Sienna Flunks Acne Trial, But Multiple Catalysts Could Entice A Turnaround

Summary

• Sienna Biopharmaceuticals failed two phase 3 studies using SNA-001 in treating patients with acne vulgaris.
• SNA-001 is also being explored in another late-stage study for the reduction of unwanted light-pigmented hair with results expected by Q4 2018.
• SNA-120 is being tested in a phase 2 study for pruritus and psoriasis, with results expected by Q1 2019.
• A phase 1 study with SNA-125 is being used to treat patients with atopic dermatitis and pruritus, with results to be released in Q4 2018.
• Members of my private investing community, Biotech Analysis Central, can follow this idea, as well as my other top picks with access to my model portfolio. Start your free trial today >>

Recently, Sienna Biopharmaceuticals (SNNA) announced that it had failed two late-stage studies using its clinical product SNA-001 to treat acne vulgaris. There is a small chance that the company will move on with the acne program, but it is also testing the drug for another indication with results expected by Q4 2018. In addition, It has other programs with results that are due to be readout in the coming quarters using different clinical products. For that reason, I believe that Sienna Biopharmaceuticals is a buy.

Phase 3 Data

The two late-stage studies used SNA-001 to treat these patients with acne vulgaris. However, each study incorporated SNA-001 with a laser treatment. For the first study, it was shown that neither the primary nor the secondary endpoints were met. It was testing SNA-001 + Laser treatment (810 nm laser) against vehicle + Laser treatment. They each achieved a 37.4% and 36.5% reduction respectively. Even though SNA-001 was slightly better over vehicle, it still did not achieve statistical significance because the p-value was p = 0.663. The second study did not achieve the primary endpoint either. That was SNA+001 + Laser (1064 nm laser) attained a 38.7% reduction from baseline, while the vehicle + laser obtained a 41.9% reduction. That gave another p-value that was not statistically significant (p = 0.411). There is another third independent study being done as well for this indication, but there is a small chance that it will work out for that study. The final independent study is using 755 nm laser + SNA-001, and data from that is due out by Q4 2018. It was a good try for Sienna to develop a new drug for acne vulgaris. As it is stated in its press release, the biggest problem with running acne trials is the variability that occurs. In this case, it had a huge negative impact on the results. The biotech even attempted to counter the high variability issue with its acne trials by using a powerful split-face design to avoid it. Unfortunately, not even taking that counter measure was enough to avoid the variability of measuring lesions.

Upcoming Catalysts

As with any biotech, a failure in a clinical trial tends to be a huge overhang for the stock. However, that's why it's imperative that one should have a decently sized pipeline in place to reduce risk. That's what Sienna has done a good job of. Besides SNA-001 being used to treat acne vulgaris, it is also currently being explored in another late-stage study for the reduction of unwanted light-pigmented hair. Results from this study are expected to be released by Q4 2018. The SNA-001 clinical product candidate stems from Sienna's "Topical photoparticle Therapy" technology platform. The other two products that are set to report results, SNA-120 and SNA-215, come from another technology platform known as "Topical By Design". The ability to have two different technology platforms is one part of reducing investor risk. The other part is the overlap between the multiple clinical candidates. SNA-120 (TrKA inhibitor) is being tested in a phase 2 study for pruritus and psoriasis, with results expected by Q1 2019. SNA-125 is being tested in two different phase 1 studies. The first phase 1 study with SNA-125 (JAK3/TrKA inhibitor) is treating patients with atopic dermatitis and pruritus, with results from that study expected to be released by Q4 2018. The other phase 1 study that is using SNA-125 is treating patients with psoriasis and pruritus, with results from that study to be released by Q3 2018.

Financials

According to the 10-Q SEC filing, Sienna Biopharmaceuticals had cash on hand of $60 million as of March 31, 2018. However, the biotech didn't anticipate having enough cash for more than one year. That's why it recently entered into a $40 million term loan agreement. Sienna immediately obtained $30 million upon closing the agreement, with the remaining of tranche of another $10 million left on the table. The influx of such cash will now allow the biotech to run its operations until Q3 of 2019. That completely eliminates the risk of any cash raise in the near-term. However, it is highly likely that additional cash will need to be raised in Q1 2019.

Conclusion

Sienna failing its phase 3 acne vulgaris study is disappointing, but the good news is that it still has a pipeline full of other target indications. It even has two different forms of technology that it deploys for clinical development. The biggest risk now would be whether or not the upcoming results are positive. Additional failures could mean a further stock decline below $10 per share. The bright side is that there are still multiple catalysts approaching in the 2nd half of 2018, and in the 1st half of 2019 which could boost the stock higher. It's possible that all the results could come out positive, however, it's also possible that not all of them will pass. The mere fact that there are many shots on goal should be encouraging enough. For that reason, I believe that Sienna Biopharmaceuticals is a buy.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.