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Hooked On Tonix

|Includes:Tonix Pharmaceuticals Holding Corp. (TNXP)

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Hey guys,

I wanted to give you a heads up that I am working on an in-depth article on Tonix Pharmaceuticals (NASDAQ:TNXP).

Tonix is developing treatments for disorders of the Central Nervous System, starting with the quite large unmet needs inFibromyalgia and Post Traumatic Stress Disorder.

What they have is a sublingual form of cyclobenzaprine, a muscle relaxer approved by the FDA in 1977 for muscle spasms. The FDA has a 505(b)(2) program that allows drugs to be repurposed for other conditions, and Tonix patented their very low dose fast-acting sublingual version of the drug (VLD SBL CBP - very low dose sublingual cyclobenzaprine) for bedtime use in Fibromyalgia. Taking cyclobenzaprine orally takes about 2 hours to work.

Fibromyalgia is an incurable and lifelong (once it starts) condition characterized by widespread pain, sleep problems, fatigue, and mood and memory problems. Women are affected about 90% more often than men, and it is very often disabling enough to interfere with regular activities of work and life. It is a very large unmet medical need - the NIH cites a study that 5 million American adults had Fibromyalgia in 2008 - and satisfying treatments are lacking. That NIH number is probably low, though, as Fibromyalgia usually goes undiagnosed for years and the average patient that has been diagnosed with Fibromyalgia was diagnosed by their FIFTH doctor. The FDA recently named Fibromyalgia one of the 20 diseases it will focus on for special regulatory treatment in the next 3 years and is holding a hearing on Fibromylagia on December 10th. Though Fibromyalgia is a centuries old disease, the FDA only approved the first drug for Fibromyaligia in 2007, and has subsequently approved 2 more (2 are approved for depression, one for pain).

Back to the 505(b)(2) program - it provides an excellent margin of safety for Tonix.

Cyclopbenzaprine has been approved and available on the market for a long time (not for Fibromyalgia) in doses of 5 - 30 milligrams. Tonix's sublingual version is 2.8 mgs, and is well documented to be safe at ten times the dose - so safety concerns can virtually be eliminated, and fewer trials need to be run.

Tonix's drug (called TNX-102) works in an interesting way. Sleep EEGs show people have a Cyclical Alternating Pattern (CAP) divided in to alpha-1, alpha-2, and alpha-3. When people are in alpha-1 they are less alert and have higher hormones associated with deeper sleep. Alpha-2 and alpha-3 are more alert stages, and are thought to be less restorative. TNX-102 is shown to reduce the amount of time spent in A2 an A3, and hence increase the amount of time having restorative sleep. So TNX-102 does not increase the overall amount of sleep time by knocking people out like so many other sleep aids - it increases the quality of sleep.

Interestingly, none of that really matters. Tonix does not have to show why their drug works, just that it does work to reduce pain. And it has already shown that.

Tonix completed a phase 2a double blind, placebo controlled, multi-center trial of 36 fibromyalgia patients takingsublingual cyclobenzaprine or placebo for 8 weeks, and then tested for changes in pain, fatigue, tenderness, anxiety, and depression. All of these were improved, with pain - the one that will decide if the drug is approved or not - showing a 26% average improvement vs. 0% in the placebo, and with a P value of less than .05 (that means it is statistically significant, more than 95% likely to not be giving a false signal).

This will be all they have to do again in the currently running phase 2b trial, which is virtually identical to the 2a trial, except there are 120 patients instead of 36 and the trial is 12 weeks long.

The extra time bodes well for symptoms to continue to improve - that is what happened in a sodium oxybate trial onFibromyalgia. Sodium oxybate works in a way that is similar to TNX-102, and Fibromyalgia patients campaigned passionately for the drug to be approved in 2010, but sodium oxybate is the exact same drug as the very problematic date rape drug GHB, and for that reason the drug was denied. TNX-102 has no such concerns. Also, as it is treating the pain indirectly with restorative sleep, there is much less potential for abuse like is common in pain killing drugs like opiates.

In addition, Fibromyalgia is closely related to PTSD. More than half of people that qualify for a Fibromyalgia diagnosis also qualify for a PTSD diagnosis, and vice versa. PTSD is already estimated to be a much larger problem than fibromyalgia - US Veterans Affairs estimates that a whopping 7-8% of people will have PTSD in their lifetime - that's more than 25 million Americans. And PTSD is a big problem associated with unpredictable, violent behavior and suicide, and is an enormous problem for the military. But it is not just war that brings on PTSD - car accidents, assault, abuse, or other traumas bring onPTSD as well.

Fibromyalgia was and is misunderstood, but trauma is now being recognized to play a critical role, and the overlap withPTSD is undeniable. A study of 2,596 people with Fibromyalgia found that 73% indicated an emotional trauma or chronic stress seemed to be the triggering event that brought on their Fibromyalgia:

Note that this same study shows that most Fibromyalgia patients have tried CBP off label, and found it helpful (and that is the very slow acting oral version). Also note that patients listed morning stiffness, fatigue, and non-restorative sleep before pain in severity.

Timeline and Value:

Tonix's current Fibromyalgia study will end in about 11 months, and after that they have a very good chance to be a half-billion dollar company. How so?

Compare Tonix to MAP Pharmaceuticals (NASDAQ:MAPP). MAPP had a migraine drug (pain and women's health like TNX-102) that was repurposed from the 1950s using the 505(b)(2) program. Some projections had them getting $1 billion in revenue annually by 2020 if all went well. After their phase 2b trial Allergan partnered with them, MAPP soared to half a billion dollars market cap on the news and Allergan funded the final trial, after which it bought out MAPP for $958 million, months before the FDA ruled on the drug.

Does Tonix project to $1 billion annual revenue in 2020 if all goes well?


In 2012 the 3 approved drugs for Fibromyalgia had $1.5 billion in revenue, with a 14% compound annual growth rate. With the attention being shown to Fibromyalgia and the disease being mis and un diagnosed for so long that number should continue to grow, but none of the three drugs is anywhere close to a panacea, and the average Fibromyalgia patient takes close to three drugs a day, and there is no approved bedtime medicine. We saw that most patients have tried and found helpful the unproved oral version of the product. And that is just is fibromyalgia, to say nothing of PTSD.

And let's not stop with PTSD. Tonix has pharmacokinetics patents on TNX-102 that last for 19 more years, and owns 100% of them (which is rare for a small biotech). These are so called "oxycotin" patents, as that product was a reformulation of 95 year old oxycodone, and the pharmacokinetics patents beat every challenge in court and expired naturally. Tonix has retained the same law firm used to file and protect those oxycotin patents, and their market exclusivity should be bullet proof until 2033.

So when I say let's not stop with PTSD, I mean the pipeline for TNX-102 is as big as the pipeline of problems that would benefit from restorative sleep, and that list can get very long quickly.

Yes, Tonix can generate $1 billion in revenue annually by 2020, and they have meaningful upside from there.

The very best thing about Tonix may be the management - all were brought on board for their specific expertise, all are significant investors of the company. I'll let CEO Seth Lederman introduce you to the team (quote from last month's Warsaw presentation):

"Let me quickly take you through the people I am Seth Lederman, I'm the CEO and chairman. I've been doing specialty pharmaceutical work in industry for about 15 years. Before that I spent about 20 years at Columbia University, where I rose to the rank of tenured professor and although I did a lot of basic work in immunology, I also was a professor of medicine and of rheumatology, where rheumatology is these subspecialty of medicine that cares for fibromyalgia patients, so I have direct experience treating fibromyalgia patients and a lot of conviction that the medicine that we're developing is really going to be a game changer in this area. We show, for myself and other people in the company, products that are FDA approved, that we've worked on and I just show here Fusilev, which was approved in the United States for colorectalcancer, was a drug that I owned, in the former company. We sold it to Spectrum and it did about $200 million dollars in sales last year, but similar to TNX-102 SL, It had a lower threshold for approval, and that's one of his signature features of products in companies that I focus on.

Our CFO, Leland Gershell is an MD/PhD from Columbia. He was associated with, he is an inventor on the patent forZolinza, which is a Merck cancer drug. And, you can see how technically focused we are, that the CFO of our company, the chief financial officer, is an MD/PhD. The team has worked together for a long time, Leland was a student at Columbia. Actually helped me fund two companies, Bella and Targent. So we've worked together on and off for about 15 years and Bruce Daugherty at the bottom is a 20 plus year veteran of Merck but someone also I've worked with on and off for 20 years. So this is a team that's battle tested, we've worked together and we have a lot of synergies and cover all the bases.

We're a virtual company, this is the entire team, this is the way pharmaceuticals are developed in the United States now. We operate through a wide network of consultants, but it allows us have very flexible burn rate that we spend money when we're doing studies and we can really roll back our expenses we're not doing studies. With a small team though, we really make use of our large and accomplished board. First I want to say about our board that they are all investors in our company and together management and board are a very significant part of all of the capital that's been raised in the company so far.

I just want to highlight 3 board members to show you how valuable our board is. One is Donald Landry, who is acofounder of the company, but is also the chairman of the department of medicine at Columbia University, so he is a national figure, an international figure, in academic medicine. Also, want to feature Doctor Ernest Mario. He's the former CEO of Glaxo, the global pharmaceutical company, but he also has been the CEO of two smaller companies that are very relevant to what we're doing and that I feature here to show your experience. He was the CEO of Alza, which developedConcerta and he brought Concerta up to blockbuster status and sold Alza to J&J for $11 billion dollars and I mentioned that because Concerta is a reformulation of Ritalin, which was a CNS drug that was already available, so by reformulating it, he made a very significant improvement in it and was able to create a lot of value for investors.

He also was the CEO of a company called Reliant and that brought to market in an omega-3 product, the first omega-3 prescription product in the United States, and he sold that to Glaxo. That product is now selling about $1.4 billion dollars a year in the United States and it just shows that he has a very good command and understanding of what's required to get managed-care reimbursement for products in the United States.

At the bottom, Doctor Sam Sacks was Doctor Mario's Lieutenant at Alza, so played an important role in Concerta. But, he was also the founder and founding CEO of a company called Jazz. The ticker is J.A.Z.Z, and that was also based on a reformulation of a drug for the central nervous system condition, that's marketed in the United States as Ziram. And, Jazz has just crossed the $5 billion dollar threshold in terms of market capitalization. So, we have people that have been very successful in doing exactly what we're doing, which is bringing new life to active ingredients, that have been known and that creating new and differentiated products with formulation technology and really changing the condition of people by these new techniques. "

Tonix can very legitimately be a half billion dollar company in less than a year. So why are they not now? They just uplifted to Nasdaq a couple months ago, and they have basically no coverage from the analysts - only Roth has a price target on them, and it is more than a double at $8.50. They just raised money and are now fully funded through the current 2b trial, and if things go well they will get a partner and have no need to issue more shares.

Fully diluted they have about 9 million shares total (warrants with strikes from $4.25 up to the $25). If the stock traded at $10 a share that would still only put them at only $90 million fully diluted (even counting the warrants that would not be exercised), and that is not anywhere near the value of their future cash flows.

The company has repeatedly said that they will hold out for their real value, they call it the "Celgene contingency," in thatCelegene would not partner or be bought out at a low price, stayed independent, and 14 years later is a $60 billion company. Tonix is run by succesful people bound for more success, however they get there will be fine.

I am not done writing on this and will probably not be done for 2 weeks or so. Here are some places to start researching Tonix:

Summary Presentation:

2a Study results:

Rodman and Renshaw Presentation:

Please do your due diligence on this one if you like it, I like it but there are no guarantees,

All the best,


Disclosure: I am long TNXP.

Stocks: TNXP