SNGX: There Is More Room For Further Price Appreciation

Zacks Small Cap Research

By Grant Zeng, CFA

Soligenix Reports Third Quarter 2013 Financial Results With Strong Balance Sheet

On Nov. 12, 2013, Soligenix, Inc. (OTC BB:SNGX) announced its financial results for the third quarter ended September 30, 2013.

Grant revenue for the third quarter 2013 were $0.3 million as compared to $0.9 million for the quarter ended September 30, 2012. Revenues decreased by $0.6 million primarily related to the timing of reimbursable costs from the Company's ThermoVax™ thermostability technology grant.

Research and development expenses were $1.2 million as compared to $0.4 million and $4.1 million as compared to $1.7 million for the quarter and nine months ended September 30, 2013 and 2012, respectively.  Included in the nine months expenses is a $1.5 million non-cash charge related to the collaboration with Intrexon.

General and administrative expenses were $0.7 million as compared to $0.6 million and $1.9 million as compared to $1.8 million for the quarter and nine months ended September 30, 2013 and 2012, respectively.

For the quarter ended September 30, 2013, other net income/expense includes a $4.7 million, or $0.25 per share, non-cash charge related to the change in fair value of the liability for warrants issued in the Company's June 25, 2013 registered public offering.

GAAP net loss for 3Q13 was $6.6 million, or $0.34 per share, as compared to $0.8 million, or $0.07 per share for 3Q12. Included in the net loss for the quarter ended September 30, 2013 is a non-cash charge of $4.7 million due to the change in fair value of the liability related to warrants issued in the Company's June 25, 2013 registered public offering.

Excluding the $4.7 million non-cash charge, net loss was $1.9 million ($0.10 per share) for the 3Q13 compared to net loss of $0.8 million ($0.07 per share) in 3Q12.

As of September 30, 2013, the Company's cash position was $6.6 million, which remains strong.

Current cash balance, along with potential grant revenue, will last through the end of 2014 according to our financial model. The strengthened cash runway allows the Company to initiate a Phase II clinical study in oral mucositis as well as a Phase II/III study in pediatric Crohn's disease by the end of this year.

Soligenix also remains active and opportunistic in pursuing non-dilutive capital through government grants and contracts.  Most notably, the company was awarded two contracts from the US government in September 2013 to support the development of OrbeShield™ for the treatment of gastrointestinal acute radiation syndrome (GI ARS).


A Huge Win for Soligenix with Two Contracts within One Week

On September 19, 2013
, Soligenix announced that it had been awarded a contract valued at up to $26.3 million by the US Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (BARDA). The contract is awarded for the advanced preclinical and manufacturing development of OrbeShield™ (oral beclomethasone 17,21-dipropionate or oral BDP) as a biodefense medical countermeasures (MCMs) for the treatment of gastrointestinal acute radiation syndrome (GI ARS).

The potential five year contract contains a two year base period, with two contract options that would extend the contract an additional three years. According to management, funding for the two year base period is slightly over $10 million, with potential $5 million for each year for three years following the base period as long as the program meets targeted milestones.

Then, on Sept. 25, 2013, Soligenix announced that it had been awarded a contract valued at up to $6.4 million by the US Department of Health and Human Service's National Institutes of Health (NIH) (specifically funded by the National Institute of Allergy and Infectious Diseases or NIAID).

The NIAID contract is awarded for the advanced preclinical development of OrbeShield™ (oral beclomethasone 17,21-dipropionate or oral BDP) as a biodefense medical countermeasure (MCM) for the treatment of gastrointestinal acute radiation syndrome (GI ARS).

This is a contract for three years which contains a one year base period, with two contract options that would extend the contract an additional year each. The total award will support the development activities necessary to evaluate OrbeShield™ as a potential MCM to treat GI ARS.

Both contracts are awarded for the advanced preclinical and manufacturing development of OrbeShield™ as a biodefense medical countermeasures (MCMs) for the treatment of gastrointestinal acute radiation syndrome (GI ARS).

These two contracts are a huge win for Soligenix in our view. It not only provides non-dilutive funding for the development of the OrbeShield program for GI ARS, but more importantly validates the technology the company has developed over the years related to OrbeShield. Securing a highly competitive government contract provides important recognition as to the innovative quality and potential therapeutic impact of OrbeShield.

In preclinical studies, OrbeShield™ has demonstrated positive results in a canine GI ARS model which indicate that dogs treated with OrbeShield™ demonstrated statistically significant (p=0.04) improvement in survival with dosing at either 2 hours or 24 hours after exposure to lethal doses of total body irradiation (TBI) when compared to control dogs. The median survival was 100 days (p=0.04) when canines were treated 2 hours post exposure, 87 days (p=0.048) when canines were treated 24 hours post exposure. OrbeShield™ appears to significantly mitigate the damage to the GI epithelium caused by exposure to high doses of radiation.

Soligenix plans to conduct a follow-on replication dog study in 1H14 with results available also in 1H14. The FDA has cleared the IND application for OrbeShield™ for the mitigation of morbidity and mortality associated with GI ARS.

Furthermore, Soligenix’s OrbeShield is being developed under specific FDA regulatory guidelines called the “Animal Rule.” The Animal Rule provides that under certain circumstances, where it is unethical or not feasible to conduct human efficacy studies, the FDA may grant marketing approval based on adequate and well-controlled animal studies when the results of those studies establish that the drug is reasonably likely to produce clinical benefit in humans. Demonstration of the product's safety in humans is still required.

We think the “Animal Rule” means a lot for Soligenix, because this can accelerate the development of OrbeShield and other vaccines. Once approved by the FDA, Soligenix will have the opportunity to negotiate a stock-pile contract with the US government.  These stock-pile or procurement contracts have been very lucrative for other companies supplying similar drugs to the US government.


Soligenix is on Track to Advance Multiple Clinical Programs

Phase II/III trial of SGX203 for Pediatric Crohn's Disease

Soligenix plans to start Phase II/III trial of SGX203 in 1H 2014. Primary endpoint data are expected in 1H 2015.

The PK data generated from completed Phase I study will be used to refine the PK model previously established with Dr. Jeffrey S. Barrett, PhD, FCP, from The Children's Hospital of Philadelphia.  The refined model will provide the justification for limited PK sampling in the planned Phase II/III pediatric clinical study and will help inform the dose selection for the Phase III component of the study.

There is currently no cure for Crohn's disease, and there is no one treatment that works for everyone. Drug therapies usually include anti-inflammatory drugs, immune system suppressors and antibiotics. There are currently no FDA approved corticosteroid therapies for pediatric Crohn's disease. 80% of patients with Crohn’s disease are treated with steroids off-label as first-line therapy, which may suppress adrenal function and result in growth retardation. Remicade is the only approved product in pediatric Crohn’s disease in the US, which is used in 30% of patients within first year of diagnosis. However, Remicade carries a black box warning for potential malignancy (T cell lymphoma). Two biologics, Cimzia and Tysabri and one corticosteroid Entocort (budesonide) are on the market to treat Crohn’s disease in adult patients, and are currently in trials in pediatric patients.

SGX203 is designed to block inflammation of Crohn’s disease throughout the GI tract and is positioned as a corticosteroid option with less toxicity than the current standard systemic steroid therapy – prednisone. 

We believe SGX203 has the potential to meet an important medical need in children with this serious illness.


Phase II of SGX942 For Oral Mucositis   

Soligenix plans to start a Phase II proof-of-concept multi-center, double-blind, placebo-controlled trial in approximately 75 patients in the 4Q 2013. This Phase II trial is designed to evaluate the efficacy of SGX942 in reduction of the severity of oral mucositis in head and neck cancer patients undergoing fractionated radiation therapy and/or chemotherapy. The cGMP manufacture of drug product to initiate the Phase II studies is complete. Results are expected to be available in 2H14.

Mucositis
is a debilitating condition involving extensive ulceration of the oral cavity that frequently affects cancer patients undergoing radiation and chemotherapy treatment. Roughly 90% of patients on radiation (43% severe) and 40% of patients receiving chemotherapy get mucositis. There is an estimated 500,000 cancer patients getting mucositis annually in the United States alone. World-wide, the potential market for mucositis will exceed $1 billion in the next few years.

The mechanisms of mucositis have been extensively studied and have been recently linked to the interaction of chemotherapy and/or radiation therapy with the innate defense system. Bacterial infection of the ulcerative lesions is now regarded as a secondary consequence of dysregulated local inflammation triggered by therapy-induced cell death, rather than as the primary cause of the lesions. As a modulator of the innate immune system, SGX942 has the potential to target both primary and secondary causes of mucositis.

Oral mucositis is an area of unmet medical need where there are only limited treatment options. Ccurrently, no drug has been approved for oral mucositis in head and neck cancer. We noticed that there are a few products already on the market for oral mucositis. But the competitive landscape favors SGX942 in our view.


SGX201 for Preventing Acute Radiation Enteritis

Soligenix plans to initiate a Phase II randomized, double-blind, placebo-controlled trial in 1H2014. Data are expected in 1H2015, assuming continued financial support from NIH. The Company has received Fast Track designation from the FDA for SGX201 for radiation enteritis. It’s possible for continued government funding for the Phase IIa trial.

External radiation therapy is used to treat most types of cancer. During delivery of treatment, some level of radiation will also be delivered to healthy tissue, including the bowel, leading to acute and chronic toxicities. The large and small bowels are very sensitive to radiation and the larger the dose of radiation the greater the damage to normal bowel tissue. Radiation enteritis is a condition in which the lining of the bowel becomes swollen and inflamed during or after radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis need large doses, and almost all patients receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.

Patients with acute enteritis may have nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration and require hospitalization.

Symptoms will usually resolve within 2-6 weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness, as over 80% of patients who receive abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute radiation injury increases the risk of development of chronic radiation enteropathy, and overall 5% to 15% of the patients who receive abdominal or pelvic irradiation will develop chronic radiation enteritis.

Based upon published studies and reports, there are over 100,000 patients annually in the U.S. and over 200,000 patients worldwide, who receive abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing acute and chronic radiation enteritis. Currently there are no approved therapies for this indication. Based on current preclinical and Phase I/II clinical data, SGX201 has the potential to make a meaningful difference in this indication.


orBec® –for Treating Chronic GVHD

orBec ®
 is a two tablet delivery system of BDP specifically designed for oral use that allows for delivery of immediate and delayed release BDP to treat the gastrointestinal manifestation of chronic GVHD, the organ system where GVHD is most frequently encountered and highly problematic.

orBec® is intended to reduce the need for systemic immunosuppressive drugs such as prednisone to treat chronic GI GVHD. The active ingredient in orBec® is BDP, a highly potent, topically active corticosteroid that has a local effect on inflamed tissue.

orBec® has been awarded orphan drug designations in the U.S. and in Europe for the treatment of GI GVHD. In September 2012, Soligenix received a $300,000 two-year SBIR grant awarded by the NIH to support a Phase II study for the treatment of chronic GI GVHD. Soligenix plans to initiate a Phase II trial in 4Q2013 with data expected in 2H14.

GVHD is a major complication of allogeneic hematopoietic cell transplantation. GVHD is an inflammatory disease initiated by T cells in the donor graft that recognize histocompatibility and other tissue antigens of the host, and is mediated by a variety of effector cells and inflammatory cytokines. GVHD presents in both acute and chronic forms. The symptoms of chronic GVHD typically present at between 100 days and three years post-transplant.

Chronic GVHD has features resembling autoimmune and other immunologic disorders such as scleroderma, Sjögren syndrome, primary biliary cirrhosis, wasting syndrome, bronchiolitis obliterans, immune cytopenias and chronic immunodeficiency. The manifestations of chronic GVHD may be restricted to a single organ or tissue or may be widespread. Chronic GVHD can lead to debilitating consequences, e.g., joint contractures, loss of sight, end-stage lung disease, or mortality resulting from profound chronic immune suppression leading to recurrent or life-threatening infections.

Treatment of chronic GVHD is a challenge because it can be refractory to frontline immunosuppression. High-dose systemic corticosteroids are used with some success but carry significant toxicity. The risks of prolonged immunosuppression include local and disseminated infections; Epstein-Barr virus associated lymphoproliferative disease, hypothalamic-pituitary-adrenal (“HPA”) axis suppression, myopathy, glucose intolerance, neuropsychiatric disease and bone demineralization.

There are about 6,000 patients annually in the U.S., with a comparable number in Europe that suffer from chronic GVHD.


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There is more Room for Further Price Appreciation      

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There is more Room for Further Price Appreciation      

Since we initiated coverage of Soligenix in late June 2013 at the price of about $1 per share, price has appreciated 130% to current $2.3 per share. We believe there is still room for further price appreciation based on the company’s fundamental.

Our price target of $4.50 per share values Soligenix at $86 million in market cap which we think is very conservative.


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 Soligenix Report

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