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$TNXP - 4 Reasons Tonix Could Be A Multi-Bagger

Dec 2 2013, 10:30 http://seekingalpha.com/article/1870881-4-reasons-tonix-could-be-a-multi-bagger?source=email_inv_ar_2_2&ifp=0

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Disclosure: I am long TNXP. (More...)

Tonix Pharmaceuticals (TNXP) is developing TNX-102 SL for treatment of fibromyalgia and Post Traumatic Stress Disorder. We think that Tonix is one of the most undervalued stocks in the market. The four most important trends and catalysts for Tonix are:

1) Fibromyalgia and PTSD are Very Large Problems

FM is a Debilitating Disease - FM takes over patient's lives

Millions of Americans Have FM - Between 5 and 15 million American adults have FM.

FM is a Rapidly Growing Diagnosis - The FDA only recently approved the first drugs for FM.

FM is Linked to PTSD - PTSD affects about 7.7 million American adults every year

2) Large Unmet Need for Sleep Quality in FM and PTSD

Sleep Problems are Nearly Universal in FM and PTSD - Patients' sleep is not restorative, and there is a vicious cycle of pain and poor sleep making each other worse

Hyper-Vigilance - Cyclical Alternating Patterns in sleep indicate patients are "on alert"

Patients Are Desperate - There are no approved bedtime medicines, and off-label drugs can make matters worse

3) TNX-102 SL Meets the Sleep Quality Need in FM and PTSD

Cyclobenzaprine Promotes Restorative Sleep - Decreases "alert" Cyclical Alternating Patterns A2/A3

TNX-102 SL is a Novel CBP Formulation - Sublingual form has many advantages

TNX-102 SL Should Be Approved - Many factors bode well for approval

4) TNXP is Deeply Undervalued

Strong Intellectual Property - Should protect TNX-102 SL until 2033 and opens the door for use in other indications

Billion Dollar Revenues - TNX-102 SL should surpass $1 billion in annual FM sales

Asymetric Upside - Tonix could be a billion dollar company within a year

Let's look at these trends and catalysts in depth:

1) Fibromyalgia and PTSD are Very Large Problems

A) FM is a Debilitating Disease

Fibromyalgia is a chronic disease characterized by widespread and constant pain, unrefreshing sleep, fatigue, depression, anxiety, and memory problems. FM usually affects women. FM is a disease of the Central Nervous System, and the type of pain FM patients have is central pain - pain coming from an abnormality in the brain rather than pathology in the places experiencing pain. From the Mayo Clinic:

"Fibromyalgia is a disorder characterized by widespread musculoskeletal pain accompanied by fatigue, sleep, memory and mood issues. Researchers believe that fibromyalgia amplifies painful sensations by affecting the way your brain processes pain signals… People with fibromyalgia often awaken tired, even though they report sleeping for long periods of time"

The University of Maryland Medical Center elaborates on the distressing pain and hallmark sleep problems of FM:

"Widespread stiffness, burning, and aching pain. The pain also "radiates," or spreads, to nearby areas. Most patients report feeling some pain all the time, but the intensity of the pain may increase or decrease. Many describe it as "exhausting." The pain can vary with the time of day, changes in the weather, physical activity or inactivity, and stress. The pain is often more intense when sleep is disturbed.

Fatigue and Sleep Disturbances. Fatigue and sleep disturbances are almost universal in patients with fibromyalgia. Restless legs syndrome (RLS) and periodic limb movement disorder (PLMD) are also common. It is not clear whether fibromyalgia leads to poor sleeping patterns or if the sleep disturbances come first.

Many patients complain that they can't get to sleep or stay asleep, and they feel tired when they wake up. Some report that their fatigue is more distressing than their pain, because it interferes with their ability to enjoy life. Some experts believe that if a person does not have sleep problems, the condition may not be fibromyalgia."

Many hormonal, metabolic, and brain chemical abnormalities have been shown in fibromyalgia patients, but the disease is not completely understood.

B) FM is Very Costly

People with FM often have trouble performing work and maintaining employment, as well as trouble with daily life activities and maintaining social relationships. According to the University of Maryland 50 to 70% of fibromyalgia patients have a lifetime history of depression, half have difficulty with routine daily activities, or are unable to perform them, and an estimated 30 - 40% have had to quit work or change jobs.

The National Arthritis Data Workgroup analyzed published studies from national surveys and noted the destructive effects of FM in both work and life, with higher rates of divorce and application for disability benefits.

The pain and poor sleep of FM can result in fatigue, mood, and memory problems sometimes called "fibro fog." This is very problematic for FM patients in the workforce. A 2007 internet survey of 2,596 people with fibromyalgia shows the impact FM has on patients' careers:

"The respondents were nearly equally divided regarding their ability to maintain gainful employment. Those who were still working felt that their symptoms compromised their ability to be productive due to frequent absences and reduced work hours. Approximately 20% of the respondents had filed some form of disability claim and 6% received workman's compensation."

The International Journal of Clinical Practice published a study titled "Characteristics and healthcare costs of patients with fibromyalgia syndrome" and found FM was associated with many costly diseases:

"FMS patients were more likely than those in the comparison group to have various comorbidities, including diseases of the circulatory system [OR (95% CI) = 2.1 (2.0-2.1)], diabetes [1.5 (1.4-1.6)], anxiety [4.3 (3.8-4.7)], depression [4.9 (4.5-5.2)], irritable bowel syndrome [6.2 (4.9-7.9)], gastro-oesophageal reflux disease [3.8 (3.4-4.2)] and sleep disorders [6.1 (5.4-6.9)] (all p < 0.001) (Table 2). They also were more likely to have pain-related comorbidities, including painful neuropathies [10.3 (9.6-11.0)], back pain [14.2 (13.3-15.2)], cervical pain [16.3 (14.9-17.9)], arthritis [6.3 (5.8-6.8)] and migraine headache [6.9 (6.0-8.0)] (all p < 0.001)"

Fibromyalgia is a devastating disease that takes over the lives of its sufferers. FM is also a lifetime condition with no cure that affects millions of Americans.

C) Millions of Americans Have FM

By most estimates 2% to 6% of American adults are living with FM, or 5 to 15 million Americans in 2012. The National Fibromyalgia and Chronic Pain Association estimates 10 million Americans have FM, and the National Institute of Health currently says 5 million.

The NIH number is flawed, though. The data it refers to is from a 2008 study "Estimates of the Prevalence of Arthritis and Other Rheumatic Conditions in the United States Part II." That study itself looked at 2 studies from the 1990s - one from Wichita and one from Ontario. The Wichita study showed 3.4% of adult women with FM and 0.5% of men, the Ontario study showed 4.9% of women and 1.6% of men with FM. The study then only used the (American) Wichita data and used the 2005 census to come up with 5 million American adults, then cited mitigating factors:

"The 1990 ACR criteria for the classification of fibromyalgia require the presence of widespread pain for at least 3 months and pain on palpation in at least 11 of 18 anatomic sites (33). Despite its acceptance, a number of problems occur when the ACR criteria set is used to define fibromyalgia in populations, leading to difficulties in estimating prevalence (34-36). Also, fibromyalgia may be more common among persons with other medical conditions (37), so prevalence estimates of primary fibromyalgia may be lower than estimates that do not differentiate primary fibromyalgia from fibromyalgia secondary to other disorders."

FM is hard to diagnose, and was even harder in the past. The "pain on palpation" is a very subjective test of pressure on points that are painful when squeezed - everyone has pain if squeezed hard enough.

And the other mentioned medical conditions - fibromyalgia is known to be associated with a number of other disorders that might mask its presence. These include Chronic Fatigue Syndrome, Myofascial Pain Syndrome, Major Depression, Chronic Headache, Multiple Chemical Sensitivity, Restless Legs Syndrome, Lyme Disease, drugs and alcohol, Polymyalgia Rheumatica, Disorders Affected by the Sympathetic (also called Autonomic) Nervous System, Irritable Bowel Syndrome, Temporomandibular Joint Disorders, and chemicals and environmental toxins.

These factors, along with the lack of a laboratory test that could confirm fibromyalgia, have led to difficulty in diagnosing patients. Per the University of Southern California it can take 5 years for the average person with the condition to finally get a diagnosis, and as many as three out of every four people with fibromyalgia remain undiagnosed. Most patients in the 2007 internet survey saw at least 3 doctors before diagnosis, and a quarter of patients saw 7 or more doctors before finally being diagnosed:

"Some 46% had consulted between 3 to 6 health care providers before obtaining the diagnosis of FM, while 24.6% had seen >6 health care providers prior to diagnosis."

More recently, in May of 2013 Arthritis Care & Research published a study showing a much higher prevalence of FM, including a large hidden population of undiagnosed men:

"The age- and sex-adjusted prevalence of fibromyalgia in the general population of Olmsted County by this method was estimated at 6.4%.

CONCLUSION:

To the best of our knowledge, this is the first report of the rate at which fibromyalgia is being diagnosed in a community. This is also the first report of prevalence as assessed by the fibromyalgia research survey criteria. Our results suggest that patients, particularly men, who meet the fibromyalgia research survey criteria are unlikely to have been given a diagnosis of fibromyalgia."

Men are documented to be less likely than women to seek help of all kinds. Men can also tend to: be less likely to complain of pain, seek help only when they can no longer stand the pain, generally have a higher pain threshold, and self medicate with things like alcohol. From the American Psychological Association:

"dozens of studies and surveys over the past several decades have shown that men of all ages and ethnicities are less likely than women to seek help for all sorts of problems--including depression, substance abuse and stressful life events--even though they encounter those problems at the same or greater rates as women. In a 1993 study published in Psychotherapy (Vol. 30, No. 4, pages 546-553), for example, psychologist John Vessey, PhD, reviewed several epidemiologic surveys and found that a full two-thirds of mental health outpatient visits were made by women."

Millions of Americans have fibromyalgia, and many people with the disease remain undiagnosed. That is changing, though.

D) FM is a Rapidly Growing Diagnosis

In 2010, consulting firm Frost & Sullivan published a report showing the U.S. fibromyalgia market at $1.2 billion and growing at a compound annual growth rate of 18.4%.

There are several reasons for the growth, including the first FDA approvals, the end of the FM "cold war," and a broader accepted definition for diagnosis.

The FM market should continue to grow as physicians' acceptance and comfort level with diagnosis increases. There is also a diagnostic test for the disease newly available, and the FDA has selected fibromyalgia as one of 20 diseases for special focus over the next 3 years.

FDA Recent Approval/End of Cold War

Fibromyalgia hasn't always been recognized as a specific illness. For years many people were skeptical that fibromyalgia was even a real condition. The Mayo Clinic's Fibromyalgia misconceptions: Interview with a Mayo Clinic expert describes the attitudes toward FM:

"The top misconception is that people think fibromyalgia isn't a real medical problem or that it is "all in your head." It's sometimes thought of as a "garbage-can diagnosis" - if doctors can't find anything else wrong with you, they say you have fibromyalgia. There's a lot that's unknown about fibromyalgia, but researchers have learned more about it in just the past few years…It is a real physiological and neurochemical problem."

With the FDA approval of drugs for fibromyalgia in 2007, 2008, and 2009 more and more doctors are becoming comfortable making the FM diagnosis.

In addition, Canada, Japan, and Israel have also approved drugs for fibromyalgia.

Broader Definition

In medicine fibromyalgia is a disease of pain and attended to by rheumatologists. The American College of Rheumatology released guidelines for FM diagnosis in 1990 that included the aforementioned tender points exam and may have excluded a large number of people that have the disease. In 2010, they released less stringent guidelines for diagnosis that are as inclusive as pain lasting at least three months and no other underlying condition that might be causing the pain.

Set For Growth

As acceptance and awareness of FM amongst doctors and the patients continues to increase the number of diagnoses should continue to increase as well.

One factor that should bolster acceptance and awareness of FM going forward is that in April of this year the FDA named fibromyalgia as one of 20 diseases to focus on for special regulatory treatment. This is part of a provision in the 2012 PDUFA Reauthorization Performance Goals to assess risk-benefit decisions in diseases where treatment options are not optimal, and to facilitate a program that assesses tolerance for risk on a disease-wide level.

The FDA will conduct a public meeting on December 10 on fibromyalgia under that initiative that should also build awareness of the disease.

Additionally, there is a FM diagnostic test that recently became available. The results of a trial were published on BioMedCentral Clinical Pathology and the test seems to work. If the test is adopted as standard of care for diagnosis the number of diagnoses could jump dramatically.

The fibromyalgia market is growing rapidly and should continue to grow for a long time.

E) FM is Linked to PTSD

Fibromyalgia is not completely understood, but it is sometimes brought on by trauma. The 2007 internet survey found that:

"People with FM often associate a specific event to the onset of their symptoms. In response to the question "have any of the following potential triggering events occurred around the same time that your fibromyalgia symptoms first became apparent" Approximately 21% of responders indicated that they could not identify any such association. Over 73% of those who indicated some triggering event made attributions to emotional trauma or chronic stress (Table 5). The next most common attribution was acute illness (26.7%), followed by physical stressors (surgery, motor vehicle collisions, and other injuries). Another 20.6% of the responses acknowledged physical or emotional abuse as a child and 15.1% associated abuse as an adult to the onset of their symptoms. Childhood sexual abuse was cited by 9% of respondents. Approximately 10.1% of the responders related the onset of FM symptoms to the menopause."

(click to enlarge)

Many studies link trauma with FM.

A 2010 study in the Journal of Psychiatry Research showed two traumatic experience types - sexual and physical assault/abuse - were associated with a fibromyalgia diagnosis.

A 2011 study in the journal Arthritis Care and Research found the same:

"OBJECTIVE:

To systematically assess the potential association of fibromyalgia syndrome (FMS) with emotional, physical, and sexual abuse.

…The search identified 18 eligible case-control studies with 13,095 subjects. There were significant associations between FMS and self-reported physical abuse in childhood (OR 2.49 [95% CI 1.81-3.42], I(2) = 0%; 9 studies) and adulthood (OR 3.07 [95% CI 1.01-9.39], I(2) = 79%; 3 studies), and sexual abuse in childhood (OR 1.94 [95% CI 1.36-2.75], I(2) = 20%; 10 studies) and adulthood (OR 2.24 [95% CI 1.07-4.70], I(2) = 64%; 4 studies). "

The Clinical Journal of Pain published a study titled "Sexual and Physical Abuse in Women with Fibromyalgia Syndrome: a Test of the Trauma Hypothesis" that found that women who reported rape were 3.1 times more likely to have FM and also more likely to have PTSD.

A 2010 study in Clinical and Experimental Rheumatology showed Holocaust survivors had more than twice the normal rate of FM and increased rates of PTSD symptoms.

In 2009, Clinical and Experimental Rheumatology published a study titled "A Painful Train of Events: Increased Prevalence of Fibromyalgia in Survivors of a Major Train Crash," the study found:

"Fifteen percent of survivors participating in the study met ACR criteria for the classification of fibromyalgia. Significantly lower rates of physical and emotional functioning were found among survivors with fibromyalgia compared with those not meeting the classification criteria. Survivors with fibromyalgia rated significantly higher on scales of somatisation, obsessive-compulsive ideation, interpersonal sensitivity, depression, anger and hostility, phobic and general anxiety, paranoid ideation and psychoticism. Survivors with fibromyalgia also rated significantly higher on scales of posttraumatic symptoms including intrusion, avoidance and arousal."

PTSD LINK

FM seems to be a hyper-vigilance disorder of the central nervous system. From USC (linked above):

"Some fibromyalgia patients may be oversensitive to external stimulation, and overly anxious about the sensation of pain. This increase in awareness is called generalized hypervigilance. Fibromyalgia patients have been found to have greater awareness of, or less tolerance for, movement problems (such as tremor) that don't match their expected sensory feedback. This mismatch in sensory signals might enhance the perception of pain. Fibromyalgia patients also seem to be more sensitive to sounds."

If hyper-vigilance and over-sensitivity to sensory feedback seems a little like Post Traumatic Stress Disorder, it should.

PTSD is an anxiety disorder that can develop from experiencing or witnessing terrifying events. PTSD was once associated primarily with war veterans, but civilian PTSD is quite common and can be triggered by accidents, violence, assault, abuse, or even sudden and major emotional loss. People with PTSD often manifest a state of hyperarousal, where they can be subconsciously "on alert" and as a result feel anxious, have difficulty sleeping, be irritable, suffer emotional outbursts, or be easily startled.

FM and PTSD are both associated with trauma, and likewise a number of studies associate FM with PTSD and vice versa.

A study titled "Prevalence of Post-Traumatic Stress Disorder in Fibromyalgia Patients: Overlapping Syndromes or Post-Traumatic Fibromyalgia Syndrome?" published in Seminars in Arthritis and Rheumatism found that 57% of FM patients qualified for a PTSD diagnosis:

"In this study, 57% of the FM sample had clinically significant levels of PTSD symptoms. The FM patients with PTSDreported significantly greater levels of avoidance, hyperarousal, reexperiencing, anxiety, and depression than did the patients without clinically significant levels of PTSD symptoms. The prevalence of PTSD among the FM patients in this study was significantly higher than in the general population. Women with FM and PTSD reported a greater number of past traumatic events than did their male counterparts.

CONCLUSIONS:

The results represent the first comprehensive study applying structured clinical assessment of trauma exposure and PTSD to a group of FM patients. This study shows a significant overlap between FM and PTSD, according to the currently accepted diagnostic criteria for each"

This significant overlap may have gone unnoticed because FM is considered a pain disorder of rheumatology, while PTSD is considered a psychiatric condition.

PTSD is a Big Problem

PTSD is a very common disease. The NIH says about 3.5% of adults have PTSD in a given year - about 8.4 million American adults in 2012.

According to the US Department of Veterans Affairs:

about 7-8% of the population will have PTSD at some point in their lives.
Women are more likely than men to develop PTSD. About 10% of women develop PTSD sometime in their lives compared with 5% of men
PTSD occurs in about 11-20% of Veterans of the Iraq and Afghanistan wars, and in about 30% of Vietnam Veterans

FM and PTSD are very large problems.

2) Large Unmet Need for Sleep Quality in FM and PTSD

A) Sleep Problems are Nearly Universal in FM and PTSD

Almost all FM patients suffer from poor sleep quality. A study published by Therapeutic Advances in Musculoskeletal Disease showed more than 90% of fibromyalgia patients with disturbed sleep.

In the 2007 internet survey of 2,596 FM patients, problems with sleep were listed as the first, second, and third most intense symptoms of FM (listed with average severity score on a scale of 0 to 10):

(click to enlarge)

FM patients are not getting quality sleep. And not only are they not getting quality sleep, they can actually feel worse after sleep - to the point where sleep has lost its restorative power. From a Journal of Rheumatology titled "Sleep as a Window into the World of Fibromyalgia Syndrome":

"One of the most clinically problematic challenges in the management of fibromyalgia syndrome (FMS) is the unrefreshing nature of sleep. The problem goes beyond misperceiving the duration or quality of sleep, to a point where patients may feel worse after sleep - a complete loss of the restorative power of sleep."

The poor sleep of FM contributes to the fibro fog phenomena of forgetfulness and decreased alertness. Restorative sleep can improve these symptoms in FM patients. A 2008 study published in Patient Education and Counseling called Patient Perspectives on the Impact of Fibromyalgia notes:

"Participants greatly desired an improvement in their ability to sleep, and many reported that pain interfered with sleep. Most participants indicated that both fatigue and pain were directly related to the quality of their sleep ('If I can get sleep, I can fix all the rest.'). Many participants experienced a great deal of difficulty in rising and beginning preparations for the day; this difficulty was often attributed to pain upon awakening.

Mornings were particularly difficult for participants because they had difficulty sleeping at night and woke up in pain."

It's not just FM, sleep problems are nearly universal in PTSD as well. We saw that FM and PTSD appear to be a problem of "hyper-vigilance," and that hyper-vigilance creates big sleep problems for PTSD patients. From the Department of Veterans Affairs:

"Why do people with PTSD have sleep problems?

They may be "on alert." Many people with PTSD may feel they need to be on guard or "on the lookout," to protect himself or herself from danger. It is difficult to have restful sleep when you feel the need to be always alert. You might have trouble falling asleep, or you might wake up easily in the night if you hear any noise.

They may worry or have negative thoughts. Your thoughts can make it difficult to fall asleep. People with PTSD often worry about general problems or worry that they are in danger. If you often have trouble getting to sleep, you may start to worry that you won't be able to fall asleep. These thoughts can keep you awake."

If poor sleep is part of the problem of PTSD then quality sleep may aid healing, and earlier this year the American Journal of Psychiatry published a study suggesting sleep treatments could accelerate PTSD recovery:

"chronic sleep disruption associated with nightmares may affect the efficacy of first-line PTSD treatments, but targeted sleep treatments may accelerate recovery from PTSD. The field is ripe for prospective and longitudinal studies in high-risk groups to clarify how changes in sleep physiology and neurobiology contribute to increased risk of poor psychiatric outcomes."

Sleep problems are central to FM and PTSD.

Vicious Cycle

Sleep is an active process, people need deep sleep for emotional and psychological health. Restorative sleep also refreshes the body's system for perceiving and processing pain.

Non-restorative sleep can exacerbate the pain of FM and PTSD, which in turn can make restorative sleep even more difficult.

Many studies have linked sleep problems with widespread body pain and lower pain tolerance. A 2008 study published in the journal Joint Bone Spine links sleep/wake disruptions with the exact kinds of symptoms seen in FM and PTSD:

"Experimental evidence from humans and animal studies indicate that there is an inter-relationship of disturbances in the physiology of the sleeping-waking brain with the widespread musculoskeletal pain, chronic fatigue, and psychological distress"

The Therapeutic Advances in Musculoskeletal Disease linked above shows sleep loss equates to a loss of pain tolerance.

A study published in the Journal of Neuroscience links sleep disruption with anxiety:

"Together, these data support a neuropathological model in which sleep disruption may contribute to the maintenance and/or exacerbation of anxiety through its impact on anticipatory brain function. They further raise the therapeutic possibility that targeted sleep restoration in anxiety may ameliorate excessive anticipatory responding and associated clinical symptomatology"

This vicious cycle is seen in PTSD. From a study published last year in the European Journal of Psychotraumatology:

"Sleep facilitates the consolidation of fear extinction memory. Nightmares and insomnia are hallmark symptoms of posttraumatic stress disorder (PTSD), possibly interfering with fear extinction and compromising recovery. A perpetual circle may develop when sleep disturbances increase the risk for PTSD and vice versa. To date, therapeutic options for alleviating sleep disturbances in PTSD are limited…This suggests that disturbed sleep is a precipitating and perpetuating factor in PTSD symptomatology, creating a perpetual circle."

B) CAP A2/A3

Slow wave sleep in particular seems to be key to restorative sleep. A 1999 study published in the Journal of Rheumatology shows disrupting SWS can bring on the symptoms of FM:

"Disrupting SWS, without reducing total sleep or sleep efficiency, for several consecutive nights is associated with decreased pain threshold, increased discomfort, fatigue, and the inflammatory flare response in skin. These results suggest that disrupted sleep is probably an important factor in the pathophysiology of symptoms in fibromyalgia"

In addition a landmark study by the Clarke Institute of Psychiatry used sound to disrupt slow wave sleep in healthy patients. Individuals then reported their sleep was unrefreshing, and they developed body aches, fatigue, and increased tender points in many of the same areas seen in FM patients.

Slow wave sleep seems to be key to restorative sleep. Some types of non-REM brain wave patterns called cyclic alternative patterns (CAP) can be especially disruptive of slow wave sleep in people with FM and PTSD.

Two types of these cyclical alternating patterns in particular that are problematic are Alpha-2 and Alpha-3 (A2/A3). These patterns may be a periodic alarm signal during sleep, and occur in healthy people's sleep. The patterns may be there from earlier times for safety purposes to keep from being too vulnerable. But in people with FM the CAP A2/A3 patterns are too active, and don't allow for restorative sleep. From the "Sleep as a Window" study:

"a complete loss of the restorative power of sleep. This clinical feature has been associated with changes in sleep that are not readily determined by conventional sleep stages and scoring, but may be identified by a number of complementary analyses. In essence, they all capture in some form the dominance of low amplitude fluctuations in physiological signals during sleep1?,2… In the electroencephalographic (EEG) domain, the low frequency oscillations are detected by scoring the cyclic alternating pattern, or CAP4. These periods are dominated by phasic EEG complexes. A1 CAP is made up of slower wave forms, A3 fast/arousing waveforms, and A2admixtures. An increase in A2/A3 CAP is seen in a range of sleep-fragmenting conditions, including FM, sleep apnea, epilepsy, and auditory stimulation4?."

A different Journal of Rheumatology study titled "Cyclic Alternating Pattern: a New Marker of Sleep Alteration in Patients with Fibromyalgia?" showed the severity of symptoms in FM were correlated with the rate of CAP A2/A3 during sleep.

Drug therapies like sodium oxybate and cyclobenzaprine that decrease A2/A3 as a percent of total CAP are also shown to improve FM symptoms. But none of the FM approved drugs or insomnia approved sleep drugs are shown to decrease A2/A3.

C) Patients Are Desperate

Making Matters Worse

While there are drugs for insomnia that increase sleep quantity, there are no approved drugs that increase sleep quality. We saw from the Mayo Clinic that patients often wake up un-refreshed from a full night's sleep. FM and PTSD patients frequently use prescription sleep drugs, but these drugs are not approved for FM or PTSD, are not shown to improve symptoms, and may actually make problems worse.

The common sleep drugs like Ambien and Lunesta are derivatives or improvements of benzodiazepines and affect the GABA chloride conductance channel. These drugs are commonly used in FM and PTSD because of the high incidence of sleep problems, but these drugs may actually exacerbate the traumatic experiences that often underlie FM and PTSD.

The Center for Military Health Policy Research published a lengthy review of PTSD in recent wars called Invisible Wounds of War that investigates why recent wars have had such astronomically high numbers of PTSD sufferers. One of their conclusions was that the benzodiazapines do not offer any special benefit, and the widespread increased use of these drugs and opiates may be an underlying cause of the widespread increase in PTSD.

Bolstering this claim is a study published in the MIT Press Journals last month called "Pharmacologically Increasing Sleep Spindles Enhances Recognition for Negative and High-arousal Memories."

This study compared three arms: placebo, sodium oxybate, and zolpidem tartrate (Ambien). The study showed that Ambien seems to make negative memories worse by enhancing memory of them. This is consistent with PTSD sometimes being referred to as an "improvement" in emotional memory. The brain processes that account for this negative improvement are called sleep spindles. The study implicates the drugs in the problems seen in military PTSD:

"We show that memory can be experimentally biased toward negative and highly arousing stimuli after a sleep period with pharmacologically elevated sleep spindles. Specifically, compared with PBO, naps with ZOL were associated with enhanced memory performance for both negative and high-arousal stimuli. By contrast, SO (a comparison hypnotic) did not affect memory for different classes of emotional stimuli…These results suggest that sleep spindles may be critical for the consolidation of negative and high-arousal memories…Finally, we note that there may be broader implications of our finding that emotional memory for high-arousal and negative stimuli was enhanced after ZOL-rich sleep. These two characteristics, negativity and high arousal, predominate in anxiety disorders with a sleep-disruption component, such as posttraumatic stress disorder (PTSD; Germain, Buysse, & Nofzinger, 2008; Cukrowicz et al., 2006; Gillin, 1998; Ross, Ball, Sullivan, & Caroff, 1989). There is a high prevalence of insomnia in patients with PTSD (Wallace et al., 2011), which often leads to prescriptions for sleeping medication. Despite Veterans Affairs and Department of Defense clinical guidelines recommending against the routine use of benzodiazepines for PTSD, the adjusted prevalence of long-term use of benzodiazepines increased among men and women with PTSD between 2003 and 2010 (Hawkins, Malte, Imel, Saxon, & Kivlahan, 2012). In addition, the U.S. Air Force uses ZOL as one of the prescribed "no-go pills." Because hypnotics and benzodiazepines produce similar effects on sleep (Mariotti & Ongini, 1983), our findings are relevant to these clinical practices. In light of the present results, it would be worthwhile to investigate whether the administration of benzodiazapine-like drugs may be increasing the retention of highly arousing and negative memories, which would have a countertherapeutic effect. Indeed, a week course of temazepam soon after trauma was not effective in preventing PTSD symptoms, even producing numerically worse outcomes (Mellman, Bustamante, David, & Fins, 2002)."

We saw the common link FM has with trauma, these results would seem to indicate the same making-the-matter worse problem could be happening amongst FM patients as well as PTSD patients.

Approved Options are Lacking

There are 3 FDA approved drugs for FM and 2 for PTSD. None is for bedtime use.

In FM all three drugs are shown to modestly reduce pain. Pfizer's Lyrica is a membrane stabilizer that is used primarily for pain, and is a round-the-clock medicine.

Eli Lilly's (LLY) Cymbalta and Forest's Savella are antidepressants that are very similar to each other. They are both SNRIs (Serotonin-norepinephrine reuptake inhibitors) that are taken in the morning and early afternoon so as to not interfere with sleep.

These 3 drugs are helpful for some but are hardly a panacea. Cymbalta outsells Lyrica and a study published earlier this year by the Cochrane Library found that Cymbalta and Savella were just as likely to harm patients as help:

"The authors reviewed 10 high-quality studies comprising more than 6,000 adults who received either duloxetine, milnacipran, or a placebo for up to six months…Among fibromyalgia patients taking either of two commonly prescribed drugs to reduce pain, 22 percent report substantial improvement while 21 percent had to quit the regimen due to unpleasant side effects, according to a new review in The Cochrane Library."

PTSD treatments are hardly better. Even with the recent surge of PTSD there has not been a drug approved for the condition in more than a decade. In PTSD the 2 approved drugs, Zoloft and Paxil, have significant side effects including some that are like the symptoms of PTSD - sleeplessness, agitation, and headache to go along with sexual problems and nausea.

If that were not enough, both drugs carry the black box warning - the most serious type of warning on prescription drug labeling:

"Possible side effects to look for are worsening depression, suicidal thinking or behavior, or any unusual changes in behavior such as sleeplessness, agitation, or withdrawal from normal social situations"

The only approved drugs for PTSD risk side effects that are a lot like PTSD.

Options are severely lacking for FM and PTSD, especially for restorative sleep, and patients are desperate.

Off-Label Opiates and Sedatives

A study published last year in Pain Medicine noted widespread "polypharmacy" amongst FM patients - in desperation for relief patients are taking an average of 2.6 drugs per day. The 2007 internet study we saw shows the wide range of drugs patients are trying:

(click to enlarge)

Note the very high off-label use of controlled substances like opiates and sedatives. These drugs are not shown to have any lasting benefit, and have a recognized potential for addiction. We saw that things like benzodiazepines work for sleep quantity but not quality. None of these sedatives are shown to reduce CAP A2/A3. Opiates are very useful pain killers for damage done to peripheral tissue like a toothache, but do nothing for central pain.

So why are these drugs reported with such high satisfaction rates? In the case of the sleep aids they may in fact work to put patients to sleep, but the sleep is not restorative and the patients may not make the connection.

Another reason the sedatives and opiates may be reported to work is that they can be lifestyle drugs, or "euphorics." Patients may like the way the drugs make them feel irrespective of changes to their original symptoms, similar to self medicating with recreational drugs and alcohol. This seems to be the case in PTSD, from the Invisible Wounds of War study:

"Alcohol and drug use disorders are highly prevalent among individuals with PTSD, MDD, and TBI. For PTSD, a study of Vietnam combat veterans showed that up to 75 percent of veterans with a history of PTSD in their lifetime met criteria for substance abuse or dependence…According to Bremner and colleagues (1996), Vietnam combat veterans reported that alcohol, heroin, benzodiazepines, and marijuana "helped" their PTSD symptoms"

There is no cure for FM or PTSD. There are precious few treatments that provide relief, especially for restorative sleep, and patients are desperate.

3) TNX-102 SL Meets the Sleep Quality Need in FM and PTSD

There is an unmet need for a safe, non-addictive drug treatment for improving sleep quality in fibromyalgia. TONIX Pharmaceuticals is developing a reformulated version of cyclobenzaprine that focuses on improving sleep quality. Cyclobenzaprine has been shown to decrease CAP A2/A3 in sleep and improve the symptoms of FM.

A) Cyclobenzaprine Promotes Restorative Sleep

Opportunities in Repurposed Drugs

It is hard to find new drugs for the Central Nervous System. When the human genome was sequenced humans were shown to be about five times as complex as bacteria, encoding around 30,000 proteins. That made for a far lower number of druggable targets than scientists were expecting.

In addition, each protein performs diverse functions in different cells at different times so many potential drugs have to be excluded for their off-target effects.

Molecular target based drug design remains the standard for targeting infectious agents like HIV, but for diseases of the CNS and others too often target based drugs have collateral damage.

This is one of the reasons for the FDA 505(b)(2) provision. This allows drugs to be repurposed for new conditions and brought to market faster. Filing a New Drug Application under the 505(b)(2) provision allows a company to partly rely on earlier findings of safety from a drug's previous approval, making for a faster and less costly process. Examples of popular repurposed drugs include Celgene's (CELG) Revlimid, Valeant's Medicis, and Jazz's (JAZZ) Xyrem.

Cyclobenzaprine

Merck (MRK) originally got the muscle relaxant cyclobenzaprine approved for back spasms in 1977. This approval included a lot of work on the safety of CBP, and Tonix is able to use this data without charge in its own approval process.

Tonix is developing CBP for bedtime use in FM and PTSD to decrease the A2/A3 alarm signal and treat symptoms with restorative sleep.

In 2010, Tonix ran a double-blind, placebo-controlled, multi-site Phase 2a trial of FM patients taking very low dose cyclobenzaprine at bedtime. This study was conducted with renowned sleep scientist Dr. Harvey Moldofsky as the lead researcher, and published in the December 2011 issue of the Journal of Rheumatology.

The study was very exciting for FM patients and doctors, it showed:

a statistically significant improvement in pain, tenderness, and depression in the CBP group versus placebo
a statistically significant improvement in restorative sleep in the CBP group versus placebo, as measured by CAP A2/A3
that the increased nights of restorative sleep correlate with improvements in symptoms

This was a Phase 2a study, these studies are generally designed for "proof of concept" and not necessarily powered with enough of a sample size to show statistical significance. It is noteworthy that this study showed statistical significance with a total sample size of only 36 patients.

In addition, there were no serious adverse events, and no discontinuations due to adverse events in the treatment arm. This is not surprising. This is a very low dose of CBP, 2.8 mg, and CBP has been on the market for years at doses up to 30 mg.

Notably, for approval the FDA will only require statistical significance versus placebo in pain. In this study that was achieved with a 26% reduction in pain in the CBP group vs. 0% with placebo.

Robert Thomas from the Harvard Medical Center Division of Sleep Medicine published a public comment on the study in the same journal noting that:

"A case can be made that any treatment that does not reduce CAP A2/A3 may not improve symptoms of FM, regardless of where the site action is."

It is no surprise that CBP fared so well, CBP was chosen to be studied for good reason. It is already widely prescribed off label - note on the 2007 internet survey that CBP was the fourth most tried drug, with more than half of the FM patients having already tried it, and most finding it helpful. In fact, it scored the highest of all the drugs listed not including the (euphorics) opiates and sedatives.

Sodium Oxybate

CBP is the only drug besides Sodium Oxybate shown to increase restorative sleep in FM patients:

"SXB has been shown to decrease sleep onset latency, increase slow wave sleep, increase growth hormone secretion, consolidate sleep by increasing sleep efficiency and promote a normal sequence of non-REM and REM sleep"

SXB went through three placebo-controlled trials for FM branded as Rekinla, but the program was ended because sodium oxybate has addictive potential, is a controlled substance, and is the same drug as the very problematic date rape drug GHB.

CBP, on the other hand, is not a controlled substance and has no recognized addictive potential. Whereas SXB induces a state of sleep that is basically a stupor, CBP just makes patients a little sleepy, and patients don't get amnesia like with SXB.

When SXB was being developed FM patients campaigned for its approval passionately - SXB provides the restorative sleep that patients are desperate for. CBP can provide that same benefit without the serious problems of SXB.

SNARI - Serotonin and Adrenalin

CBP is a member of a class of compounds called Serotonin and Norepinephrine Receptor Antagonist and Reuptake Inhibitor (SNARI), it targets one serotonin neuron receptor (5HT2A) and one norepinephrine neuron receptor (the alpha-1 adrenergic receptor).

These targets help explain why CBP works. Adrenergic means having to do with adrenalin, and CBP helps block the effect of adrenalin. Serotonin is thought to play a major role in sleep and the central inhibition of pain, and CBP inhibits serotonin receptors and serotonin reuptake.

Trazadone and Prazosin

Besides CBP, two drugs in particular are used off-label for FM and PTSD. Trazadone is used for sleep in FM and PTSD, and interacts with the serotonin type 2a receptor in the same way that CBP does, inhibiting serotonin receptors and serotonin reuptake.

Prazosin blocks the alpha-1 adrenergic receptor the same way that CBP does, and is used to prevent nightmares in PTSD patients, reducing adrenalin to reduce the sleep disturbance of nightmares:

"Prazosin is an alpha-adrenergic blocker designed to treat high blood pressure and anxiety. It makes users less sensitive to the effects of adrenaline - something that can be produced in excess in PTSD patients.

Murray Raskind, MD, a psychiatrist, and his colleagues with the VA Puget Sound Health Care System have been prescribing prazosin to Vietnam-era PTSD sufferers for years, having found that the drug significantly reduced the intense nightmares associated with the disorder."

CBP combines the effects of both of these drugs in one. CBP can fill a huge unmet need for restorative sleep in FM and PTSD.

B) TNX-102 SL is a Novel CBP Formulation

Tonix has begun enrollment for its pivotal Phase 2b trial called Bedtime Sublingual TNX-102 SL as Fibromyalgia Intervention Therapy (BESTFIT). This trial is very similar to the 2a study, but will treat FM patients with TNX-102 SL, Tonix's proprietary sublingual (under the tongue) formulation of very low dose cyclobenzaprine.

Tonix has conducted 2 preclinical and 2 clinical pharmacokinetic and bioeguivalence studies on their sublingual CBP. The results of the latest study are discussed in Tonix's most recent Annual Report:

"Our second clinical study of sublingual CBP evaluated TNX-102 SL, the sublingual tablet formulation we expect to advance into further development. This study was conducted :in Canada. This study enrolled 24 healthy volunteers and evaluated a single dose of one 2.4 mg tablet or two tablets (4.8 mg) of TNX-102 SL or the currently-marketed 5 mg CBP tablet. In comparison to oral administration of the 5 mg CBP tablet, both sublingual doses of TNX-102 SL demonstrated faster systemic absorption. After administration of TNX-102 SL, blood levels of CBP were significantly higher at 20, 30, 45 and 60 minutes relative to administration of the 5 mg CBP tablet. In the study, TNX-102 SL was generally well tolerated. There were no unexpected adverse events, with the exception of a mild, temporary numbness at the tongue experienced by less than one-third of the subjects that received TNX -102 SL tablets"

TNX-102 SL is a proprietary formulation of CBP and a eutectic agent (to give it a lower melting point), so these sublingual advantages cannot be replicated by crushing up tablets and placing them under the tongue.

TNX-102 SL offers many advantages over oral CBP: metabolism, tolerability/safety, efficacy, bedtime therapy, compliance, and chronic use. Let's look at them.

Metabolism

Taking CBP orally can create several potential problems. The drug takes a long time to reach the liver and then is only slowly released to the blood (because of enzymes), gets partly re-taken up by the liver (so that it will be active later), and is also partly converted into a similar-acting and long-lasting metabolite call norcyclobenzaprine.

By contrast, taking CBP sublingually delivers the drug directly into the bloodstream where it can travel to the brain and largely bypass the digestive system. One of the effects of this is that TNX-102 SL reduces production of norcyclobenzaprine vs. oral administration.

Tolerability/Safety

Taking CBP orally takes several hours to start working, and also spreads the effect out over a longer period of time versus sublingual administration. This means that more of the drug is needed to achieve the same blood levels vs. sublingual.

Taking CBP sublingually also reduces potential for next-day grogginess. The sublingual form acts faster and leaves the blood faster than the oral form. Fatigue is already a problem for FM patients, so this is important. They can get the beneficial effects and still have the drug largely cleared by the next morning.

Efficacy

CBP can help patients stay asleep by reducing CAP A2/A3, but the effect of CBP can also makes patients feel a little sleepy prior to bed. A faster-acting, shorter-lived version can help patients fall asleep in addition to helping them stay asleep vs. the same dosing delivered orally.

In addition, the accumulation and presence of the long lasting metabolite norcyclobenzaprine can blunt the effect of administering more CBP. So by reducing the production of norcyclobenzaprine in the past, the sublingual version works better in the present.

Bedtime Therapy

TNX-102 SL takes about 30 minutes to work, so it is perfect for taking at bedtime. Oral CBP takes about 2 hours to start working.

Compliance

Patients are more likely to take a bedtime medicine if it can be taken at bedtime. Having to commit to a bedtime 2 hours in advance would lead to a loss of compliance for some patients.

Chronic Use

We saw that many sufferers of FM and PTSD are desperate enough to try things like opiates, and addiction is a real concern. Tonix's Phase 2a trial showed CBP can successfully target pain indirectly with restorative sleep, and do so at a very low dose.

So CBP is a good candidate for chronic use in the first place. On top of that the sublingual version has an advantage over oral administration for chronic use because the norcyclobenzaprine metabolite has more potential for long-term accumulation with the oral version.

TNX-102 SL offers many advantages over oral CBP

C) TNX-102 SL Should Be Approved

In September, Tonix announced that it had begun enrolling the Phase 2b BESTFIT trial, the first of two essentially identical pivotal studies needed for FDA approval in FM.

BESTFIT is a multi-site, placebo-controlled, double-blind trial comparing 60 FM patients on TNX-102 SL with 60 FM patients on placebo over a 12-week period. The drug needs to show a statistically significant improvement in pain versus placebo for approval. Tonix expects to announce the results of the study in October.

TNX-102 SL should fare very well in the BESTFIT trial because of its safety, its sublingual formulation, the longer duration of the trial compared to the successful 2a trial, the larger sample size compared to the 2a trial, and the FDA selection of FM for special regulatory treatment.

Safety

Safety is a major concern for any drug coming up for approval, but CBP has been approved for decades at doses more than 10 times TNX-102 SL. Add to that the fact that the Phase 2a study had no serious adverse events in the CBP group, and safety is almost a non-issue for TNX-102 SL.

Sublingual Administration

TNX-102 SL is faster, more convenient, more effective, has less side effect and compliance risk, and is more suitable for chronic use than oral CBP.

12 weeks

TNX-102 SL is well suited for chronic use and the BESTFIT trial is 50% longer than the Phase 2a trial that showed statistical significance in pain versus placebo. An extra month of restful sleep could very well improve symptoms even more.

Larger sample

The 2a trial only had 18 patients in each arm, yet was still able to show statistically significant results. With a sample size of more than 3 times the 2a trial, the BESTFIT trial is powered to show statistically significant results even if the results are a little weaker than in the 2a trial. And as we've seen, there are reasons to believe the results will be better than the 2a trial.

FM selected for special regulatory treatment

We saw that FM was selected as one of 20 diseases for the FDA to focus on for special regulatory treatment. This is part of the Section X provision in the 2012 PDUFA Reauthorization Performance Goals: Enhancing Benefit-Risk Assessment in Regulatory Decision-Making.

This provision is designed to assess risk-benefit decisions in diseases where treatment options are not optimal, and to facilitate a program that assesses tolerance for risk on a disease-wide level.

By naming fibromyalgia a disease to focus on for this program the FDA has acknowledged that FM treatments are lacking and that risk-benefit analysis should play a special role in the review process for FM drugs.

This bodes very well for TNX-102's approval chances in FM.

TNX-102 SL meets the sleep quality need in FM and PTSD.

4) Tonix is Deeply Undervalued

A) RISKS

We think Tonix is destined for success and a much higher share price, but there are risks.

Trial Risk

We saw the reasons that Tonix may do well in their BESTFIT trials, but clinical trials always come with risk, and there are no guarantees that TNX-102 SL will make it through its trials successfully.

Patent Risk

We will see that Tonix's intellectual property looks very strong, but the legal system can be like the FDA - unpredictable. There are no guarantees that TNX-102 SL's patents will hold up against generics in court, and this is a risk.

Competition Risk

While the FM and PTSD markets are currently clamoring for restorative sleep treatments, new products could come along that are better than TNX-102 SL, and this is a risk.

Market Risk

Even if TNX-102 SL makes it to the market without a problem, there are no guarantees that the product will sell successfully, and this is a risk.

B) Tonix Has Valuable Intellectual Property

PK Patent

While Tonix has a method of use patent for TNX-102 SL, it also has an active patenting strategy, and has filed a number of patents to extend TNX-102 SL exclusivity and expand its reach.

By far the most important of these patents is the pharmacokinetics (PK) patent filed in June of 2012 that should guarantee market exclusivity for TNX-102 SL through 2032.

A PK patent refers to the curve that shows how much drug is in the blood at certain times after administration

PK patents are sometimes called "Oxycontin patents" because Purdue Pharmaceuticals got strong patent protection using Oxycontin's PK profile. Oxycontin survived every court challenge by generics, even though it was a reformulation of 95-year-old Oxycodone, and those patents beat every challenge and expired naturally.

The company that filed and defended Purdue's patents was Ropes & Gray, and that is who Tonix hired to file and defend its patents.

These types of PK patents have proven very difficult to circumvent in court. Tonix's intellectual property around TNX-102 SL should guarantee market exclusivity until at least 2032.

TNX-102 SL for More than FM and PTSD

Tonix has an active patenting strategy, and one of the patents they've filed (Methods and Compositions for Treating Depression using Cyclobenzaprine) gives a clue to their ambitions with TNX-102 SL:

"Therefore, we believe that a low dose cyclobenzaprine will be effective for treating depression, including major depressive disorder."

That is a huge market, 24 million depressed American adults, to go along with FM and PTSD. And Tonix's management has good reason to believe that CBP can treat depression - it showed a statistically significant improvement versus placebo in the 2a trial. And you can add to that the fact that people with insomnia are ten times more likely to suffer from depression.

Is that all? No, that same patent application shows where else TNX-102 SL could be useful:

"Furthermore, the utility of a very low dose cyclobenzaprine as an agent for improving the quality of sleep, as a sleep deepener, or for treating sleep disturbances has been investigated. The very low dosage regimen was viewed as particularly useful in treating sleep disturbances caused by, exacerbated by or associated with fibromyalgia syndrome, prolonged fatigue, chronic fatigue, chronic fatigue syndrome, a sleep disorder, a psychogenic pain disorder, chronic pain syndrome (type II), the administration of a drug, autoimmune disease, stress or anxiety or for treating an illness caused by or exacerbated by sleep disturbances, and symptoms of such illness and generalized anxiety disorder. See US Patent Nos. 6,395,788 and 6,358,944"

TNX-102 SL should have market exclusivity for almost 2 decades, and there are some very large markets that it may enter.

201/301

Tonix also has a TNX-201 program for headaches and a TNX-301 program for alcoholism. Both of these are reformulations of already approved drugs to be brought along the 505(b)(2) program.

There are no immediate plans for TNX-301, but Tonix will have a pre-Investigational New Drug meeting with the FDA in the first quarter of 2014 for TNX-102 (reformulated isometheptene mucate).

100% Ownership

All of Tonix's intellectual property is fully owned with no royalties or obligations owed to anyone. This is relatively uncommon for new biotech companies.

Krele

When the day finally comes that TNX-102 SL goes generic, Tonix will be prepared with Krele:

"In August 2010, we formed Krele to commercialize products that are generic versions of predicate NDA products. We anticipate that when our branded products lose patent protection, Krele may market authorized generic versions of them. Krele also may develop or acquire generic products approved under ANDAs and we may market branded versions (branded generics) of such products."

Tonix's intellectual property is very valuable and should serve the company well for a long time.

C) Billion Dollar Revenues

TNX-102 SL Should Be Covered By Third Party Payers

FM is a very costly disease for patients and payers, in terms of both lost productivity and healthcare costs. For example:

Working adults with FM miss about 3 times as many work days as working adults without FM
Between 10% and 30% of all doctor's office visits are due to symptoms that resemble those of fibromyalgia, including fatigue, malaise, and widespread muscle pain (per the University of Maryland)
Mean total healthcare costs were three times higher among FMS patients, median costs were fivefold higher (from "Characteristics and healthcare costs" in part 1)
Most money is not being spent on drugs that might provide cost saving benefits, but on more expensive things. Per the CDC office and emergency room visits, procedures and tests, and hospitalizations are the largest components of direct medical costs among patients with fibromyalgia.

The Springer Science and Business Media's Fibromyalgia Definition and Epidemiology Guide provides some bleak details on the lost productivity costs of FM:

"Employment may also be negatively affected by fibromyalgia. One study compared work status in 136 fibromyalgia patients and age- and sex-matched controls who were being treating for non-rheumatologic conditions [18]. Work at the time of medical diagnosis was compared with current work situation at the time of study evaluation. Patients with fibromyalgia were significantly less likely to still be employed in the same job that they had at the time of their disease diag- nosis compared with those without fibromyalgia (19% vs. 58%, P<0.0001). Job was lost due to the medical condition for 47% with fibromyalgia and 14% with other conditions. Furthermore, 7% of fibromyalgia and 5% of non-fibromyalgia patients additionally switched jobs due to their medical condition. In another study, employees with fibromyalgia (N=8,513) lost more work days annu- ally compared with either employees with osteoarthritis (N = 8,418) or controls (N = 7,260) [19]. Both patient groups were actively involved with medical treat- ment for their respective conditions. Total days lost in 1 year were 30 days for employees with fibromyalgia vs. 26 for arthritis vs. 10 for controls (dif- ference vs. fibromyalgia patients was significant for both arthritis and controls, P<0.0001). Consequently, fibromyalgia patients were absent from work on 15% of all possible work days over 1 year, about three times the loss seen with controls."

In addition to all these costs of lost work, FM patients are high pharmacological treatment seekers. In desperation they try different treatments, even risky ones that may have their own costs like opiates or currently available prescription sleep aids.

Third party payers have a lot of incentive to reimburse a new medical treatment that can get patients back to work and out of the hospital and therapist's office.

All of the drugs approved for FM and PTSD are reimbursed by insurers at Tier 2 (preferred brand drug).

TNX-102 was specifically designed for the treatment of FM. It is different from and not competitive with the other approved therapies. It focuses on a key symptom with a unique formulation.

With the problem of restorative sleep being so central to FM, it is hard to imagine the FDA approving TNX-102 SL (meaning it showed statistical significance in pain) and then insurers not covering the cost.

That is what Tonix's management believes. CEO Seth Lederman at the Warsaw conference in September:

"We spent a lot of time and effort to reach out to payers, describe the nature of our product and the kind of benefit it might give patients and we've had a very positive response from them. Because, it turns out, that the insurance companies are well aware that fibromyalgia is a very expensive problem as it is today, and that by reimbursing even a premium prescription product, they could save money in other areas."

FM Projections

The first drug for fibromyalgia was only approved six years ago. The approved drugs have shown the way forward for gaining approval for FM, but they have not solved the sleep quality problem. This creates a very dynamic marketplace and an excellent entry point for a company with a differentiated product that can make a significant difference in patients' lives.

TNX-102 SL is a bedtime medicine that is unlikely to meaningfully compete with the other available drugs. With almost all FM patients needing higher quality sleep, and no viable competitor, TNX-102 SL could treat a lot of patients.

According to a report by Decision Resources there were 3.7 million diagnosed, drug-treated FM patients in 2011 in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan, with the US accounting for 80% of sales, or $1.44 billion. If we take 80% of 3.7 million patients we have 3 million diagnosed, drug-treated American patients with FM.

In the 2010 Frost & Sullivan Assessment of the U.S. Fibromyalgia Market the total value of the market for fibromyalgia drugs was $1.2 billion, growing at a compound annual growth rate (CAGR) of 18.4% per year from 2007 to 2010. That growth rate agrees with Decision's $1.44 billion 2011 sales number.

We saw the reasons that the FM market should continue to grow rapidly: relatively recent first FDA approvals in FM are helping to end the cold war against FM diagnosis, a broader definition for diagnosis recently recommended by the American College of Rheumatology, the FDA's recent selection of FM for special consideration, and a possible diagnostic test newly available.

There are two other factors that should continue to bolster growth in the FM market. One is that the Affordable Care Act going into effect will provide insurance for tens of millions of previously uninsured Americans.

The other is the graying of America. The incidence of FM rises with age - to more than 7% amongst seniors - and America is growing older.

TNX-102 SL should go to market in 2017. What kind of sales could it do after a few years?

We saw the US FM market was $1.44B in 2011, and growing at 18.4% annually. If that rate of growth keeps up then the US FM market will be $6.6B in 2020.

For a more conservative projection, let's say the market grows at just 8%. In this case the US FM market will be $2.88B in 2020, exactly double what it was in 2011.

$2.88B looks conservative - at 18.4% that number would be reached by 2015.

(It is important to note that most projections of the FM market show a drop-off coming. This has nothing to do with the growth of the FM diagnosis, but rather the fact that all 3 approved FM drugs are coming off patent. For our purposes of calculating a non-competing FM product's market potential, this does not matter.)

Per Decision Resources, 2011 sales in FM for Cymbalta, Lyrica, and Savella were $560M, $450M, and $137M respectively.

TNX-102 SL could be a game changer in FM, it has the potential to fill a major need for desperate patients. None of the currently approved drugs is a game changer. Yet, even in our conservative market projection Cymbalta and Lyrica are each on pace to sell about $1B by 2020 just with market growth. A bedtime medicine for restorative sleep could certainly match that, and possibly far surpass it.

Let's analyze it a different way and look at retail pricing of FM drugs and sleep aids:

Savella: $6.30 a day
Cymbalta: $8.00 day
Lyrica: $10 day
Ambien (Brand): $9.43 day
Silenor: Approx. $7 day
Lunesta: $10 day

Both FM drugs and sleep aids average a little over $8 per day. Frost & Sullivan projected TNX-102 SL at $8.14 per day by taking the average of Lyrica and Cymbalta, and that looks fair. They then applied a 72.9% discount factor (that number taken from Wolters Kluwer) to come up with a manufacturer's price of $5.93 per day.

TNX-102 SL is a novel formulation with a special design that is crucial to the way it works, and it could very well be priced at a premium to the market. But we will go with $5.93.

$5.93 per day X 365 = $2,164 year

We saw the reasons that FM is a rapidly growing diagnosis, and we saw there were about 3 million diagnosed, drug-treated FM patients in the US in 2011. If we calculate 6% growth of this population (less than a third of the 18.4% market rate) this would be 5 million in 2020.

This is a population of high treatment seekers that are desperate for a bedtime medicine for quality sleep. If half of the diagnosed patients opt for TNX-102 then:

2.5 million X $2,164 per year = $5.41 billion

What if TNX-102 only gets 1 million patients (one third of the current market)?

1 million X $2,164 per year = $2.16 billion

TNX-102 SL could easily do $1 billion in revenue annually in FM alone.

Tonix's future cash flows look hefty, and there's also the fact that TNX-102 SL is for chronic use - to be used as long as patients tolerate. Along with being very low dose, its sublingual metabolism should make TNX-102 SL tolerable in perpetuity. Add in patent protection and those cash flows look robust.

There is also the international market for FM to consider, the PTSD market, the depression market, and the other indications that Tonix is pursuing.

So what is Tonix worth?

E) Tonix Should Get a Valuable Partner

Major pharmaceutical companies are going through a "patent cliff" period where a lot of major drugs are coming off patent, and companies are scrambling to try and replace those revenues.

The stock market currently values pharmaceutical revenues at more than three times their annual rate. Let's look at a market cap vs. annual revenue comparison of 8 companies that relate to Tonix (all numbers from Yahoo):

Market Cap / Annual Revenue:

Lilly : $55B/23 = 2.4
Pfizer (PFE): 208/56 = 3.7
Allergan (AGN): 29/6 = 4.8
Merck: 143/44 = 3.3
Celgene: 67/6 = 11.2
GlaxoSmithKline (GSK): 129/42 = 3.1
Jazz 6.5/.8 = 8.1
J&J (JNJ): 269/71 = 3.8

Only Lilly has a multiple under 3, and the mean is 3.7. So generally speaking, $1 billion in annual pharmaceutical revenue is valued at about $3.7 billion by the market.

This has been the case for the buyouts of companies with reformulated drugs for the Central Nervous System.

In 2001, Johnson and Johnson bought Alza for $11 billion. Alza had a reformulation of Ritalin called Concerta. Concerta was doing about $200 million of annual sales at the time.

In 2007, Shire bought out New River Pharmaceuticals for $2.6 billion. Their drug Vyvanse was a reformulation of Dexedrine. In 2012, Vyvanse did $1 billion in sales.

Then there is MAP Pharmaceuticals.

MAP Pharmaceuticals

The most likely path forward, as Tonix CEO Seth Lederman sees it, is that Tonix will take on a partner after the current Phase 2b trial, run the final trial with funds from the partner, and then after the final trial a partner might want to do a complete buyout.

In January 2013, Allergan bought out MAP Pharmaceuticals. MAP had reformulated Migranal into Levadex under the 505(b)(2) program for migraine headaches. MAP is an interesting comparison to Tonix for a number of reasons:

The buyout was less than a year ago
The partnership was struck before the final trial was run
505(b)(2) reformulated drug
Central Nervous System drug
Pain drug
Women's health product (migraines)

MAP had no other viable candidates besides Levadex. Levadex was projected by Allergan's CEO to peak at $500 million in annual sales, and a Wells Fargo analyst projected $250 - $500 million peak sales.

After MAP ran its second to last pivotal trial (equivalent to Tonix's BESTFIT 2b trial running now) they agreed to a development and licensing deal with Allergan that included a $60 million upfront payment and $97 million in milestones. MAP's stock surged to a $500 million on the news.

After the final trial was run, and months before the FDA ruled on Levadex, Allergan bought out MAP completely, for $958 million.

TNX-102 SL for FM could represent MAP Pharmaceuticals times two based on projected revenues, and the drug has a lot of value outside of FM. It does not seem a stretch to say that Tonix could get a deal structured like MAP's deal, and at twice the value.

Who are the potential partners?

A lot of companies would benefit from marketing TNX-102 SL, but Pfizer, Lilly, and Allergan stand out.

Pfizer and Lilly are already in the FM game, and have huge sales forces to reach primary care physicians. As TNX-102 SL would be an add-on product and not a direct competitor to Lyrica or Cymbalta, these two companies make a lot of sense.

Allergan seems to make sense, too. Allergan is building out a women's health franchise and FM is most certainly a women's health concern.

Tonix could be like MAP times two, and that would make them a $1 billion company within a year.

Share Price

Fully diluted with options and warrants Tonix has less than 10 million total shares. If management gets their preference they will get a fair partner deal after the current trial, and have no need to raise funds. At $1 billion in market cap Tonix would be $100 per share.

F) The Celgene Contingency

Tonix could be a $1 billion /$100 per share company within a year, but that might be a shame for shareholders. Tonix has exciting possibilities that could make its value much higher than $1 billion if it stays independent. This is reminiscent of Celgene.

Celgene was repeatedly low-balled by potential partners in 2000, and instead of accepting an unfair offer, Celgene raised money themselves by issuing shares. A little more than a decade later and Celgene is now a $60 billion company - larger than many of the companies that would not pay up when Celgene needed a partner.

Tonix management has repeatedly said they will not accept an unfair offer, and they call this "the Celgene Contingency." Their preference is to partner after the current trial, but if they cannot get a fair deal they will stay independent and develop their products in house like Celgene.

Tonix has enough money to fund its operations until the current BESTFIT trial is over, and said as much in their third quarter 10-Q filed several weeks ago

(bold is my emphasis):

"The Company's primary efforts are devoted to conducting research and development for the treatment of CNS diseases. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future. The Company does not have any commercial products available for sale and there is no assurance that if approval of its products is received that the Company will be able to generate cash flow to fund operations. In addition, there can be no assurance that the Company's research and development will be successfully completed or that any product will be approved or commercially viable. Management believes that the Company has sufficient funds to meet its research and development and other funding requirements through at least September 30, 2014...Our future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success in developing markets for our product candidates. We believe our existing cash is sufficient to fund our operating expenses and capital equipment requirements for at least the next 12 months. "

This in spite of the fact that Tonix announced in that same filing that it expects to begin a Phase 2 trial of TNX-102 SL in subjects with military-related PTSD in the second quarter of 2014.

CEO Seth Lederman explains this at the Rodman & Renshaw Annual Global Investment Conference:

"We're working with thought leaders from major academic institutions and there's so much interest in this area that the major academic institutions, we believe, are going to basically go at risk on this hoping that they can then get grants in the future because it is such an enormous problem."

Dr. Lederman may have a good understanding of academic institutions' inclinations - he was a tenured professor at Columbia University and founded Tonix with Donald Landry, chairman of the department of medicine at Columbia University.

The large amount of academic interest in PTSD is largely in response to a Presidential order for the establishment of two joint research consortia. These consortia are to research the diagnosis and treatment of post-traumatic stress disorder and mild traumatic brain injury over a five-year period, and are already funded with $107 million.

Tonix met with the FDA in October 2012 to discuss what they need to do to get approval for TNX-102 SL in PTSD.

This market is about the same size as FM, and there is a lot of urgency on the part of the US military for solutions. One stark fact of recent wars is that there are now more suicides than war deaths.

The military knows it has a big problem. Tonix has had talks with the U.S. Department of Defense, and while they have no official deal, the DOD is aware of TNX-102 SL. In the future the department could fund further development or be a very large customer of a shovel ready project, tested specifically in military PTSD.

CEO Seth Lederman sums up the prospects for TNX-102 SL:

"If TNX-102 SL can be shown to alleviate the symptoms of FM or PTSD more effectively than the currently accepted first line of treatments, it could become the new first line of treatment."

If Tonix stays independent to market these treatments, it could be the size of Celgene in about a decade.

G) The Best People

Tom Reddington was instrumental in helping Celgene raise funds when they needed to, and he has an impeccable record of helping quality biotech stocks with investor relations. He is now doing Tonix's investor relations, and his endorsement is noteworthy.

Also noteworthy are the rest of the people involved with Tonix. The board and management may be the most exciting thing of all for this very exciting company.

The first thing to note is that the board and management are all significant investors in Tonix. This data is from before the most recent financing, but it shows management's level of personal commitment:

(click to enlarge)

And there have been no insider sales.

Tonix's team is distinguished by success in exactly the areas in which Tonix is working - Fibromyalgia, 505(b)(2) drug development, and making differentiated treatments for the central nervous system from repurposed drugs.

In addition to a long list of business achievements, CEO and cofounder Seth Lederman was a professor of medicine and of rheumatology, having direct experience treating fibromyalgia patients.

CFO Leland Gershell helped Dr. Lederman found two companies, Bella and Targent. Even though he is a qualified CFO he is also an MD/PhD from Columbia.

Donald Landry is a cofounder of the company and the chairman of the department of medicine at Columbia University.

Dr. Samuel Saks cofounded and was CEO of $6 billion biotech firm Jazz Pharmaceuticals.

And Doctor Ernest Mario may be the most impressive of all. He's the former CEO of Glaxo, the global pharmaceutical company. But he is also the former CEO of Alza, and he sold that company to Johnson & Johnson for $11 billion.

Tonix is run and owned by very successful people that have direct experience in the most important areas of its business. Whether Tonix gets bought out or stays independent its future looks very bright.

Tonix looks like one of the most undervalued stocks in the market, and should be a multi-bagger.