SNGX: Soligenix’s SGX942 is a Good Candidate in Oral Mucositis

Zacks Small Cap Research

By Grant Zeng, CFA

Last Friday, Soligenix  (OTC BB:SNGX) held an analyst moderated conference with investors to discuss the potential of its lead candidate SGX942 for oral mucositis (OM)

Experts and management who participated in the call included:

Stephen T. Sonis, DMD, DMSc,
Clinical Professor of Oral Medicine at Harvard School of Dental Medicine, Senior Surgeon and Chief, Divisions of Oral Medicine at Brigham and Women's Hospital and the Dana-Farber Cancer Institute, and Chief Scientific Officer of Biomodels, LLC, as well as Scientific Advisory Board Member and Lead Advisor for the Soligenix Phase II clinical study of SGX942 for the treatment of oral mucositis in head and neck cancer.

Oreola Donini, PhD,
Vice President of Preclinical Research and Development at Soligenix and an Inventor of SGX94 “Innate Defense Regulator” Technology

Christopher J. Schaber, PhD,
President and Chief Executive Officer at Soligenix

Background of Oral Mucositis

Dr. Stephen first gave an introduction to the background of oral mucositis. OM is severe, diffuse mouth sores caused by cancer treatment with chemotherapy or radiation. OM affects up to 500,000 patients per year in the US and is considered by patients as the most troubling side effect of cancer treatment. OM is very painful with serious consequences for patient treatment and survival. No drug has been approved for solid tumors, an area of high unmet medical need.

OM is characterized by early redness of the mouth and burning. Within 10 days ulceration begins, limiting food intake and requiring narcotics. Ulceration progresses to involve large areas of the mouth making eating impossible with reliance on parenteral nutrition. Breakthrough pain with narcotics is not unusual.

Close to 500,000 US patients per year suffer from mucositis during cancer therapy – and the incidence is increasing.

 

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The role of Innate Immunity in OM

 

The immune system is constantly exposed to pathogenic microorganisms (bacteria, virus, fungi, and parasites) but has evolved a powerful response to deal with these threats to our health with a two-tiered response involving innate and adaptive immunity. Innate immunity is the "first responder" component of the immune system that is immediately activated to destroy invading microorganisms and trigger inflammation that contributes to blocking their assault. If microorganisms breach the innate immune system, adaptive immunity is activated. Adaptive immunity uses T and B cells to produce antibodies and killer cells to destroy infected cells. The two components of the immune system provide excellent protection against infections but they also pose a risk. If the activation threshold of either component is too low, or if activation is excessive, inflammatory disease may follow.

 

The innate immune system is a highly integrated system of cells protecting us from pathogens at all body surfaces that interface with the external environment: skin, mouth, gastrointestinal tract and lung. Innate immunity is dependent on rapidly sensing infection or damage and responding quickly with both inflammation and host repair or anti-infective functions. When excessive activation of innate immunity causes inflammation, modulation of the activated innate immune system can re-direct the system to decrease inflammatory responses and increase the anti-infection or healing responses. The innate immune system responds quickly by sensing nonspecific molecules released by the process of infection and damage through its Toll-like receptors and associated receptors. One of the key molecules in transmission of the sensing information is an adaptor protein called sequestosome-1 or p62. The p62 protein integrates and regulates the signals sensed by these receptors and can re-direct the response of the innate immune system in a benign way without perturbing the function of the adaptive immune system.

 

The innate immune system plays a key role in the development of OM. The innate immune response is a key component in the initiation of the biological cascade that drives mucosal injury.

 

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The Potential of SGX942 in OM

Dr. Sonis pointed out it appears that the most effective interventions for OM will be those that mitigate/prevent the activation of the initiation phase of mucositis. Once the damage occurs, it is very difficult to stop or reverse. Strategies aimed at accelerating the resolution of existing mucosal damage have fallen short.

SGX942
belongs to a new class of compounds called Innate Defense Regulators (IDRs), to treat infections and tissue damages. The SGX942 IDR platform represents a novel and innovative approach to therapeutically modulating the immune system by targeting the innate immune system and has the potential to target multiple indications.

SGX942 is the first drug to address innate immunity directly to treat OM. Innate immune responses occur immediately after radiation or chemotherapy treatment and throughout the OM cycle. SGX942 therefore has the potential to impact the important initiation phase as well as maintaining an impact throughout the disease process. SGX942 has demonstrated significant efficacy in preclinical models mimicking fractionated radiation therapy and chemotherapy.

SGX942 functions immediately downstream of key innate defense receptors, and responds to damage (including chemo-radiation) or pathogen associated triggers in the innate immune system. Since oral mucositis results from an exaggerated response of the innate immune system to radiation or chemotherapy induced damage, SGX942 mitigates this response.

SGX94 is a fully synthetic, 5-amino acid peptide with high aqueous solubility and stability. Extensive in vivo preclinical studies have shown that SGX94 reduces tissue damage associated with chemotherapy, radiation, trauma and inflammation. Although SGX94 is not directly antimicrobial, it accelerates pathogen clearance and increases host survival in a broad spectrum of bacterial infections including Gram positive and negative bacteria, and both drug sensitive and resistant strains, by directly targeting the host innate immune system.

SGX94 ameliorates tissue damage in models of chemotherapy- or radiation-induced mucositis as well as DSS-induced colitis and has shown accelerated healing in a murine model of skin infection and injury. SGX94 is not a growth factor and does not promote tumor growth or protect tumors against treatment in a breast cancer xenograft model using the MCF-7 cell line.

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Studies in murine models of bacterial infection have shown activity against a broad range of pathogens including methicillin-resistant S. aureus (MRSA), K. pneumoniae, E.coli, P. aeruginosa, and B. pseudomallei. SGX94 enhances the activity of antibiotics administered at sub-optimal doses. Studies in a model of MRSA bacteremia indicate that SGX94 is effective both therapeutically and prophylactically. SGX94 is most effective when administered by IV injection and has a very short plasma half-life (~10 minutes). When administered prophylactically in the MRSA model, a single dose of SGX94 is protective when injected up to 5 days before bacterial challenge, indicating a prolonged pharmacodynamic effect despite rapid plasma clearance.

Soligenix has completed a double-blind, placebo-controlled Phase I clinical trial of SGX942 in 84 healthy volunteers with both single ascending dose and multiple ascending dose components. SGX942 showed a strong safety profile when administered IV over 7 days and was consistent with safety results seen in pre-clinical studies. Drug clearance in humans is rapid and similar to results seen in pre-clinical studies.

Soligenix plans to start a Phase II proof-of-concept multi-center, double-blind, placebo-controlled trial in approximately 75 patients in the second half of 2013. This Phase II trial is designed to evaluate the efficacy of SGX942 (research name for oral mucositis indication) in reduction of the severity of oral mucositis in head and neck cancer patients undergoing fractionated radiation therapy and/or chemotherapy. Dose levels of 1.5 and 6.0 mg/kg will be evaluated for efficacy. The end points will be incidence and duration of grade 2+ and grade 3+ OM. The cGMP manufacture of drug product to initiate the Phase II studies is complete. Results are expected to be available in 2H14.

Market Opportunity For SGX94 Is Huge

The SGX94 platform
offers a new way to address serious infections and injury by enhancing the host response without increasing inflammation. Positive clinical activity in the planned Phase II will provide an important proof of concept for the IDRs. Soligenix’ technology has the potential to provide adjunctive or stand-alone therapies for the broader antimicrobial/antibiotic, antiviral, anti-inflammatory, and anti-cancer markets. Each of the above mentioned market is a multi- billion dollar market.

More narrowly, the tissue damage (mucositis) opportunity alone represents a $1B+ market.

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.

Mucositis can be severely debilitating and can lead to infection, sepsis, the need for parenteral nutrition and narcotic analgesia. The gastrointestinal damage causes severe diarrhea. These symptoms can limit the doses and duration of cancer treatment, leading to sub-optimal treatment outcomes. We believe any treatment that accelerates healing and/or diminishes the rate of appearance of mucositis would have a significant beneficial impact on the quality of life of these patients and may allow for more aggressive chemotherapy.

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.

Amgen’s Kepivance (Palifermin) is the only approved drug for oral mucositis in transplantation; but is contra-indicated for solid tumor patients. Kepivance is a recombinant form of human keratinocyte growth factor (KGF), a protein that is naturally produced by the body.  Kepivance is indicated to decrease the incidence and duration of severe oral mucositis in patients with hematologic malignancies receiving myelotoxic therapy requiring hematopoietic stem cell support. The safety and efficacy of Kepivance have not been established in patients with non-hematologic malignancies. Kepivance must be IV injected for 3 consecutive days before and 3 consecutive days after treatment for a total of 6 injections. Also, Kepivance is expensive at about $10,000 per patient.

Access Pharma’s MuGard is approved as a medical device and is dispensed in a ready to use mouth rinse. MuGard is indicated for the management of oral mucositis/stomatitis that may be caused by radiotherapy and/or chemotherapy.

Other medical devices on the market are DARA Biosciences’ Gelclair, Edwards Pharma’s Mucotrol, and EUSA Pharma’s Caphosol. Gelclair is a prescription mouth gel that is designed and approved for the management and relief of pain caused by mouth sores. Gelclair is established by mixing the powder in a glass of water to form the rinse and patients gargle and spit out. Mucotrol is concentrated oral gel wafer which is indicated for the management and relief of pain from oral lesions associated with oral mucositis/stomatitis. Caphosol is similar to Gelclair. Patients must mix the contents of two ampoules to form a rinse and then swish/spit out.  These devices attempt to create a protective barrier around the oral ulceration; however, none of these devices are biologically based.

Apparently, most of the above treatment options for mucositis only address the symptoms and do not address the cause of mucositis, while Soligenix’s SGX942 has a new mechanism of action which can address both the primary and the secondary causes of mucositis. We believe that, if approved, SGX942 will command a significant market share of the mucositis market, which could reach $1 billion in the next few years.

We believe SGX942 will have peak sales of $300 million and that the potential worldwide market for SGX942 is in excess of $500 million for all applications, including oral mucositis.

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Valuation Is Very Attractive

We maintain an Outperform rating for Soligenix and reiterate our 12-month price target of $4.50 per share.

Soligenix is a mid-stage development biopharmaceutical company focused on cancer supportive care and GI disorders, two large pharmaceutical markets both in the US and around the world. Soligenix also develops vaccines/oral therapeutics for biodefense.

Soligenix has built a diversified pipeline using three proprietary platform technologies. We are especially optimistic about its lead drug candidate SGX942 for the treatment of mucositis. SGX942 will enter into Phase II study in 2H13, which may serve as a major short term catalyst. Results will be available in 2H14, which, if positive, would be a significant de-risking event for Soligenix. SGX942 has a new mechanism of action and will command a significant market share of the oral mucositis market if approved in our view.

The Company’s oral BDP has the potential to target multiple GI disorders such as Crohn’s disease, radiation enteritis and GVHD as well as ARS.

Soligenix’s vaccines and biodefense therapeutics are 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 the ricin and anthrax vaccines as well as OrbeShield. 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 and will provide significant cash flow to Soligenix.

Based on our analysis, we think Soligenix shares are undervalued at this time. Currently, shares of Soligenix are trading at around $2.00 per share, which values the Company at $40 million in market cap. We admit that it’s always difficult to value a development stage biotech company. Soligenix is no exception. However, we do think that current market value of Soligenix is a deep discount compared to its peers in the same industry.

Most small biotech companies of development stage are valued from $50 million to $500 million depending on how advanced the pipeline is and which indications the company is targeting. Soligenix’s SGX942 for oral mucositis will enter a Phase II clinical study later this year, and the Company’s SGX203 for pediatric Crohn’s disease will also move to Phase II/III study later this year. Soligenix has multiple catalysts in the next 12 month or so. 

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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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