SNGX CEO Interview...
Good morning-
Due to a change in scheduling, I was able to speak with the CEO of Soligenix yesterday afternoon. It was an excellent conversation and provided me with additional insights into the company, management team, clinical development plan, and future potential.
I would first like to start off by discussing my thoughts about developmental stage biotech CEO’s. One of the major responsibilities of the CEO’s of these companies is to be salesmen. They are the head of a company that has nothing to offer but potential. Very few have products generating revenue, but they require money from investors or creditors to fund clinical development. This puts them in a situation where they have to sell the science and future potential of the company. To do so, they often travel from one biotech conference to the next, discussing the same presentation repeatedly, in hopes of finding additional avenues of funding. One characteristic of a person selling a product or idea is that they often tell people what they want to hear. For those that have been involved in biotech investing over the years, you have likely come across a CEO that over promises and under delivers. Unfortunately, this happens all too often.
This raises the question; “How do we as retail investors accurately assess and evaluate the information that is given during conversations or presentations?”
For me, this is involves looking at multiple factors that could potentially collaborate the CEO’s position for the company he represents. These factors include:
Ownership:
As I mentioned before, these companies require hundreds of millions of dollars for clinical development. There are a number of large, well known investors who are willing to invest their money into companies which they believe have the potential to create substantial returns. Their objective is not to “believe in the science” but to make money on the science. To do so, they have teams of researchers that thoroughly examine all aspects of a company and then make investment decisions. These investors are more informed and educated than myself and their decision to invest in a company holds significant weight in my decision making process.
Partnership:
Another method of evaluating the CEO’s veracity is their ability to establish partnerships. Much like large investors, companies also have team of researchers critically evaluating the science of potential partners. They don’t merely partner or form collaborations with any company, but develop relationships with those that provide the most potential.
Other Funding:
This area is not often explored or discussed in the biotech field. The Federal Government has numerous avenues for companies to obtain Federal grant money for clinical trials if they meet certain criteria. The Orphan Designation and Fast Track Designation allows companies to apply for Federal money to fund their trials. Money is not given to every company, but only those believed to possess the most potential by federal regulators. Obtaining grant funding serves as further validation of a company’s clinical development and potential.
CEO History and Demeanor:
The greatest predictor of future behavior is past behavior. Looking at a CEO’s track record serves as an excellent basis for evaluating what they are likely to do in the future. Were they some derelict put in place by their rich uncle, or did they work their way through the industry and obtained the education and qualifications to hold their position? As a CEO, have they developed partnerships, sold companies, brought drugs to market, etc.? In regards to demeanor, I evaluate how they present themselves to me, as a retail investor. I am not some big wig that will be funding their company, I am just an average guy that’s want to hear what they have to say. If they are lackadaisical in their approach to me, how do they present themselves to other investors? On the other hand, if they are sharp and on point with Mr. Joe BagoDounuts, they must be able to make one hell of a presentation to RJ Kirk or other potential partners.
Based on my previous research into the company I knew that many of my aforementioned criteria had been met. The investments from RJ Kirk and Sigma-Tau indicated to me that smart money was willing to provide substantial financial backing to the company. Collaborations with Intrexon (XON) for their Melioidosis biodefense program indicated that at least one big pharmaceutical company believed in their science. Their ability to receive grant and government funding further indicated that not only was the company top of the line (obtaining federal grants for toxic agents is no easy feat) but their science was of such caliber, the government was willing to provide in excess of $50 million to fund its development. The final piece of the puzzle was Mr. Schaber himself. In our conversation, he was very professional, on point, and had a clear message. His history of success and professionalism on the phone further reinforced my thesis about this company.
Our conversation was upwards of an hour and would be too cumbersome to present all the details here, but I would like to provide some of the key points and factors that I believe to be the most important to current investors.
Upcoming Catalysts:
1. The P2 Oral Mucositis Trial will be concluding this quarter and data will either be presented in a few months or very early in Q4. The data review committee recently evaluated the study and asked that 20 more patients be included into one specific sub-group. To me and others, this suggests that a statistically significant interaction was being seen and that the additional patients were being added to increase the power and thus statistical significance of the observed interaction. I do not know if the study will be successful, but it will surely be a significant value driver in the coming weeks and months.
2. Up-listing to the Nasdaq. Mr. Schaber indicated that this was a very important to him and the company. The biggest hurdle at this point it having a share price above $2 for 30 days to meet the Nasdaq market cap requirements. I personally see this as a greater value driver than the P2 data if this can be obtained. I think there is a very strong possibility that this will occur.
3. Initiation of the P3 Studies for CTCL and Pediatric Chrons Disease. These are scheduled to start but the end of the year.
4. Pre-clinical animal data for the biodefense program.
5. The potential award of government funding opportunities (more on this later).
6. Achievement of other “regulatory designations” (ODD in the EU).
7. “Business development opportunities” which could include further collaborations for their biodefense pipeline.
8. The final statement Mr. Schaber made when discussing upcoming value drivers was “Some folks will be surprised by what we have coming up.”
With the P2 data being the most significant value driver at this time, I believe that there are a number of smaller, but significant catalysts that will increase awareness and continue to drive share price appreciation. One of my beliefs about this company was that it was relatively unknown to the greater investing community. As the company develops and more PR’s are issued, more investors will become aware of the companies achievements and future potential.
Finances:
Many people on the various forums have boldly proclaimed that dilution is imminent and needed to fund the 2, P3 trials. The T-Cell trial is expected to cost $5 million and the Pediatric Chrons trial is anticipated to cost $5.8 million. Dilution may occur at some point, but if it does, I do not see that happening until later in the year and this is why. The 2 trials have both been awarded Orphan Designation and Fast Track Status and the government has established grant programs to fund clinical trials of this nature. There is approximately $5++ million in funding that can be obtain via the FDA and NIH grants for EACH trial and the company has applied for this funding. If they are awarded these grants, their P3 trials are essentially paid for. Given their history of obtaining grants for their other programs I believe there is a good chance that they will be able to obtain this funding for their clinical trials. If they do not obtain this funding, then dilution is guaranteed. Given their history of dilutions, I do not anticipate a large dilution, if one was to occur. Given the relatively low market cap and small number of outstanding shares, I do not see it having a significant or lasting effect on share price. As a biotech investor you have to be willing to accept this risk.
Additionally, there is some indication that warrants form the 2013 are currently being sold into the market. These are warrants that were purchased by other investors during the offering and not RJ Kirk. Kirk retains his full position in the company.
Partnerships:
Partnerships are often a significant factor for biotech investors as they believe it provides “validation” of the company’s science. I agree with this thought, so I asked Dr. Schaber about current partnering activities. Dr. Schaber indicated that they were always open if the “right” deal came along, but right now, there is little incentive. Almost all of their programs are currently funded by the Government, outside pharma, or funding has been applied for. Thus partnering a trial that is already being funded by an outside source provides limited benefit to the company. He did state that they were open to partner for commercialization rights outside the US, but wanted to retain the US rights for their compounds. SciClone has already formed a collaboration with Soligenix for the commercialization rights for the Oral Mucositis in China.
Summary:
Overall, the conversation was enjoyable and enlightening. There no new revelations, but I was able to gain a greater insight into the company, what they had planned for the future, and how they planned to achieve their milestones. With a diverse pipeline and significant government funding, I think they will be able to achieve their goals with minimal cost to shareholders. I believe the company as at an inflection point now and all signs point to the success of this company in the coming weeks and years.
