An In-Depth Look At Soleno Therapeutics

About: Soleno Therapeutics, Inc. (SLNO)
by: Busted IPO Forum

In today's deep dive we take a look at Soleno Therapeutics, a Busted IPO that has done little to reward shareholders since it debuted in late 2014.

However, insiders bought almost all of a recent capital raise and the company has an important trial milestone on the horizon.

An in-depth look at Soleno is provided in the paragraphs below.

"Appear weak when you are strong, and strong when you are weak." - Sun Tzu, The Art of War

Today, we look at a biotech busted IPO that has done little to reward shareholders since it came public just over four years ago. However, there are some potential catalysts on the horizon and insiders did buy most of a recent secondary offering meriting further research which follows in the paragraphs below

Company Overview:

Founded in 1999, Soleno Therapeutics (SLNO) is a Redwood City, Calif.-based clinical-stage, biopharmaceutical company focused on treating rare diseases. The company did not come public until late in 2014. The journey as a public company has not been a good one to date for shareholders (see below). The stock currently has an approximate market cap of $35 million and trades just above $1.60 a share.

Focus and Pipeline:

The company's lead candidate is called DCCR, which is designed to treat Prader-Willi syndrome. Prader-Willi syndrome is a rare, genetic disorder that is typically caused by the partial deletion of chromosome 15, which is passed down by the father. The most common symptoms associated with the disorder are behavior problems, intellectual disabilities, and being short. Furthermore, delayed puberty and insatiable hunger, hyperphagia, leads to becoming obese. There are fewer than 20,000 cases per year in the United States. Roughly 1 in 13,500 people in the U.S. have PWS. A survey conducted by the Foundation for Prader-Willi Research found that 96.5% of respondents rated hyperphagia as the most important or a very important symptom to be relieved by new treatments. There are currently no approved therapeutics to treat the hyperphagia, metabolic, cognitive function, or behavioral symptoms of the disorder. The company also has a wholly owned subsidiary called Capnia that markets the CoSense End-Tidal Carbon Monoxide monitor, which measures ETCO and is used by hospitals to detect hemolysis in newborns.


DCCR is a novel, crystalline salt formulation of diazoxide with a proprietary extended release. The drug is administered once-daily. Diazoxide free base is approved as a three-dose-a-day oral suspension. The free base has been used safely for multiple decades and in thousands of patients. The free base is used to treat a few rare diseases in neonates, infants, children and adults. However, it has not been approved for use in PWS. DCCR has received the Orphan drug designation for the treatment of Prader-Willi syndrome in the U.S. and the E.U., has been granted Fast Track designation by the FDA, and the company is confident that they will be able to obtain a 7-year grant of market exclusivity from the FDA in the PWS indication if approved.

Source: Company Presentation

To date, DCCR has been tested in five Phase 1 trials and three Phase 2 trials. In a Phase 2 study of DCCR in PWS, the drug demonstrated that it has the potential to treat hyperphagia. The company presented such data at the 2018 Obesity Society Meeting back in November. Data from the company's Phase 2 trial of DCCR for the treatment of hyperphagia and fat loss in patients with Prader-Willi Syndrome demonstrated a statistically significant loss of total body fat mass in those receiving the treatment for 10 weeks, without additional caloric restrictions. Furthermore, treatment with DCCR resulted in a statistically significant reduction in waist circumference, which was consistent with the loss of visceral fat.

Source: Company Presentation

DCCR is currently being evaluated in an ongoing Phase 3 trial called DESTINY, which is currently enrolling patients at a variety of sites. DESTINY was initiated back in May of 2018. The trial is a randomized, double-blind, placebo-controlled study of once daily orally administered DCCR versus placebo in roughly 100 patients with a confirmed diagnosis of PWS. The primary endpoint for the trial is change from the baseline hyperphagia score at Week 13.

The latest word is that the company now has 10 active sites in the U.S. screening patients, and they intend on activating even more sites over the coming months. Recently, the company amended their trial protocol to allow children as young as four years old to participate; the lower limit of the trial was previously 8 years old. The company said that they made the adjustment in order to better reflect the demographics of the PWS population. Thus far, the safety profile has been consistent with the known profile of DCCR and no serious adverse reactions have been recorded. Also, the 9-month open-label safety extension study has commenced for patients completing three months of treatment in the DESTINY PWS trial. The trial is expected to wrap-up in the first half of 2019.

Analyst Commentary and Balance Sheet:

As of September 30th, 2018, Soleno Therapeutics had cash, cash equivalents and marketable securities of approximately $10 million. Research and development expenses for the third quarter was $2 million, compared to $946,000 in the same period last year. General and administrative expenses were $1.5 million for the quarter, compared to $1.6 million in the same period last year.

On December 19th, 2018, the company announced a $16.5 million private placement. Soleno sold 10,272,375 Units at $1.606 per Unit. Each Unit consisted of one share of Soleno's common stock at a purchase price of $1.60 and one warrant to purchase 0.05 shares of common stock at a purchase price of $0.00625 per warrant. Each warrant has an exercise price of $2 per share and becomes exercisable on the six-month anniversary of the closing of the PIPE and have a 5-year term.

The financing was led by Abingworth, a leading bioscience investment firm, and further bolstered by a few key existing investors: Oracle Investment Management and entities associated with Jack W. Schuler, as well as Ernest Mario, the Chairman of the company's Board of Directors. Also, in conjunction with the financing, Andrew Sinclair, a Partner at Abingworth, will join Soleno's Board of Directors. Interestingly, almost the entire $16.5 million capital raise was bought up by a beneficial owner and a director. While a nice vote of confidence, this insider buying would be more impressive if it contained officers (CEO, CFO, COO, etc.) within it.

Given its market size, Soleno is sparsely followed on Wall Street. The median analyst price target is currently $4.00 a share. The latest recommendation comes from Maxim Group on December 20th, 2018. The firm maintained a buy rating and raised their price target from the $4 target that they had in November to $5 a share. Here's what the analyst at Maxim Group had to say about Q3:

Soleno reported 3Q18, spending $3.9M in operating expenses and ending the period with $10.2M in cash, sufficient runway to reach the next inflection point, the P3 data for diazoxide choline controlled-release (DCCR) tablets in Prader- Willi syndrome (PWS) expected in 1H19.


Soleno has some intriguing features. It is selling for little more than the cash on the balance sheet after its recent capital raise. The company has a few "shots on goal," albeit for one compound via multiple indications. It also has one important trial milestone on the horizon. With an under $50 million market cap, SLNO is far too small to be much more than a tiny "watch item" stock in a well-diversified biotech portfolio. The stock also has done little but destroy shareholder value since coming public. That said, Soleno does appear to be worth a very minute "speculation" for very aggressive investors.

"There is nothing more deceptive than an obvious fact." - Arthur Conan Doyle, The Boscombe Valley Mystery

Bret Jensen is the Founder of and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum.

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.

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