Monday, 4 February 2013

Soligenix shares gain after Brean Capital initiates coverage with buy rating


Soligenix (OTC:SNGX) flew higher again Thursday after Brean Capital initiated coverage on the drug developer, calling the company undervalued with "promising drugs" in unmet indications. 
The company has seen a slew of share price gains in recent weeks, as it continues to develop its pipeline and receives bullish coverage by analysts. In the last month alone, its stock has more than tripled - currently changing hands at around $1.87 - up over 12% on Thursday. 
Breane Capital's analyst Jonathan Aschoff started Soligenixoff with a buy rating and 12-month target price of $5.00. 
The New Jersey-based company focuses on drugs for cancer-supportive care, gastrointestinal disease, and biodefense. Its lead compound, SGX942, is projected to enter phase 2 for oral mucositis in head and neck cancer in the second half of this year, with results in the second half of 2014. 
Aschoff notes that this is a key investment catalyst for the company, with a product launch anticipated in early 2017. "We believe that positive phase 2 results for SGX942 in oral mucositis would be a significant de-risking event for Soligenix."
The analyst adds that current FDA-approved drugs for oral mucositis - a complication of cancer treatments - are either not indicated for head and neck cancer patients, or not effective enough. 
But in phase 1 trials, SGX942 was shown to reduce the severity and duration of oral mucositis and induce anti-inflammatory activity. Given these results, the analyst views "any clear differentiating phase 2 success as sufficient to attract the attention of a suitor."
Assuming a product launch in early 2017, the analyst expects sales from this drug to be about $94 million in 2019.
Soligenix is also developing SGX203, an oral BDP for pediatric Crohn’s disease. 
Beyond these two drugs, the company expects to receive additional government grants to pursue other indications of oral BDP and several biodefense therapeutics and vaccines. 
All compounds are protected by U.S. patents, the analyst notes. Patents with the same claims have also been issued in Mexico and South Africa, and have been filed in Europe, Canada, Australia, and several other countries. 
Oral BDP is a topically active corticosteroid that has a local effect on inflamed tissue and is the active ingredient in four different product candidates.
SGX203 is an oral BDP formulated as two tablets to block inflammation from Crohn’s disease throughout the small and large bowel. 
"It has less toxicity than prednisone and broader use than budesonide, which are two steroids currently used off-label in pediatric Crohn’s disease," Aschoff highlights. 
The phase 1/2 trial of SGX203 should begin in the first half of this year. 
Crohn's Disease is an ongoing disorder that causes inflammation of the gastrointestinal (GI) tract. It can affect any area of the GI tract, from the mouth to the anus, but it most commonly affects the lower part of the small intestine. Pediatric Crohn's is a subpopulation of around 80,000 patients from 0-19 years of age in the United States. 
"Assuming a product launch in early 2017, we estimate $42 million in SGX203 sales in 2019," the analyst projects. 
Oral BDP is also being used for the development of OrbeShield for the treatment of gastrointestinal acute radiation syndrome (GI ARS), which occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the gastrointestinal tract and later, the lungs.
And through its biodefense division, the company is also developing vaccines including RiVax, designed to protect against the lethal effects of exposure to ricin toxin and VeloThrax, a vaccine against anthrax exposure.
"Although we are optimistic about the commercialization of these drugs, to be more conservative, we did not incorporate their revenues in our financial model," notes Aschoff. 
Brean's Capital terminal valuation is based on a 5x multiple of the projected 2019 EBITDA (earnings before interest, taxes, depreciation, amortization) of $104 million.

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