 3 year extensions (i.e. total 5 year deal). This contract will fund its OrbeShield for GI ARS (acute radiation syndrome) through potential FDA approval.
Following that announcement, on the 25th, SNGX announced a second contract win, that of $6.4m from the NIAID for the development of OrbeShield in GI ARS as well. The terms of this contract are 3 years, with a 1 year base period and 2 contract options for 1 year each. The total award will support the development activities necessary to evaluate OrbeShield™ as a potential MCM to treat GI ARS.
As I have covered (and others on these boards as well), OrbeShield is an oral immediate/delayed release BDP formulation for GI ARS and has shown solid pre-clinical data in a canine model, showing statistically significant improvement in survival at various dosing levels.
The key takeaway here though from both contract wins, is that company is likely to capture a management fee of 5-10% (as is typical with government grants) within the grant funding, which could be $2 million in free cash flow … or the equivalent of a non-dilutive "free" mini financing round. For a company with a total enterprise value of $40mm (even after the +20% run since the contract announcement) ... $32m in funding should go a long way (of which another $2m in cash, or ~5% of current market cap … drops right to the Balance Sheet)
The most recent BARDA and competitive NIH contract wins should serve as a poignant reminder to investors that SNGX's business strength, in securing funding in bio-defense and bio-therapeutics, will give it an ample cash runway to 2015 and allow it to get to primary endpoints in their 2 ongoing trials in mucositis and Pediatric Crohns.
Risk/Reward & Catalyst Pathway
The shares have appreciated 25% since the initial contract win announcements, but I believe there is more upside remaining as will be detailed.
First, I note that of the published analysts that are following the stock, all have a positive bias, Zack's here at $4.50, Brean at $5 target, and Maxim (who just initiated) came out at $3. All assume fairly robust clinical uptake, but still conservative given its outlook. So you have a constructive sell side presence that will continue to be constructive on the shares and will be ahead of Institutional Buyers as the liquidity and the market cap continue to increase.
Second, the confluence of both contract wins, which total $33m in aggregate (for a company with only $40mm in total market cap right now) should emphasize the company's lean business model which has long been one of its strong points, and has resonated with investors to this point. As the company can now openly discuss these contract points, I believe the true implications of this financing model will drive appreciation.
Finally, the third expected driver for the shares beyond these wins will be the upcoming catalyst expected before year end for SGX94 data in 75 patients for oral mucositis in head & neck cancer patients undergoing chemo. The primary indication, oral mucositis is a $750m market opportunity, with no clean & effective standard of care. Initial data as outlined in earlier articles has been constructive, and the validation of the trial behind these grant opportunities will allow the company to capture the incremental financing into 2014 and beyond.
As with most companies of this size, the primary caveat is the absolute market cap and liquidity. With average trading volume of 100k shares a day (or notional $200k a day), the stock is likely too illiquid for many funds and may only see increased volume as we head closer to clinical data. Notably, the stock did trade 300k shares today and the past few days ($600k notional) which should be sustained for a period of time so an entry position can be obtained at these levels.