Tonix Pharmaceuticals — Time to execute

Tonix Pharmaceuticals — Time to execute

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.

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Written by

Tonix Pharmaceuticals

Time to execute

Development

Pharma & biotech

19 May 2017

Price

US$4.11

Market cap

US$31m

Net cash ($m) estimated at 30 June 2017, including offering

33.5

Shares in issue

7.5m

Free float

63.6%

Code

TNXP

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.5)

(28.4)

(82.4)

Rel (local)

(15.1)

(30.6)

(84.8)

52-week high/low

US$29.0

US$3.6

Business description

Tonix Pharmaceuticals is an emerging specialty pharmaceutical company focused on psychiatric and neurological disorders. It is developing TNX-102 SL, which is in Phase III for the treatment of post-traumatic stress disorder.

Next event

HONOR interim analysis

H118

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Tonix Pharmaceuticals is a research client of Edison Investment Research Limited

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*
($m)

EPS*
($)

DPS
(c
)

P/E
(x)

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
(1+ symptoms present)

Avoidance
(1+ symptoms present)

Mood & cognition
(2+ symptoms present)

Arousal
(2+ symptoms present)

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

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Tonix Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Tonix Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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