Let's do a 10 point update on Tonix Pharmaceuticals (NASDAQ:TNXP).
1) BESTFIT Should Now Be Complete
On May 12th, Tonix announced that it had completed enrollment in its pivotal 12-week BESTFIT (BEdtime Sublingual TNX-102 SL as Fibromyalgia Intervention Therapy) trial. As of August 4th, BESTFIT should be complete.
We spoke with Tonix CFO Dr. Leland Gershell on August 2nd. Dr. Gershell confirmed that everyone in the company is blinded to the 17site study, and will remain so until data is delivered by the contract research organization roughly 6-8 weeks from August 4th.
Dr. Gershell noted Tonix' commitment to transparency and prompt disclosure of material information, and confirmed that shortly after data is delivered Tonix will issue a press release of top-line data and hold a conference call.
We noted Tonix' stated view that data should be released "early" in the fourth quarter, and that 8 weeks from August 4 is September 29,the same week as the fourth quarter begins.
Dr. Gershell confirmed that this view is based on the best information, and pointed out that as of the August 1st S-3 filing the language regarding this has not changed.
The BESTFIT trial should now be complete, and Tonix should report top line results early in the fourth quarter.
2) BESTFIT Success Should Mean Approval
Tonix has about $50 million in cash now. When we first wrote about Tonix last year it had just launched BESTFIT and had about one-tenth as much cash.
The FDA generally requires two well-controlled pivotal studies for approval in new indications, and large companies generally run them simultaneously, seemingly as one phase 3 study.
Tonix must run two well-controlled, virtually identical studies for approval, with BESTFIT being the first. If Tonix were well-funded when it started BESTFIT, it likely would have run both trials together.
BESTFIT is a well-controlled trial designed to show a signal if the treatment is working. The results should be similar when a trial with the same design is run a second time.
If BESTFIT is successful, then it is likely TNX-102 SL should be approved and on the market in 2017.
3) A Good FM Product Should Do $1 Billion in Peak Sales
A good fibromyalgia product should be able to do $1 billion in peak US sales.
The FM market is growing quickly. Though the disease has been around for centuries, it only gained wide acceptance in the medical community in recent decades, and there were no drugs approved for FM until 2007.
Estimates of U.S. FM sales (see S-3 filing linked above) of the bestselling prescription drugs Cymbalta and Lyrica were $600 million and$475 million in 2012, with the segment growing at an approximate compound annual growth rate of 14% between 2007 and 2012.
That 14% puts Cymbalta on pace to reach $1 billion is US FM sales in2016 (Cymbalta came off patent in December so it will not get there).
And Cymbalta comes with side effects. One study showed that while22% of FM patients had significant improvement in pain with Cymbalta, 21% had to stop taking the medicine because of unpleasant side effects.
FM patients are a desperate, high treatment-seeking population. Many try off-label drugs with serious potential side effects like opiates.
Tonix' latest filing describes the market opportunity this way:
Despite the availability and use of a variety of pharmacologic and non-pharmacologic interventions, FM remains a significant unmet medical need. Many patients fail to adequately respond to the approved medications, or discontinue therapy due to poor tolerability. Prescription pain and sleep medications are frequently prescribed for symptomatic relief, despite the lack of evidence that such medications provide a meaningful or durable therapeutic effect. An important goal of FM treatment is to reduce the use of opiate analgesics as well as of benzodiazepine and non-benzodiazepine sedative-hypnotic medications by FM patients. Since CBP has no recognized addictive potential,we believe that TNX-102 SL, if approved, could reduce the exposure of FM patients to medications that have not been shown to be effective in treating FM and are associated with significant safety risks.
FM is a big area of unmet need. The best current treatments are far from perfect, and still on pace for $1 billion in peak sales.
A good FM product should conservatively be able to do $1 billion in peak sales.
4) BESTFIT Success Should Project $1B in US FM Sales
Success in BESTFIT should project $1 billion in peak US FM sales.
TNX-102 SL is a very low dose of bedtime sublingual cyclobenzaprine,to gently treat symptoms of FM with improved sleep quality.
Tonix has already run a double-blind, placebo-controlled, multi-sitephase 2a trial with oral CBP taken between dinner and bedtime. That study showed statistically significant improvements in pain,tenderness, and depression vs placebo.
Just as important, the study had no serious adverse events, and no discontinuations due to adverse events in the treatment arm.
The problem with oral CBP is that it becomes active and wears off very slowly. This can be inconvenient and also make for next day grogginess in a disease that has fatigue as a main symptom. This is important because FM is a very large problem in terms of inability to work and lost productivity.
This is why Tonix is developing its CBP product as a sublingual (after considering all delivery methods), it goes to work 10 times fasterthan the oral version. From the most recent filing:
We are developing TNX-102 SL as a bedtime therapy for the management of FM and PTSD, which are chronic indications for which CBP products are not approved. We believe that three key aspects of TNX-102 SL distinguish it from CBP products: (1) it is being developed at a dose level significantly below the lowest marketed doses of CBP products; (2) it is dosed daily at bedtime under the tongue,to disintegrate, dissolve and provide sublingual absorption,whereas CBP products are swallowed and provide absorption in the small intestine; and (3) it is being developed for chronic use, whereas CBP products are marketed for two to three weeks of use.
Success in BESTFIT should mean TNX-102 SL will be a successful product in FM, and projected to do $1 billion in peak US sales.
5) BESTFIT Should Be Successful
Biotech trials are inherently risky, and BESTFIT is no different. That said, there are reasons to think that BESTFIT should be successful:
Pain as the Endpoint: For success, BESTFIT needs to show a statistically significant improvement in pain. TNX-102 SL works by improving FM symptoms through better sleep quality, and we saw that it improved a number of symptoms. But BESTFIT does not have to show why symptoms are improving, only that there is a statistically significant improvement in pain. As we saw, the phase 2atrial with oral CBP did that.
Sublingual Safety Benefits: CBP is more effective when delivered sublingually than orally, so a lower dose is needed. A lower dose of a drug is almost always considered a safety benefit.
CBP also has an excellent safety profile in the first place. CBP has been approved in other indications and on the market for many years- and in doses more than ten times higher than TNX-102 SL.
Tonix provides background on the sulingual formulation in the latest filing:
We have conducted several clinical and non-clinical pharmacokinetic trials of TNX-102 sublingual formulations,which we believe support the development of TNX-102 SL as a novel therapeutic product for FM and PTSD. Results from these trials demonstrate a number of potentially advantageous characteristics as compared to marketed CBP products, which are not approved for these indications. For example, our Phase 1 comparative trials showed that TNX-102 SL results in faster systemic absorption and significantly higher plasma levels of CBP in the first hour following administration relative to oral CBP tablets. TNX-102 SL was generally well-tolerated, with no serious adverse events reported in these studies. Some subjects experienced transient numbness on the tongue after TNX-102 SL administration, and other side effects reported were similar to those reported with approved CBP products
Safety is usually one of the biggest concerns of trial results, but a very low dose of this well known drug that has an excellent safety profile should all but preclude safety concerns.
12 Weeks: TNX-102 SL's efficient sublingual delivery allows a very low dose of CBP to be used, less than one-tenth of the approved amount for another indication, and this should prevent CBP from building up in the system, and allow for chronic use.
Being able to use a medicine every night is a win for FM patients, and a win for TNX-102 SL sales potential.
It could also mean that TNX-102 SL will continue to improve symptoms in weeks 9-12 (the 2a trial was 8 weeks long), and it's possible results could be a little better than the 2a trial for this reason.
This would bode well for the approval metric of pain, and the other symptoms as well. The other symptoms do not matter for approval,but improvement in those symptoms could make for a better label and potentially greater use.
Larger Statistical Sample: BESTFIT has 100 patients in each arm of its trial - more than five times the size of the 2a trial. It is notable that with only 18 patients in each arm the 2a trial showed statistical significance vs placebo in 3 of 5 symptoms tested.
So there are reasons that TNX-102 SL could perform better than oral CBP in the 2a trial. But hypothetically, TNX-102 SL could perform a little worse in this trial, and still show a stronger statistical significance. The larger sample bodes well for BESTFIT.
All biotech trials are risky, and BESTFIT is no different. Still, there are good reasons to think that BESTFIT should be successful.
6) BESTFIT Success Should Mean $1B Valuation for TNX-102SL in FM
So with success in BESTFIT, TNX-102 SL should be valued on $1Bpeak revenues and 2017 approval.
What does $1B peak revenues and 2017 approval do for you?
After approval, biotech products are being bought out at about five times projected peak sales.
What about before approval?
Puma Biotechnology (NYSE:PBYI) is a recent example of likely-to-be-approved biotech valuations. Puma is nearly a quadruple in the 10days since it announced trial results for its product Neratinib.
The Citigroup analyst that covers Puma now figures an 85% chance of approval for Neratinib in 2016. The analyst projects peak sales of $4.1 billion. Puma currently has a market cap of $6.9 billion, and the analyst's price target is for a market cap of about $9 billion, more than twice projected peak sales.
That's an encouraging and very recent example. Another recent example that has a lot of similarities to Tonix is MAP Pharmaceuticals.
Without FDA approval of its product MAP was bought out by Allergan last year for $958 million. Like Tonix:
- MAP was developing a reformulated drug (Levadex) along the505(b)(2) pathway
- Had focus on women's health (migraines)
- Levadex was a CNS (central nervous system) drug
- Levadex was a pain drug
Levadex was MAP's only viable product, and the Wells Fargo analyst covering MAP projected $250 - $500 million peak sales for Levadex. After MAP released data from its second to last trial it's share pricemore than quadrupled, taking the market cap from less than $100milion to $400 million. Before the final trial was run, MAP struck an agreement with Allergan, and the market cap went to $500 million.
Success in BESTFIT should mean that TNX-102 SL in FM earns a $1billion valuation in the market.
7) BESTFIT Success Suggests Success in PTSD
Success in BESTFIT should also bode well for Tonix' PTSD program. From the latest filing:
We are also developing TNX-102 SL for the management of PTSD under an IND cleared by the FDA in June 2014. We expect to commence a 220-patient, randomized, double-blind, placebo-controlled, Phase 2 trial of TNX-102 SL in subjects with military-related PTSD, or the AtEase trial, in the fourth quarter of 2014. The trial is expected to be conducted at approximately 25 sites in the U.S. The AtEase trial is designed to study the safety and efficacy of two doses of TNX-102 SL administered once daily at bedtime. The objective of the AtEase trial is to evaluate the efficacy of TNX-102 SL, 2.8 mg as compared to placebo sublingual tablets following six weeks of treatment using the Clinician-Administered PTSD Scale.
If the results of the AtEase trial are positive, we intend to meet with the FDA to finalize the design of the registration studies that would be required to support approval of an NDA for this indication. Based on our conversations with the FDA to date, we believe positive results from two adequate,well-controlled efficacy and safety studies and long-term (6and 12 month) safety exposure data will be sufficient to support FDA approval for this indication. We expect that we will be able to use the long-term safety exposure data generated by our clinical development of TNX-102 SL in FM to supplement the long-term safety exposure data required for the PTSD NDA.
There is a significant overlap between FM and PTSD - about half of patients with one diagnosis also qualifies for the other. One study found that 57% of FM patients qualified for a PTSD diagnosis.
The symptoms of each are similar, both experience unrefreshing sleep and central pain. Both are linked with depression and abuse of opiates and sedatives.
PTSD is a very big market, as PTSD is a very common disease. According to the NIH about 3.5% of adults have PTSD in a given year. That's 8.4 million American adults - for reference that many people spending $100 a month makes for a $10 billion market.
PTSD is another market that is badly hurting for treatments - there has not been an approval in PTSD in 13 years.
Tonix has a big opportunity with PTSD. It is a huge need and the big companies are not going after it very hard. Tonix' CEO Dr. Seth Lederman made this point at the June Jefferies 2014 Global Healthcare Conference:
We will be, I believe, the leading company to develop a drug in post-traumatic stress disorder in the United States
To that end, Tonix recently hired Dr. Gregory Sullivan as Chief Medical Officer:
Professor of Psychiatry in the Department of Psychiatry at Columbia University Medical Center, a Research Scientist at the New York State Psychiatric Institute (NYSPI), and as a practicing psychiatrist. His areas of expertise include the diagnosis, treatment and neurobiology of anxiety and mood disorders, including PTSD. As Principal Investigator and Co-Investigator on several human studies of PTSD, Dr. Sullivan has administered the recruitment, biological assessments,treatment, and safety of participants with PTSD in clinical trials of the disorder.He has served as a member of the Institutional Review Board of the NYSPI since 2009. He has published more than50 articles and chapters on research topics ranging from stress and anxiety disorders to abnormal serotonergic receptor expression in bipolar depression, PTSD and panic disorder. He is a recipient of grants from the National Institute of Mental Health, the Anxiety Disorders Association of America, and the American Foundation for Suicide Prevention. Dr. Sullivan graduated from the University of California, Berkeley where he majored in biological sciences. Dr. Sullivan received his medical doctorate from the College of Physicians & Surgeons at Columbia University and completed his residency training in psychiatry at Columbia University Medical Center. After residency, he continued at CU in an NIMH-sponsored Research Training Fellowship in Affective and Anxiety Disorders. As part of fellowship training, he studied with Dr. Joseph LeDoux at New York University, developing translational animal models of anxiety disorders for preclinical testing of novel anxiolytic therapies. In 2010, he was selected by his peers in psychiatry as one of the 2010 Best Doctors in America.
Tonix has an enormous opportunity in PTSD, and success in BESTFIT bodes very well for success in the PTSD program.
Also, in a win for trickle down economics, the bolstering of the PTSD program could provide a boost to Tonix' biodefense technologies.
Tonix has a good relationship and on-going communications with the Depatment of Defense. If it can deliver in PTSD that can only increase the DOD's interest in Tonix' biodefense products (from the August 1st filing again):
we recently acquired rights to intellectual property on two biodefense technologies: one relating to the development of novel smallpox vaccines, and the other to the development of protective agents against radiation exposure. We plan to perform non-clinical research and development on these programs later in the second half of 2014. The FDA Animal Efficacy Rule provides a mechanism for drug licensure when human efficacy studies are not feasible or ethical. As a result, the licensure of these biodefense products in the United States may not require human efficacy studies, which we believe will reduce our development costs and risks compared to the development of other NCEs or new biologic candidates.
Success in BESTFIT bolsters Tonix' chances for a succesful PTSD program.
8) TNX-201 IND Forthcoming, TNX-301 Commencing Formulation
Two more updates to the pipeline: TNX-301 is commencing formulation, and TNX-201 will file its IND in Q4 for a Q1 2015 clinical trial.
Like TNX-102 SL, TNX-301 is a reformulated CNS drug being developed for registration under Section 505(b)(2) of the FDCA. TNX-301 is being developed as a potential treatment for alcohol abuse and dependence. According to the August 1st filing, Tonix plans to begin formulation work "later in the second half of 2014."
Tonix is also developing TNX-201 for the common tension headache,or Episodic Tension Type Headache. From the August 1st filing:
TNX-201 is a single isomer of isometheptene mucate, or IMH, and is under development as a treatment for ETTH, an indication believed to affect approximately 20% of the global adult population. Although currently not approved for any indication, IMH has an extensive history of use as a prescription pharmaceutical in the U.S. as a mixture of two mirror-image isomers, or IMH enantiomers, also known as a racemic mixture. Racemic IMH has been marketed as Octin® for conditions including tension and vascular headache. In addition, racemic IMH has been marketed in combination products for the relief of tension and vascular headaches (examples include Midrin® and MigraTen®). Based on our evaluation studies, we believe that one of the IMH enantiomers, which we are developing as TNX-201, is primarily responsible for the efficacy associated with the racemic mixture in the treatment of headache, and that the other IMH isomer may be associated with greater safety and tolerability risks. As a result, we believe that TNX-201 may have an improved clinical profile as compared to the racemic mixture for headache indications. According to the FDA's Stereoisomeric Drugs Development Policy, the development of a single enantiomer of a drug is particularly desirable in cases in which one enantiomer has a toxic or undesirable pharmacologic effect and the other does not.
We held a pre-IND meeting with the FDA in January 2014 to discuss the regulatory pathway for the development of TNX-201 for the treatment of ETTH. Based on that meeting, we believe that the initial IND for TNX-201 will not require any additional nonclinical data to support a first-in-man Phase I comparative pharmacokinetic and safety study, which we expect to commence in the first quarter of 2015.
Tension headache is an enormous market, and the only approved drugs for tension headache all contain a barbiturate. This is a big opportunity for Tonix.
Tonix hired Dr. Donald Kellerman to head up the effort. Does the CEO think Dr. Kellerman is up to it? Dr. Lederman at the Jefferies conference:
I think that with Don Kellerman we have the best person to develop a headache drug in the United States
We'll let Tonix' official biography introduce you:
Donald Kellerman joined Tonix Pharmaceuticals as Senior Vice President, Clinical Development and Regulatory Affairs,in April 2014. Dr. Kellerman has more than 30 years of experience in the development of prescription pharmaceuticals, spanning several therapeutic areas including central nervous system, respiratory, allergy,ophthalmology and cardiovascular. Dr. Kellerman was most recently Vice President of Scientific Affairs and Inhalation Products at Allergan, Inc. From 2008 to 2013, Dr. Kellerman served as Senior Vice President, Clinical Development and Medical Affairs at MAP Pharmaceuticals, Inc. (acquired by Allergan, Inc.), where he managed the development ofMAP0004 for the treatment of migraine. Prior to joining MAP Pharmaceuticals, Dr. Kellerman held positions at Inspire Pharmaceuticals, Inc. (acquired by Merck & Co., Inc.),Glaxo Wellcome plc, Sepracor, Inc. (acquired by Dainippon Sumitomo Pharma Co., Ltd.), Ciba-Geigy Corporation, and E.R. Squibb and Sons, Inc., and served as project leader for multiple products including Flovent®, Advair®, and Xopenex®. He has authored major sections of eight NDAs,has created labeling strategy for several pharmaceutical products, and has led or co-authored over 80 publications related to the development of pharmaceuticals. Dr.Kellerman received his B.S. and Doctor of Pharmacy from the College of Pharmacy at the University of Minnesota.
Tonix has quite a pipeline, and quite a cast of people to develop it.
9) Tonix Could Follow Celgene
Tonix could have a buyout or partnership in its near future, or it could go with the "Celgene contingency" and stay independent.
We saw that when biotech products get approved they are being valued at about five times peak sales. Why would big companies pay five times sales? For one thing, if you are a big company, you may be valued at ten times your sales, like Celgene.
Celgene has a market cap of $69 billion, and had revenues of $6.5billion last year, and $3.5 billion for the first half of this year.
Some simple math - if Tonix stays independent and the FM, PTSD,and ETTH programs each generate $1 billion in annual sales in five years, the market could value Tonix at $30 billion.
Fully diluted, Tonix has 13 million shares now. Even at double that number of shares, Tonix would be valued at $1,153.85 per share,almost exactly 100 times its current share price. So we will put that in the "reasons to stay independent" column.
Those revenues are valuable to large companies and we fully expect that Tonix will get enthusiastic offers to share its products.
Large companies, with the right product in hand, have a number of ways to continue to generate sales after the initial strategy on a product has played out. Products can be marketed in other countries,and new patent protections can be sought in current countries. When that is over the drugs can still continue to generate sales even when competing with generics.
But one of the biggest things that can be done, and one thing that TNX-102 SL should have going for it, is that some drugs work in multiple indications.
Celgene's three biggest products are Abraxane, Otezla, andRevlimid, and Celgene is bringing these three drugs along for a total of twenty-four different indications (2013 Annual Report).
The fact that TNX-102 SL is a sleep quality drug means that it may also help in other conditions with disturbed sleep. From one of TNX-102 SL's patent applications:
Therefore we believe that a low dose cyclobenzaprine will be effective for treating depression, including major depressive disorder....Furthermore, the utility of a very low dose cyclobenzaprine as an agent for improving the quality of sleep, as a sleep deepener, or for treating sleep disturbances has been investigated. The very low dosage regimen was viewed as particularly useful in treating sleep disturbances caused by, exacerbated by or associated with fibromyalgia syndrome, prolonged fatigue, chronic fatigue,chronic fatigue syndrome, a sleep disorder, a psychogenic pain disorder, chronic pain syndrome (type II), the administration of a drug, autoimmune disease, stress or anxiety or for treating an illness caused by or exacerbated by sleep disturbances, and symptoms of such illness and generalized anxiety disorder.
With good data in BESTFIT, Tonix should have two very good options between independence or partnerships.
10) Best Interest of Shareholders
With about $50 million in cash, and a burn of roughly $4 million per quarter, Tonix can fund its operations for a long time.
Tonix filed its S-3 on August 1st, a filing that is good for three years and will allow it to raise capital without a partner if it so desires.
We related to Dr. Gershell our opinion that it would make little sense for Tonix to raise money before data is released. We also pointed out that it is Tonix' stated view that:
- BESTFIT data will be a pivotal moment for the company
- Tonix is well funded
Dr. Gershell agreed that Tonix' view of the pivotal nature of the trial data and its well-funded position is unchanged. He also pointed out that nothing in the language about BESTFIT had changed in the S-3 filing, and that they would disclose if anything material had changed.
He also pointed out that the filing is not itself a capital raise, makes no raise imminent, is good for three years, and is more routine than not for a clinical stage company to have on file.
We think it makes little sense to raise funds before the promising BESTFIT data is released, and we think that Tonix management sees things that way as well.
But it's always better to look at incentives, and incentives suggest that whatever Tonix does, it will be in shareholder's best interest.
Tonix' CEO Dr. Seth Lederman is the largest shareholder of Tonix,and has never sold a share. Director Dr. Ernest Mario is the second largest shareholder, and has never sold a share (he's also a board member at Celgene, and former CEO of both Glaxo and Alza, the latter of which he sold for $11 billion to J&J). Altogether, insiders are quite invested, owning more than 20% of Tonix, and have never sold.
Also, the previous capital raises that brought in the $50 million were almost entirely institutional. That amount of money represents about 30% of the company, large institutional ownership, and just recently acquired.
Whatever Tonix does at each step of the way, we feel confident it will be done in shareholder's best interest.
The release of Tonix' pivotal BESTFIT data is approaching, it should have big, possibly very exciting implications for the company. If that were not enough, Tonix has a busy Q4 in its other programs as well.
Disclosure: The author is long TNXP.