Tonix Pharmaceuticals has commenced enrolment for the Phase III HONOR study of TNX-102 SL in military-related post-traumatic stress disorder (PTSD). It is expected to enroll up to 550 patients with a CAPS-5 of ≥33 upon entry. Importantly, the FDA has agreed to an interim analysis encompassing 275 patients at which point it may be stopped for efficacy. The FDA has also indicated that if the data is “statistically persuasive” only one study may be needed for approval. The interim analysis is expected in H118 with full data in H218.
Written by
Tonix Pharmaceuticals |
HONOR study up and running |
Development update |
Pharma & biotech |
20 April 2017 |
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Business description
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Tonix Pharmaceuticals is a research client of Edison Investment Research Limited |
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Tonix Pharmaceuticals has commenced enrolment for the Phase III HONOR study of TNX-102 SL in military-related post-traumatic stress disorder (PTSD). It is expected to enroll up to 550 patients with a CAPS-5 of ≥33 upon entry. Importantly, the FDA has agreed to an interim analysis encompassing 275 patients at which point it may be stopped for efficacy. The FDA has also indicated that if the data is “statistically persuasive” only one study may be needed for approval. The interim analysis is expected in H118 with full data in H218.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.0 |
(48.1) |
(28.62) |
0.0 |
N/A |
N/A |
12/16 |
0.0 |
(38.8) |
(15.41) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(33.5) |
(4.41) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(36.7) |
(4.65) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Readout expected in 2018
The HONOR study has begun enrolling patients and there will be an interim analysis encompassing 275 patients (50% of the 550 total expected) after which the trial may be stopped for efficacy (though the exact statistical hurdle rate has not been disclosed), the sample size adjusted or the study continue as planned. The interim analysis is expected in H118 with full data in H218.
Only one Phase III might be necessary
The company has reported that during the Initial Cross-Disciplinary Breakthrough meeting with the FDA, the agency had indicated that if HONOR study data is “statistically persuasive” then it is possible that Tonix would not need to run a second Phase III for approval. This hurdle rate has not been disclosed, but we would expect a p-value of p<0.01, more significant than the standard p<0.05.
2019 FDA approval possible
Due to the granting of breakthrough therapy designation (BTD), the approval application for TNX-102 SL is eligible for priority review, which may mean a six-month instead of a 10-month review period. Coupled with the potential for the HONOR study to be halted for efficacy at the interim analysis in H118, approval is possible in 2019. However, we continue to project approval in 2020.
Valuation: $236m or $31.57 per basic share
We are adjusting our valuation from $207m or $5.27 per basic share to $236m or $31.57 per basic share. The increase in valuation is due to rolling forward our NPV model and a higher cash balance. The change on a per share basis is due to dilutive equity offerings (with $17.4m in net proceeds in Q117) and a 1:10 reverse split. We expect a funding requirement of $110m before profitability in 2023, up from $80m previously, due to increasing our R&D spending assumptions in future years. However, we expect Tonix to be fully funded through the end of 2017.
HONOR study initiated
Tonix has commenced enrolment in the Phase III HONOR study on TNX-102 SL in patients with military-related PTSD. It will have up to 550 patients with a CAPS-5 of ≥33 upon entry, who will receive either 5.6mg of TNX-102 SL or placebo. The CAPS-5 is a clinician administered PTSD scale consisting of a 30-item structured interview that corresponds to the Diagnostic and Statistical Manual of Mental Disorders (DSM-5) criteria for diagnosing PTSD. According to the DSM-5, to be diagnosed with PTSD sufferers have to exhibit symptoms across four categories: intrusions, avoidance, mood and cognition, and arousal (see Exhibit 1). We expect the interim analysis in H118 with full data from 550 patients in H218 (if the study is not stopped for efficacy at the interim).
Exhibit 1: Diagnostic criteria for PTSD
Intrusions |
Avoidance |
Mood & cognition |
Arousal |
Recurring nightmares, flashbacks |
Avoid people, places, things |
Alterations in cognition (negative) |
Exaggerated startle response |
Intrusive memories (images) |
Avoid thoughts/conversations |
Alterations in mood (negative) |
"On guard" all the time |
Physiological and psychological reactions to reminders |
Loss of interest |
Irritability or angry outbursts |
|
Social withdrawal |
Difficulty sleeping, concentrating |
Source: DSM-5
Additional preclinical candidates
The company previously announced TNX-601, a novel salt of tianeptine, which the company may develop for PTSD, and TNX-801, a novel live virus vaccine for smallpox. Since then it has disclosed TNX-701, a biodefense program to protect from radiation injury. Details are limited on TNX-701 but, like TNX-801, the company believes that only animal studies may be required to establish efficacy per the FDA Animal Rule, as it would be unethical to expose humans to smallpox or radiation (however, safety and pharmacokinetic/pharmacodynamic studies would be required). Also, Tonix may be able to profit from Section 3086 of the recently enacted 21st Century Cures Act. According to that law, companies developing medical countermeasures to material threats to national security would be able to receive priority review vouchers if approved by the FDA. If used, a priority review voucher would require the FDA to aim to render a decision on a drug application within six months rather than the standard 10 months. As vouchers are transferrable, a number of them have been sold in the past, with prices ranging between $67.5m and $350m per voucher.
We are not including any of these programs in our valuation as the development path and timelines for all are unknown. We expect minimal spending on them over the course of the next 12 months but we would expect spending to accelerate quickly once they enter the clinic. We will update our model on receiving further clarity from the company
Valuation
We are adjusting our valuation from $207m or $5.27 per basic share to $236m or $31.57 per basic share. The increase in valuation is due to rolling forward our NPV model and a higher cash balance. The change on a per share basis is due to dilutive equity offerings (with $17.4m in net proceeds in Q117) and a 1:10 reverse split.
Exhibit 2: Tonix valuation table
Product |
Main indication |
Status |
Prob. of success |
Launch year |
Peak sales ($m) |
Patent protection |
Royalty |
rNPV |
||||||||
TNX-102 SL |
PTSD |
Phase III |
50% |
2020 |
803 |
2034 |
25.0% |
$200 |
||||||||
Total |
|
|
|
|
|
|
|
$200 |
||||||||
Cash and cash equivalents (Q117e including offering) ($m) |
$36.8 |
|||||||||||||||
Total firm value ($m) |
$236 |
|||||||||||||||
Total basic shares (13 April 2017, m) |
7.49 |
|||||||||||||||
Value per basic share ($) |
$31.57 |
|||||||||||||||
Dilutive warrants (m) |
0.8 |
|||||||||||||||
Weighted average exercise price ($) |
$11.19 |
|||||||||||||||
Cash on exercise ($m) |
$8.58 |
|||||||||||||||
Total firm value ($m) |
$245 |
|||||||||||||||
Total number of shares (m) |
8.3 |
|||||||||||||||
Diluted value per share ($) |
$29.68 |
|||||||||||||||
Source: Edison Investment Research
Financials
Tonix reported a net loss (including non-cash expenditures) of $38.8m in 2016, down from $48.1m in 2015, mainly due to the reduction of R&D expenses from $35.5m to $28.5m. Importantly, in Q416, R&D expenses were just $4.9m, down from $9.5m in Q415, as no large clinical trials were ongoing during the quarter. We expect spending to start to accelerate in Q217 due to the initiation of the HONOR study at the end of Q117. The company ended the year with $26.1m in cash and marketable securities. Subsequently, the company raised $9.1m in net proceeds over the course of February-April (however, based on the average selling price, much of it was likely done on 29 March) through an at-the-market (ATM) offering. This was the remainder of the unused portion of a $15m ATM facility previously announced in April 2016. It also raised $8.3m in net proceeds through a secondary offering that closed in April 2017. We expect a funding requirement of $110m before profitability in 2023, up from $80m previously (although we expect Tonix to be fully funded through the end of 2017). We expect the announced preclinical programs to materially add to R&D expenses in the coming years.
Exhibit 3: Financial summary
$000s |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
0 |
0 |
||
EBITDA |
|
|
(10,888) |
(27,656) |
(48,162) |
(38,969) |
(33,660) |
(36,811) |
Operating Profit (before GW and except.) |
|
(10,888) |
(27,656) |
(48,162) |
(38,969) |
(33,660) |
(36,811) |
|
Intangible Amortization |
0 |
0 |
0 |
0 |
(9) |
(8) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(10,888) |
(27,656) |
(48,162) |
(38,969) |
(33,669) |
(36,819) |
||
Net Interest |
4 |
40 |
108 |
127 |
115 |
66 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(10,884) |
(27,616) |
(48,054) |
(38,842) |
(33,545) |
(36,744) |
Profit Before Tax (FRS 3) |
|
|
(10,884) |
(27,616) |
(48,054) |
(38,842) |
(33,554) |
(36,753) |
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Deferred tax |
0 |
(0) |
0 |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
(10,884) |
(27,616) |
(48,054) |
(38,842) |
(33,545) |
(36,744) |
||
Profit After Tax (FRS 3) |
(10,884) |
(27,616) |
(48,054) |
(38,842) |
(33,554) |
(36,753) |
||
Average Number of Shares Outstanding (m) |
3.2 |
1.0 |
1.7 |
2.5 |
7.6 |
7.9 |
||
EPS - normalized ($) |
|
|
(3.37) |
(27.66) |
(28.62) |
(15.41) |
(4.41) |
(4.65) |
EPS - FRS 3 ($) |
|
|
(3.37) |
(27.66) |
(28.62) |
(15.41) |
(4.42) |
(4.65) |
Dividend per share ($) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
45 |
373 |
527 |
281 |
266 |
223 |
Intangible Assets |
0 |
0 |
120 |
120 |
111 |
103 |
||
Tangible Assets |
45 |
328 |
350 |
150 |
144 |
109 |
||
Other |
0 |
45 |
57 |
11 |
11 |
11 |
||
Current Assets |
|
|
8,202 |
38,184 |
43,016 |
26,121 |
13,237 |
4,793 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
0 |
0 |
||
Cash |
8,202 |
38,184 |
43,016 |
26,121 |
13,237 |
4,793 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(765) |
(1,487) |
(3,049) |
(872) |
(872) |
(872) |
Creditors |
(765) |
(1,487) |
(3,049) |
(872) |
(872) |
(872) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(13) |
(68) |
(106) |
(33) |
(33) |
(25,033) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
(25,000) |
||
Other long term liabilities |
(13) |
(68) |
(106) |
(33) |
(33) |
(33) |
||
Net Assets |
|
|
7,469 |
37,002 |
40,388 |
25,497 |
12,598 |
(20,889) |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(8,517) |
(22,840) |
(42,528) |
(37,315) |
(30,243) |
(33,444) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(15) |
(319) |
(238) |
(66) |
(30) |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
10,042 |
47,836 |
47,685 |
20,498 |
17,400 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
(11) |
133 |
0 |
0 |
||
Net Cash Flow |
1,510 |
24,677 |
4,908 |
(16,750) |
(12,873) |
(33,444) |
||
Opening net debt/(cash) |
|
|
(1,785) |
(8,202) |
(38,184) |
(43,016) |
(26,121) |
(13,237) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(1) |
(3) |
(4) |
11 |
11 |
0 |
||
Other |
4908 |
5308 |
(72) |
(156) |
(22) |
0 |
||
Closing net debt/(cash) |
|
|
(8,202) |
(38,184) |
(43,016) |
(26,121) |
(13,237) |
20,207 |
Source: Edison Investment Research, Tonix Pharmaceuticals reports
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Research: TMT
Headline revenue growth of 19% reflects a full half contribution of ID Scan and a pickup in organic growth to 12% across the year driven by the excellent performance from the higher margin international services. The mix effects of this growth resulted in EBIT of £17m, 4% ahead of our forecasts, and a 1.1pp improvement in the operating margin.