Tonix Pharmaceuticals

Breakthrough Therapy Designation in PTSD

Regulatory update

Pharma & biotech

23 January 2017

Price	US$0.53
Market cap	US$21m

Net cash (US$m) at 30 September 2016		26.7

Shares in issue	39.2m
Free float	86.2%
Code	TNXP

Primary exchange	NASDAQ
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	5.1	(23.1)	(89.2)
Rel (local)	5.1	(27..5)	(91.1)

52-week high/low

US$7.79

US$0.365

Business description

Tonix Pharmaceuticals is an emerging specialty pharmaceutical company focused on psychiatric and neurological disorders. It is advancing TNX-102 SL for the treatment of PTSD for both the military and civilians, following positive Phase II results.

Next events

Military-related PTSD Phase III start	Q117
Phase III interim analysis	H217

Analysts

Maxim Jacobs	+1 646 653 7027
Nathaniel Calloway	+1 646 653 7036

healthcare@edisongroup.com

Edison profile page

Tonix Pharmaceuticals is a research client of Edison Investment Research Limited

Tonix has announced that it has been granted Breakthrough Therapy Designation (BTD) by the FDA as its Phase II AtEase data for TNX-102 SL in military-related PTSD indicate the drug may successfully treat a serious condition, a key requirement for BTD. Key benefits of BTD are intensive guidance from the FDA on the drug development program, an organizational commitment involving senior managers at the FDA, and the submission of portions of the NDA on a rolling basis.

Year end	Revenue ($m)	PBT* ($m)	EPS* ($)	DPS ($)	P/E (x)	Yield (%)
12/14	0.0	(27.6)	(2.77)	0.0	N/A	N/A
12/15	0.0	(48.1)	(2.86)	0.0	N/A	N/A
12/16e	0.0	(37.6)	(1.45)	0.0	N/A	N/A
12/17e	0.0	(29.0)	(0.71)	0.0	N/A	N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Designation granted for all of PTSD

By granting BTD for the entire indication, the FDA may be signaling that it does not view military-related and civilian post-traumatic stress disorder (PTSD) as fundamentally different and hence only one application will be necessary. Currently, Tonix expects to start a second Phase III in predominantly civilian PTSD sufferers after the start of the HONOR study. While the FDA may not view military and civilian PTSD as different, the trial will likely be required to gain sufficient exposure in female PTSD sufferers.

Awaiting comments on Phase III protocol

The Phase III in military-related PTSD patients (the HONOR study) is expected to begin in Q117 and to enroll up to 550 patients with a CAPS-5 of ≥33 upon entry, who will receive either 5.6mg of TNX-102 SL or placebo. Tonix has proposed two interim analyses with the first expected in H217, encompassing approximately 180 patients. At that point the trial may be stopped for efficacy (though the exact statistical hurdle rate has not been determined yet) or the sample size adjusted.

Approval timeline may be accelerated

BTD includes eligibility for priority review, which may mean a six-month instead of a 10-month review period. Also, the potential exists for the HONOR study to be halted for efficacy at one of the interim analyses. We project approval in 2020, although this might need to be accelerated to 2019 in the future.

Valuation: $207m or $5.27 per basic share

We are maintaining our valuation of $207m or $5.27 per basic share. Tonix ended the third quarter with $26.7m in cash and raised an additional $4.6m in October. We expect a funding requirement of $80m before profitability in 2023.

A regulatory win for Tonix

With BTD, Tonix will benefit from a number of features of the program. First, due to the expectation by FDA that the development program will be shorter than for non-breakthrough drugs in the same indication, the FDA will provide the company with intensive guidance on what data would be necessary to demonstrate the drug is safe and effective, which would reduce the probability of a regulatory delay due to data omission. Second, the FDA has committed senior managers to be intensively involved in the review to coordinate the review to make the process more efficient. Third, rolling submissions of parts of the NDA will be possible. All of this coupled with the possibility that the HONOR study will be halted for efficacy at an interim analysis indicates that our current estimate for approval in 2020 may be too conservative.

It is also important to note how selective BTD is. Unlike orphan drug designation, which is more of an exercise in population statistics due to its requirement for prevalence of fewer than 200,000, BTD requires the existence of preliminary clinical evidence indicating a substantial improvement in safety or efficacy over existing therapies. Since BTD was enacted in July of 2012, 404 requests for the designation were made at the FDA's Center for Drug Evaluation and Research (CDER) and only 35% of those were granted (see Exhibit 1). Also, just 4% of the BTD requests granted by CDER were in the field of psychiatry.

Exhibit 1: Breakthrough therapy requests at CDER

Fiscal year	BTD requests received	Granted	Denied	Withdrawn	Pending	% granted
2012	2	1	1	0		50
2013	92	31	52	9		34
2014	96	31	51	14		32
2015	93	32	43	18		34
2016 + first 2 months of FY17	121	46	51	12	12	42
Total	404	141	198	53	12	35

Source: FDA, at 30 November 2016

Details on preclinical assets

The company has also announced information regarding two preclinical assets. TNX-601 is a novel salt of tianeptine, which the company may develop for PTSD. Tianeptine was first approved in France in 1987 and has been marketed for depression in Europe, Asia and Latin America under various brand names. Previous studies in Croatia,1 Russia2 and Turkey3 indicate that tianeptine may alleviate some of the symptoms of PTSD.

Franciskovic T et al., Psychiatria Danubina, 2011; Vol. 23, No. 3, pp 257–263.

Rumyantseva G et al., Neuroscience and Behavioral Physiology, Vol. 38, No. 1, 2008.

Onder E et al., European Psychiatry 21 (2006) 174–179.

TNX-801 is a novel live virus vaccine for smallpox and 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 (however, safety and pharmacokinetic/pharmacodynamic studies would be required). While the process to receive a government contract is rather murky, 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 either TNX-601 or TNX-801 in our valuation at the present time as the development path for both is unknown, although we expect minimal spending on both over the course of the next 12 months. We will update our model on receiving further clarity from the company.

Valuation

We are maintaining our valuation of $207m or $5.27 per basic share. We await regulatory clarity on the drug development program for TNX-102 SL before updating our probability of success and the timeline of expected approval.

Exhibit 2: Tonix valuation

Product	Main indication	Status	Prob. of success	Launch year	Peak sales ($m)	Patent protection	Royalty	rNPV ($m)
TNX-102 SL	PTSD	Phase II complete	50%	2020	803	2034	25.0%	175
Total								175
Cash and cash equivalents (Q316 + public offering) ($m)								31.3
Total firm value ($m)								207
Total basic shares (11 November 2016, m)								39.18
Value per basic share ($)								5.27
Dilutive warrants (m)								5.7
Weighted average exercise price ($)								1.22
Cash on exercise ($m)								6.90
Total firm value ($m)								213
Total number of shares (m)								44.9
Diluted value per share ($)								4.76

Source: Edison Investment Research

Financials

Tonix ended the third quarter with $26.7m in cash and raised an additional $4.6m in October. We expect a funding requirement of $80m before profitability in 2023, including $20m through the end of 2017.

Exhibit 3: Financial summary

US$000s	2013	2014	2015	2016e	2017e
Year end 31 December	US GAAP	US GAAP	US GAAP	US GAAP	US GAAP
PROFIT & LOSS
Revenue	0	0	0	0	0
Cost of Sales	0	0	0	0	0
Gross Profit	0	0	0	0	0
EBITDA	(10,888)	(27,656)	(48,162)	(37,796)	(29,115)
Operating Profit (before GW and except.)	(10,888)	(27,656)	(48,162)	(37,796)	(29,115)
Intangible Amortization	0	0	0	0	(9)
Other	0	0	0	0	0
Exceptionals	0	0	0	0	0
Operating Profit	(10,888)	(27,656)	(48,162)	(37,796)	(29,124)
Net Interest	4	40	108	149	107
Other	0	0	0	0	0
Profit Before Tax (norm)	(10,884)	(27,616)	(48,054)	(37,646)	(29,008)
Profit Before Tax (FRS 3)	(10,884)	(27,616)	(48,054)	(37,646)	(29,017)
Tax	0	0	0	0	0
Deferred tax	0	(0)	0	(0)	(0)
Profit After Tax (norm)	(10,884)	(27,616)	(48,054)	(37,646)	(29,008)
Profit After Tax (FRS 3)	(10,884)	(27,616)	(48,054)	(37,647)	(29,017)

Average Number of Shares Outstanding (m)	3.2	10.0	16.8	26.0	40.7
EPS - normalised (c)	(337)	(277)	(286)	(145)	(71)
EPS - FRS 3 ($)	(3.37)	(2.77)	(2.86)	(1.45)	(0.71)
Dividend per share ($)	0.0	0.0	0.0	0.0	0.0

BALANCE SHEET
Fixed Assets	45	373	527	441	398
Intangible Assets	0	0	120	120	111
Tangible Assets	45	328	350	265	231
Other	0	45	57	56	56
Current Assets	8,202	38,184	43,016	21,301	15,494
Stocks	0	0	0	0	0
Debtors	0	0	0	0	0
Cash	8,202	38,184	43,016	21,301	15,494
Other	0	0	0	0	0
Current Liabilities	(765)	(1,487)	(3,049)	(944)	(944)
Creditors	(765)	(1,487)	(3,049)	(944)	(944)
Short term borrowings	0	0	0	0	0
Long Term Liabilities	(13)	(68)	(106)	(76)	(20,076)
Long term borrowings	0	0	0	0	(20,000)
Other long term liabilities	(13)	(68)	(106)	(76)	(76)
Net Assets	7,469	37,002	40,388	20,722	(5,128)

CASH FLOW
Operating Cash Flow	(8,517)	(22,840)	(42,528)	(37,309)	(25,778)
Net Interest	0	0	0	0	0
Tax	0	0	0	0	0
Capex	(15)	(319)	(238)	(66)	(30)
Acquisitions/disposals	0	0	0	0	0
Financing	10,042	47,836	47,685	15,641	0
Dividends	0	0	0	0	0
Other	0	0	(11)	0	0
Net Cash Flow	1,510	24,677	4,908	(21,734)	(25,808)
Opening net debt/(cash)	(1,785)	(8,202)	(38,184)	(43,016)	(21,301)
HP finance leases initiated	0	0	0	0	0
Exchange rate movements	(1)	(3)	(4)	(7)	0
Other	4,908	5,308	(72)	26	0
Closing net debt/(cash)	(8,202)	(38,184)	(43,016)	(21,301)	4,506

Source: Tonix Pharmaceuticals data, Edison Investment Research

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