It's not often that investors can look at a development stage biotechnology firm and come to the conclusion that it's firing on all cylinders. Typically there is an area that is a cause for concern and typically that has to do with poor funding. However, one company that appears to buck that trend is Soligenix (OTC:SNGX). After recently winning several large contracts, a strong validation of the science, the company appears poised for future growth and development without having to dilute the shareholders.
Soligenix is a clinical stage biopharmaceutical company that is currently focused on developing and commercializing products to treat inflammatory diseases and biodefense countermeasures where there remains an unmet medical need. The company has an extremely deep pipeline in both biotherapeutics and vaccines. I will discuss those in more detail below but first let's look at how the company's recent success has led to a great time for investors.
While the market as a whole has soared over the past year, Soligenix has performed even better. As the chart below shows, Soligenix shares have soared by more than 200% over the past year.
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I think most investors are aware that biotechnology stocks have gone almost straight up during that same period. However, this performance goes well and above the industry's performance. We can compare Soligenix to the iShares Dow Jones US Healthcare ETF (IYH). As the chart below shows, that particular ETF is only up about 27% during the same period.
Given the recent strength of Soligenix shares, investors may be wondering whether now is the right time to invest. Well based on the company's recent funding news and the pipeline potential, I believe now is the perfect time to invest.
Funding - Government Contracts
One of the biggest fears for investors when analyzing small-cap biotech stocks is to make a determination as to the funding prospects for the company. Investors hate being diluted and deservedly so. That being said, Soligenix seems to have put that question to rest with their recent contract wins. The first announcement came on September 19th when Soligenix announced that it had received 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). These funds will be used to further fund OrbeShield, which is used to treat gastrointestinal acute radiation syndrome.
Another big win for the company came on September 25th when the company was awarded a contract valued at up to $6.4 million by the US Department of Health and Human Service's National Institutes of Health. The funds from this contract will be used for the advanced preclinical development of OrbeShield.
Investors had been eagerly anticipating both of these contract decisions. Now that the good news is locked in, investors can begin looking forward to even bigger news focused on the pipeline that the company has developed.
The company currently has an extremely deep and diversified pipeline with 9 potential value drivers currently in development. The full pipeline along with each trial's progress can be seen in the diagram below.
One of the first things that caught my attention is that the majority of these trials have been funded in part or in whole by the NIH and/or FDA. This is a huge benefit to shareholders as it represents a non-dilutive form of financing. However, what may not be appreciated here is just how competitive the government grant/contract process is, which is a direct validation as to the company's pipeline. It is also likely that the company is currently attempting to secure additional contracts which will further lessen the need for additional shareholder financing in the future.
Additionally, several of these programs are targeting orphan (rare) diseases in target indications with the potential for worldwide sales of more than $200 million. Given that depth of the pipeline, let's focus on a few of these trials which could serve as significant value drivers for shareholders.
SGX942 - Oral Muscositis
Given the popularity of biotech companies focusing on cancer treatments, SGX942 appears to have a lot of investors excited. SGX942 is a synthetic, five-amino acid peptide which will be used to treat oral muscositis in head & neck cancer. After demonstrating safety and tolerability in a Phase 1 trial with 84 healthy volunteers, the company was able to secure an FDA "Fast Track" designation. This designation should help facilitate the development and eventually expedite the review of a potential NDA. The company has already stated that they intend to proceed with a Phase 2 trial later this year. The primary endpoint from this trial is expected during the 2nd half of 2014.
This treatment has a great deal of potential which is obvious given the FDA "Fast Track" designation. However, it's also worth noting some specifics. Oral muscositis (grades II-IV) affects over 180,000 head and neck cancer patients worldwide. Additionally, this particular ailment does not currently have an approved drug, and as such, represents an unmet medical need. Combine this unmet medical need with the commercial collaboration already in place in China with SciClone Pharmaceuticals, and investors may be looking at a drug that could generate hundreds of millions once approved.
SGX203 - Pediatric Crohn's Disease
The company is attempting to create a two tablet formula that can treat severe inflammation of the GI tract. The current standard of care is a steroid therapy called prednisone. Soligenix is hoping that their formula can supplant prednisone as the off-label standard of care after demonstrating a superior safety profile. The company has already been granted both FDA "Orphan Drug" and "Fast Track" designations, which again demonstrates the unmet medical need in this rare disease.
The company has already completed a Phase 1 study with 24 volunteers. The study demonstrated that the therapy was safe and well tolerated. The company expects to proceed with a Phase 2/3 trial in the first half of 2014 with the primary endpoint data expected during the first half of 2015.
With over 160,000 children and adolescents currently suffering from Crohn's disease worldwide, the market opportunity is substantial for the company. 80% of this population is currently treated with an off-label prednisone as a first-line therapy. However, concerns have arisen from this particular type of therapy such as adrenal suppression which can result in growth retardation. Additionally, Remicade is the only approved product to treat Pediatric Crohn's in the United States. It is currently used in 30% of patients within the first year of diagnosis. However, the treatment comes with a black box warning for potential malignancy. That's quite a warning! If Soligenix can demonstrate a superior safety profile with SGX203, it could become the industry standard.
Besides the already mentioned trials and catalysts, it's also important to note that the company is expecting to make the following announcements during the next 18 months:
- ThermoVax (heat stabilization technology for vaccines) data during the 2nd half of 2013
- orBec Phase 2 (chronic GI Graft vs. Host Disease) data during the 2nd half of 2014
- SGX201 (radiation enteritis) Phase 2b trial start is expected during the 1st half of 2014
- VeloThrax Vaccine (Anthrax Toxin pre- and post- exposure) Phase 1 trial start is expected during the 2nd half of 2014
- RiVax Vaccine (Ricin Toxin pre- and post- exposure) Phase 2 trial start is expected during the 2nd half of 2014
With all of the progress the company is making with its programs, it can be easy to lose sight of another important part of analyzing small-cap biotech stocks, the cash position. In the case of Soligenix, they certainly appear to be well-funded. The company recently completed a financing in June for $7.1 million. At the end of June, the company had approximately $8.1 million in available cash. Given the company's recent contract awards totaling approximately $32.7 million, the cash position of $8.1 million, and the company's fairly low quarterly burn rate of approximately $1.5 million, it appears that the company won't need to issue a secondary offering anytime soon. Additionally, given all of the upcoming catalysts, it appears likely that the company may see a significant rise in share price over the next 12-18 months which would make it much easier for the company to raise additional capital without over diluting the shareholders which some other small cap biotech stocks are guilty of. However, even with the company's success in securing government grants and contracts, you cannot rule out that there may more non-dilutive funding on the horizon.
Soligenix appears to have a great deal of promise for the future. Management appears committed to building the company through grant funding which serves as a non-dilutive source of financing. Additionally, with all of the catalysts that loom ahead, it appears likely that shares could see a significant run in the coming months. For investors looking for a promising small-cap opportunity, Soligenix appears to be one of the best.