With the commencement of enrolment for the pivotal Phase III HONOR study of TNX-102 SL in military-related post-traumatic stress disorder (PTSD), the future of Tonix is squarely in its hands. The study 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 are “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 |
Time to execute |
Development |
Pharma & biotech |
19 May 2017 |
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With the commencement of enrolment for the pivotal Phase III HONOR study of TNX-102 SL in military-related post-traumatic stress disorder (PTSD), the future of Tonix is squarely in its hands. The study 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 are “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 |
(24.6) |
(3.68) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(26.9) |
(3.87) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Data in 2018
The HONOR study began enrolling patients in Q117 with an interim analysis encompassing 275 patients (50% of the 550 total expected). The trial may be stopped after the interim analysis 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.
Need for only one Phase III is possible
The company has reported that during the initial cross-disciplinary breakthrough meeting with the FDA, the agency indicated that if HONOR study data are “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.
Potential FDA approval in 2019
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: $235m or $31.46 per basic share
We have adjusted our valuation from $236m or $31.57 per basic share to $235m or $31.46 per basic share. The change in valuation is mostly due to a lower cash balance, mitigated slightly by lower R&D spending assumptions for the PTSD program. We expect a funding requirement of $85m before profitability in 2023, down from $110m previously, due to the significant control of expenses. Tonix appears to be fully funded into H218.
HONOR study up and running
Tonix commenced enrolment of the Phase III HONOR study on TNX-102 SL in patients with military-related PTSD in Q117. 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
Valuation
We have adjusted our valuation from $236m or $31.57 per basic share to $235m or $31.46 per basic share. The change in valuation is mostly due to a lower cash balance, mitigated slightly by lower R&D spending assumptions for the PTSD program.
Exhibit 2: Tonix valuation table
Product |
Main Indication |
Status |
Prob. of success (%) |
Launch year |
Peak sales ($m) |
Patent protection |
Royalty (%) |
rNPV ($) |
TNX-102 SL |
PTSD |
Phase III |
50% |
2020 |
803 |
2034 |
25.0% |
$202 |
Total |
|
|
|
|
|
|
|
$202 |
Cash and cash equivalents (Q217e) ($m) |
$33.5 |
|||||||
Total firm value ($m) |
$235 |
|||||||
Total basic shares (10 May 2017, m) |
7.49 |
|||||||
Value per basic share ($) |
$31.46 |
|||||||
Dilutive warrants |
0.7 |
|||||||
Weighted average exercise price ($) |
$11.19 |
|||||||
Cash on exercise ($m) |
$8.21 |
|||||||
Total firm value ($m) |
$244 |
|||||||
Total number of shares (m) |
8.2 |
|||||||
Diluted value per share ($) |
$29.65 |
|||||||
Source: Edison Investment Research
Financials
Tonix reported a net loss (including non-cash expenditures) of $5.1m in Q117, down from $14.0m in Q116, mainly due to the reduction of R&D expenses from $10.7m to $3.0m. SG&A expenses also fell from $3.3m to $2.1m in Q117. We continue to expect spending to start to accelerate in Q217 though from a much lower level than before. Also, according to Note 8 in its Q117 10-Q, the company only has $6.1m in commitments for future work related to the HONOR study, indicating that the upcoming expenses for the Phase III trial may be relatively modest for a 550-patient trial (though there were other expenses related to the HONOR study which were previously paid). As such, we have reduced our full year 2017 R&D expense estimates to $16.2m from $22.9m. The company ended Q117 with $22.4m in cash, cash equivalents and marketable securities, but has raised $16.3m in common stock offerings since the end of the quarter. We expect a funding requirement of $85m before profitability in 2023, down from $110m previously, due to the significant control of expenses. Tonix appears to be fully funded into H218.
Exhibit 3: Financial summary
2015 |
2016 |
2017e |
2018e |
|||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
||
EBITDA |
|
|
(48,162) |
(38,969) |
(24,682) |
(26,980) |
Operating Profit (before GW and except.) |
|
(48,162) |
(38,969) |
(24,682) |
(26,980) |
|
Intangible Amortisation |
0 |
0 |
0 |
(9) |
||
Other |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Operating Profit |
(48,162) |
(38,969) |
(24,682) |
(26,989) |
||
Net Interest |
108 |
127 |
110 |
105 |
||
Other |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(48,054) |
(38,842) |
(24,573) |
(26,875) |
Profit Before Tax (FRS 3) |
|
|
(48,054) |
(38,842) |
(24,573) |
(26,884) |
Tax |
0 |
0 |
0 |
0 |
||
Deferred tax |
0 |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
(48,054) |
(38,842) |
(24,573) |
(26,875) |
||
Profit After Tax (FRS 3) |
(48,054) |
(38,842) |
(24,573) |
(26,884) |
||
Average Number of Shares Outstanding (m) |
1.7 |
2.5 |
6.7 |
6.9 |
||
EPS - normalised (c) |
|
|
(28.62) |
(15.41) |
(3.68) |
(3.87) |
EPS - FRS 3 ($) |
|
|
(28.62) |
(15.41) |
(3.68) |
(3.87) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
527 |
281 |
191 |
168 |
Intangible Assets |
120 |
120 |
120 |
111 |
||
Tangible Assets |
350 |
150 |
60 |
46 |
||
Other |
57 |
11 |
11 |
11 |
||
Current Assets |
|
|
43,016 |
26,121 |
20,976 |
16,383 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
||
Cash |
43,016 |
26,121 |
20,976 |
16,383 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(3,049) |
(872) |
(841) |
(841) |
Creditors |
(3,049) |
(872) |
(841) |
(841) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(106) |
(33) |
(29) |
(20,029) |
Long term borrowings |
0 |
0 |
0 |
(20,000) |
||
Other long term liabilities |
(106) |
(33) |
(29) |
(29) |
||
Net Assets |
|
|
40,388 |
25,497 |
20,297 |
(4,319) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(42,528) |
(37,315) |
(22,530) |
(24,593) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(238) |
(66) |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
47,685 |
20,498 |
17,402 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(11) |
133 |
0 |
0 |
||
Net Cash Flow |
4,908 |
(16,750) |
(5,128) |
(24,593) |
||
Opening net debt/(cash) |
|
|
(38,184) |
(43,016) |
(26,121) |
(20,976) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(4) |
11 |
11 |
0 |
||
Other |
-72 |
-156 |
-28 |
0 |
||
Closing net debt/(cash) |
|
|
(43,016) |
(26,121) |
(20,976) |
3,617 |
Source: Edison Investment Research
|
|
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