Update for Soligenix from Jason Kolbert of National Securities
Investment Thesis
Soligenix provided a corporate update earlier this week, announcing a delay in the timing of results of the pivotal trial of orBec® in treatment of acute GvHD. This is due to a setback in the enrollment of subjects outside the United States. Investors are now focused on results for the prevention study by year end. We have a high confidence in the results for the acute study BUT the prevention study is more of an unknown.Nevertheless at this valuation our investment thesis is unchanged for Soligneix, as the delay in the completion of the orBec® pivotal study is just that, a slight delay.
Highlights
Delay in completion of Phase III study of orBec® in treatment of acute GVHD, previously anticipated at 1H-2011, we now expect completion by 2H-2011. It is still possible for the study to be finished on-time by 1H-2011, but there were delays in the initiation of study site outside the United States for patient enrollment. Soligenix with ~$10 million in capital should have enough to fund the pivotal trial to completion.
orBec® Prevention is the Next Driver: Results for the Phase II GvHD prevention study should arrive no later than year end. The trial is randomized 2:1 across 140 patients. The primary endpoint of the trial is the proportion of subjects who develop acute GVHD with severity sufficient to require systemic immunosuppressive treatment on or before day 90 after transplantation. Subjects in the orBec® group began study drug at the start of their conditioning regimen and continued through day 75 following hematopoietic cell transplantation (HCT). Other endpoints will include the severity curve (we expect to see it shift from Stage III & IV’s to I & II’s), the amount of organ involvement and, of course, survival. A 15% or greater difference would be clinically “a home run” in our opinion.
Shareholders approve the newly elected Tamar D. Howson and Virgil D. Thompson to join the Board of Directors, while reinstating the previous directors. The two bring on in-depth business development and financial expertise as well as added value to the continual development of Soligenix’s main driver, orBec® in preventing and treating GVHD. Tamar Howson, an alumna of Columbia University Business School, has 20 years of experience in licensing, collaborations, and M&A transactions as a corporate and business development executive at a number of pharmaceutical and biotechnology companies. She currently is a partner with JSB-Partners and held senior positions in industry at SmithKline Beecham and Bristol-Meyers Squibb as well as conducted venture capital investments at Johnston Associates. She currently is on the board of directors at three biopharmaceutical companies. Virgil Thompson, a BS degree in pharmacy from Kansas University and George Washington University Law school graduate, brings 40 years of pharmaceutical as well as biopharmaceutical management and financial oversight experience. He has served as president and CEO of numerous companies and currently is CEO of a privately-held ophthalmic company, Spinnaker Biosciences. Certainly, Tamar and Virgil are not new to the life sciences industry (refer to exhibit 2 for past and current directorship positions).
Valuation: Our valuation for Soligenix is based on several metrics, including FCFF, DCF EPS and Sum of the Parts models. These metrics all suggest a target north of $1.00 versus the current $0.18. The key assumption we make is that orBec® reports positive data in the current Phase III confirmatory pivotal trial in acute GvHD (2H-2011). The next major event that will impact the valuation of the Company will be the results from the Phase 2 prevention study, expected by year end. Expectations are mixed to positive for the data near term. Our Buy rating is based on the longer term view around acute GvHD trial..
Fundamental Research:
Biotechnology
October 1, 2010
Bull Case: Soligenix is undervalued as the potential for orBec® is underappreciated. The prior trials (Phases 2 & 3) and the current confirmatory Phase 3 trial have effectively de-risked the outcome in acute GvHD. The scientific rational behind prevention is also strong and will be validated when results are reported before year’s end (2010). The current confirmatory (acute) trial is highly powered (90%) and of the same design (drug, dose, patient population and expected control group outcomes) as the prior pivotal trial (powered at 80%) The primary endpoint: Treatment failure rate at Study Day 80, was highly statistically significant in the previous Phase 3 trial with p-value of 0.005. Market factors suggest orBec® can acquire significant penetration in the GvHD marketplace as the first approved drug for GI GVHD. The GvHD market is concentrated and closely-knit and information is disseminated rapidly among the Key Opinion Leaders (KOL’s). Beyond GvHD (Acute, Prevention and Chronic) a wide range of other indications, such as Radiation Enteritis and Crohn’s Disease exists. North American rights are partnered with Sigma-Tau EU and the rest of the world, but however, are open for partnership. Soligenix also has an attractive drug delivery platform with Lipid Polymer Micelles (LPM) platform technology and a very active BioDefense program led by RiVax™ (Ricin Toxin Vaccine). All this, with a market capitalization of under $50 million.
Bear Case: orBec® is similar to generic enteric-coated budesonide and other steroids which are cheaply available and used today off-label to treat GvHD. orBec® will not be able to achieve the price we project even with the pharmacoeconomic justifications, as hospitals will continue to use cheaper steroids to treat GvHD. Bears may also argue that the clinical risk is being underestimated in both the current orBec® confirmatory trial (pivotal – acute trial) and especially in the prevention trial. Performance in the acute setting does not ensure good results that orBec® will be effective in prevention and that data is reported before year end. Bears will also argue that Soligenix has given away too much of the economics in the initial license deal with Sigma-Tau. The GvHD marketplace is small and treatment paradigm is shifting away from BMT toward new biologic therapies; as such, the market is becoming smaller, not larger, over time. The treatment paradigm in GvHD is not likely to shift towards prevention, and that market opportunity is over-estimated. The market opportunity in chronic is unique in that these patients have a different set of immunological problems. As such, as stated previously, the clinical risk that a true benefit can be demonstrated in these patients is high (and is not implied from prior results in acute patients). The remaining opportunities at the Company include the drug delivery platform (Lipid Polymer Micelle -LPM™) which is unproven, and the Company lacks the resources to continue to develop this platform. Lastly, the biodefense platform deserves minimal value as the Company is totally dependent on the US Government as a client. Prior experiences with other companies suggest that the road to generate meaningful profit is an arduous and difficult one.
Our Take: We know that while cheaper steroids are a potential commercial threat, multiple examples of therapeutics that were re-tasked exist in other marketplaces, and once on label, off-label use of cheap generics was eliminated. In addition, the two tablet system of immediate and time release makes orBec® unique in treating this disease. We see orBec® as the key driver for Soligenix. Based on our analysis of the Phase 2 and Phase 3 trials, we see low clinical risk in the current Phase 3 (acute) confirmatory trial and a very strong rationale to expect good results in prevention. The current pivotal trial uses a favorable endpoint and greater statistical powering, (versus the prior trial) while keeping all other variables the same. As such, we see a high likelihood of success. The best case scenario for Soligenix is a positive outcome in the NIH sponsored prevention trial followed by good results in the confirmatory Phase 3, Acute GI GvHD trial. Mechanistically, we believe a good outcome in acute GvHD does set the stage for off- label use in the prevention and chronic marketplaces. Beyond orBec® in GvHD we see tremendous potential in other GI diseases (Crohn’s), Radiation Enteritis and on the BioDefense side, Radiation Injury (orBec® as a counter-measure). We view the Biodefense and LPM platforms as creating a positive upside option for investors. On the BioDefense side, little value is ascribed for RiVaxTM and/or the vaccine development platform (vaccines stable at room temperature), but investors should note that Soligenix has recently received a $9.4 million development award to support the heat stabilization platform. With cash to see the Company through to pivotal results, we believe the valuation is attractive.
Valuation: Our valuation for Soligenix is based on several metrics, including FCFF, DCF EPS and Sum of the Parts models. These metrics all suggest a target north of $1.00 versus the current $0.24. The key assumption we make is that orBec® reports positive data in the current Phase III confirmatory pivotal trial in acute GvHD (1H-2011). Positive data from the Phase 2 prevention study (2H-2010) will be important as well. Investors should pay close attention to the catalysts presented in time sequence. Each catalyst’s outcome should impact valuation. For example, should Soligenix announce favorable terms for a partnership for orBec® European rights, it should drive valuation higher.
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