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Summary

  • Tonix Pharmaceuticals' clinical-stage product - TNX-102SL is a disintegrating sublingual tablet containing a very low dose of cyclobenzaprine, targeted for bedtime administration for the treatment of Fibromyalgia.
  • TNXP was a sub-$5 stock following its recent NASDAQ up-listing until a series of articles drove a stock price rally, regardless of any real fundamental advancements or news.
  • Tonix's reformulated cyclobenzaprine doesn't provide any benefits over generic cyclobenzaprine pills that are commonly used as a Fibromyalgia treatment and will not be accepted by physicians and payers.
  • Even if TNX-102SL will be FDA approved, its patent expiration date grants only 3 years of market exclusivity. Consequently, Tonix has no chance of even recouping its development costs.
  • We argue that Tonix's current market cap is inflated and that Tonix's stock price should be traded only slightly over the company's cash (~$6 per share).

Background

Tonix Pharmaceuticals (NASDAQ:TNXP) is a small virtual company that focuses on developing treatments for CNS conditions related to central pain. Tonix, which currently has only three employees, a CEO and Chairman, a CFO and a CSO, develops a single clinical-stage product - TNX-102 SL, a disintegrating tablet containing a very low dose of cyclobenzaprine (CBP) that is designed for sub-lingual administration at bedtime. Apart from TNX-102 SL, Tonix has a preclinical asset - TNX-201 for the treatment of tension headache. Tonix is initially developing TNX-102 SL as a treatment for Fibromyalgia (FM), a neuropathic pain disorder with unknown etiology, characterized by widespread pain and fatigue. A second indication for this drug candidate is post-traumatic stress disorder (PTSD).

CBP has been approved by the FDA in 1977 for the relief of muscle spasm associated with acute, painful musculoskeletal conditions as an adjunct to rest and physical therapy. A very low dose of bedtime CBP as a treatment for Fibromyalgia was originally developed by Dr. Iredell Iglehart, acquired in 1998 by Vela Pharmaceuticals (founded by Seth Lederman, Tonix's founder and CEO) and returned to Seth Lederman years later, without any major R&D advancements over a period of a decade and a half.

One must question, if TNX-102 is such a promising technology with great commercial potential, why was it held from proper development through all these years? And why did Vela, which was acquired for only $30 million, pass on the opportunity? The answer is simple - because it already exists on the market, and at bottom low pricing.

Due to its currently unknown etiology, treatment options for FM patients include 3 approved drugs: Pfizer's (NYSE:PFE) Lyrica, Eli Lilly's (NYSE:LLY) Cymbalta and Forest Laboratories' (NYSE:FRX) Savella. In addition, FM treatment relies heavily on numerous generic drugs that are prescribed as off-label FM treatments. These drugs include anti-depressants, pain medications and muscle relaxants, one of which is a low dose of bedtime CBP, with its generic 5mg CBP sold for a few cents a pill.

TNX-102 SL for fibromyalgia

Tonix is developing TNX-102 SL as a treatment for FM, stating this is both a reformulation and repurposing of the original drug, CBP (company presentation). While TNX-102 SL is clearly a CBP reformulation (oral to sublingual formulation), claiming it is repurposed is nothing but a demagogic argument since CBP pills (such as Flexeril and Amrix) have been widely used as a FM treatment for many years.

According to Tonix, TNX-102 SL will differ from the currently available generic versions of CBP by a faster absorption time and faster clearance from the blood. This, according to Tonix, will result in a faster onset of the drug's action and is expected to reduce the morning drowsiness that is sometimes associated with bedtime CBP (much like many sleeping pills and muscle relaxants). Importantly, in a CBP surveillance program, the reported incidence of morning drowsiness among 10mg CBP users was 16% (about a third of the reported incidence in clinical trials). The equivalent extrapolated morning drowsiness incidence for the 5mg CBP dose is 10% (see p.7-8 here). It seems as if CBP-induced morning drowsiness is not such a problem as the company wants investors to believe.

Tonix has so far conducted two Phase 1 pharmacokinetic studies in healthy subjects that showed that a sublingual formulation of TNX-102 is delivered to the systemic circulation more efficiently and faster than the ingested CBP tablet (company's S-1, p.52). Tonix admits that the final formulation of TNX-102 has not been reached yet, and further studies are planned before the final formulation will be ready (S-1, p.46-7).

Tonix is basing their hypothesis of the very low dose (VLD) CBP for the treatment of FM solely on the results of the Moldofsky Study - "a phase 2a study, a randomized, double-blind, placebo-controlled trial, which demonstrated that up to 4mg of CBP in a capsule swallowed between dinner and bedtime resulted in significant decreases in next-day pain and other core FM symptoms after eight weeks of treatment, as well as in a significant improvement in sleep quality" (S-1, P.50). In fact, the Moldofsky Study has demonstrated, like previous clinical studies (here, here and here), that various doses of CBP in its currently marketed ingested pill form are affective FM treatments. The Moldofsky Study does not provide any proof that a sublingual formulation of CBP, or specifically Tonix's sublingual formulation, is an effective FM treatment.

Tonix is currently enrolling FM patients to its Phase 2b BESTFIT study - a double-blind, randomized, multicenter, placebo-controlled study to evaluate the efficacy and safety of TNX-102 SL 2.8mg tablets at bedtime in patients with FM. The study's results are expected towards the end of 2014. Note that the Phase 2b" title is misleading - while Phase 2b usually indicates a late-stage clinical study, the BESTFIT study is the first time TNX-102 in its sublingual formulation is actually tested for efficacy.

The question for investors is simple - is Tonix's reformulated CBP version meeting an actual need in the FM treatment field?

The answer is plain and simple - No. TNXP tells an allegedly compelling story about why TNX-102 SL would be the perfect drug for FM. However, when digging into the details of the story, contradictions, unsupported claims and half-truths arise as will be demonstrated.

Let's start by reviewing the company's statements as to why TNX-102 SL has/should have advantages over the currently marketed, low cost, generic CBP oral pills:

Tonix's S-1 (p.44) states "We believe that TNX-102 SL is an optimized CBP product for the treatment of FM and PTSD, and is distinct from current CBP products in three ways:

(1) It is being developed at a dose level significantly below the lowest marketed doses of current CBP products;

(2) It is placed under the tongue, to disintegrate, dissolve and provide sublingual absorption, whereas current CBP products are swallowed and provide absorption in the small intestine; and

(3) It is being developed for chronic use, whereas current CBP products are marketed for two to three weeks of use."

The key to Tonix's statement is "We Believe" as there is no clinical evidence to the company's claims. Let's go over these arguments:

(1) Lower CBP dose: Given the bioavailability of oral CBP (33-55%), the plasma levels of a 5mg CBP pill should be more or less equivalent to the TNX-102 2.8mg sublingual dose. Regardless, it has not been established yet, by Tonix or anyone else, that a 2.8mg sublingual dose is either safer or more effective than a 5mg oral pill. As mentioned above, Tonix claims that in TNX-102 SL, CBP is absorbed faster into- and is cleared faster from the blood circulation. Could the reduced dose of TNX-102 SL, together with its claimed shorter plasma time cause the drug to lose its original efficacy? Maybe. No one knows the answer to that because Tonix had never actually tested the SL formulation's efficacy.

(2) Route of administration: According to Tonix, the sublingual route has 2 benefits:
(i) "since TNX-102 SL avoids first-pass metabolism by the liver, a psychoactive metabolite of cyclobenzaprine, norcyclobenzaprine (nCBP), is not generated" (Company website).

Tonix (or anyone else in the scientific world for that matter) has NEVER established that nCBP has psychoactive effects or any other adverse effects. A search in Pubmed for "norcyclobenzaprine and psychoactive" yielded ZERO results! Furthermore, a similar Google search does not provide a single hit that is not related to Tonix! In addition, Tonix has never proved that TNX-102 SL administration does not result in nCBP generation.

Much to one's surprise, in a clinical study that tested oral CBP in FM patients for 6 months, none of the enrolled patients ended up in a mental hospital due to the (never-heard-before) "psychoactive effects" of nCBP.

(ii) "Despite the approved uses of CBP in treating muscle spasm, we believe current marketed formulations of CBP are limited for treating FM by slow and unpredictable absorption" (S-1, p.50).

Tonix's only clinical efficacy data for TNX-102 (the above mentioned Moldofsky Study), which used CBP ingested pills (not the SL formulation) proved the complete opposite when it demonstrated a significant benefit of CBP pills to FM patients. More importantly, there are several published papers showing that the currently available CBP tablets are an effective treatment for FM (see here, here and here), contrary to the company's "belief."

(3) Chronic use: That is correct but utterly irrelevant, as the 2-3 week treatment is related to the muscle spasm indication. In fact, in clinical studies that tested CBP in FM patients, dosing periods of up to 6 months are recorded (see here, here and here).

To summarize so far, CBP has been helping FM patients for over two decades by off-label use of the currently marketed pills. Tonix's sublingual formulation is not addressing any real unmet needs, and might, on the other hand, result in the loss of the efficacy of the marketed formulation due to overly-reduced plasma levels over 24h caused by the reduced dose and faster clearance from the body. The most worrying thing for Tonix's investors, though, is that the company's statements regarding its drug's alleged benefits could not be regarded as a valid investment thesis.

In addition to the above, Tonix is trying to mask a major problem TNX-102 SL will be facing - a long development cycle coupled with a short-term Intellectual property protection: in its company presentation, Tonix estimates that the NDA for TNX-102 will be filed during 2016 and FDA approval is expected in 2017. A closer look at the time-line forecast provided by Tonix in its S-1 (p.47), shows that NDA submission will not happen before 2017, and potential FDA approval will occur not before 2018 (just add up the time periods stated by the company for each stage). The granted patents (here and here) that protect TNX-102 include formulation and method of use patents that expire in 2020 (S-1, p.60). Given the 505(b)(2) pathway for FDA approval stated by Tonix (S-1, p.3), which grants only 3 years of market exclusivity - the problem does not require further explanations.

So what stands behind the incorporation of a virtual company that employs only 3 people and develops an old drug that is not really needed?

Looking at the financial benefits Tonix's founders and executives are entitled to may give a hint to the answer. Tonix spends a lot of its cash on G&A, at some points even double the amount it spends on R&D (Q3, 2013 and 2012 financial reports for example). Moreover, Tonix spends more on G&A than companies employing dozens of employees. For example, Biodel Inc. (NASDAQ:BIOD), which spends three times as much on R&D than it does on G&A and has 30 employees, spends on G&A an amount similar to that of Tonix ($1.5m per Q). This 3:1 R&D/G&A ratio is a common feature in many micro- and small-cap biotech companies. Tonix is an exception here with its high G&A costs and low R&D expenditure.

The much discussed biotech bubble has been supporting inflated company valuations and is enabling many companies to easily raise funds, sometimes regardless of the quality of their scientific assets. Tonix's expedited and premature transfer to the NASDAQ capital market was done during mid-2013 with a reverse stock split, followed by NASDAQ up-listing in August 2013. A few months following the NASDAQ up-listing, a media blitz (from December 2013 to February 2014), which included a series of articles and publications, helped drive Tonix's share price from around $4 to almost $20 without any fundamental reason behind it. The blitz period ended, naturally, with an offering.

Conclusion

Even if TNX-102 SL will be eventually approved, 4 years from today, it will have to fight an uphill battle, hampered by the price premium of a branded drug, against many, equally effective and cheap generic drugs, including Cymbalta and the soon-to-be generic Lyrica. Will physicians switch patients from CBP pills to the unneeded sub-lingual form? Will payers agree to pay a premium price just to reduce some rare cases of morning drowsiness? We seriously doubt that.

Given the lack of any relevant clinical data, questioned market potential and short patent coverage of its only clinical-stage drug, Tonix's stock is extremely over-priced and should be traded close to cash at ~$6 per share.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Tonix's Clinical-Stage Drug, TNX-102SL, Is Completely Unneeded