What The Future Holds For Tonix

Summary

Tonix partially followed through on plans announced in April to sell shares to improve the company’s financial situation. It will need to sell more shares for its Phase III trials.

I introduce a framework for assessing the persuasiveness of various kinds of therapeutic outcome data, which I use to support the remaining assertions in this summary.

Although investors know Tonix’s PTSD trial missed its primary endpoint and that its findings were mostly positive, my secondary analysis of the data provides a substantially more upbeat outlook.

Similarly, analyzing Tonix’s just released secondary analysis of its Fibromyalgia data (from a trial that also missed its endpoint but produced positive findings) provides a substantially more upbeat outlook.

Together, these two secondary analyses strongly suggest that TNX-102 SL will be sufficiently commercially successful to trump not only the June dilution, but also its next round of dilution.

Tonix (NASDAQ:TNXP) has just sold 5 million shares, and possibly 750,000 more. This article puts this dilutive sale of new shares into perspective by pointing out that the company's recently published findings from two clinical Phase II studies have provided an extremely solid basis to justify going forward, and, to make that possible, to raise the additional money that will be needed under more favorable terms.

I introduce a framework for assessing the persuasiveness of various kinds of therapeutic outcome data, which I then use to examine the findings from these the two studies. Both of the studies tested the same compound for two serious conditions that have somewhat overlapping symptoms. On June 21, TNXP closed at $2.05. My claim, which I justify below, is that Tonix's Net Present Value (NPV) per share is at minimum, ten times higher.

Below are the article's five sections:

• Updated Background Information
• Tonix's Money Raise: Its Timing and Scope
• A Framework for Assessing the Persuasiveness of Types of Outcome Data
• The Persuasiveness of the Phase II Data
• My Updated Valuation Assuming 50 Million Shares

Updated Background Information

Tonix has an attractive strategy: Investigating potential new uses and new formulations for FDA-approved drugs that have long clinical track records. Part of this strategy includes developing ways to minimize known side effects. It used this strategy to develop new formulations for cyclobenzaprine (CBP) for both fibromyalgia (FM) and Post Traumatic Stress Disorder (PTSD).

Results have been reported for two recent Phase II trials of Tonix's CBP formulation (known as TNX-102 SL): one for FM and the other for PTSD. Neither trial met its primary endpoint, but both trials demonstrated that Tonix was on the right track. A Phase III trial for FM is now underway, and its results will probably be reported during the first two weeks of September. Three more clinical trials are planned:

• A second Phase III trial for subjects with FM. This trial is expected to start during July 2016.
• A Phase III trial for military subjects with PTSD. This trial is expected to start during January 2017.
• A Phase III trial for civilian subjects with PTSD. This trial is expected to start during 2017, a few months after the military trial is launched.

Oral CBP is swallowed, absorbed into the small intestine, and sent directly to the liver where it metabolizes into a problematic byproduct that (1) causes patients to feel tired, and (2) lingers in the body long enough to reduce the effectiveness of subsequent CBP doses, thereby causing diminishing returns after a few weeks. TNX-102 SL improves on oral CBP in two important ways:

1. While the standard dose is between 15 and 30 milligrams per day, Tonix's versions for FM and PTSD, respectively, are for 2.8 and 5.6 mg. Patients take it just once a day, at bedtime.
2. Oral CBP takes almost two hours to reach its maximum effectiveness. Patients take Tonix's patented eutectic formulation sublingually (under their tongues), so that the CBP is rapidly absorbed across the mucous membrane into their bloodstreams, and bypasses their livers on its first journey through their bodies (Placing crushed oral CBP tablets under the tongue does not produce a rapid effective dose or initially bypass the liver).

Although the CBP eventually travels to the liver and produces the problematic byproduct, these two improvements mean that its therapeutic effect begins within 15 minutes, and produces too little of the problematic byproduct to either cause drowsiness, or linger long enough to interfere with the therapeutic effect of subsequent doses.

Tonix's Money Raise: Its Timing and Scope

In April, Tonix's management announced that it was making preparations to sell shares to raise $15 million. It indicated that its burn rate would be substantially lower in the remaining three quarters of 2016, and that it had enough cash to last through March 2017. Some Tonix investors argued that its cash level was so low that unless it raised money quickly, the company's financial situation and apparent health would be rapidly compromised. Others argued that there was enough cash to postpone dilution until after the results were announced for Phase III trial for FM, in order to increase the revenue from the new shares and therefore minimize the extent of dilution.

Tonix's management decided to respond to the concerns of the former group and announced its offering of 5,000,000 shares immediately after the market closed on June 15, which, according to its June 21 press release, is now completed. Together, the June 15 announcement and June 16 clarification precipitated an immediate 20% reduction in TNXP (For other factors and events that have driven down the share price to a fraction of its value, look here).

The company has not yet announced whether all of the overallotment of 750,000 were also sold, but in the final section (which provides estimates for the NPV/share), I shall assume that they have been and make allowances for substantial additional share dilution.

A Framework for Assessing the Persuasiveness of Types of Therapeutic Outcome Data

In order to assess the persuasiveness of therapeutic outcome data, investors need to grasp and take into account of a variety of distinctions.

Statistical significance vs. clinical significance. A finding is statistically significant if it is unlikely that the finding could be attributable to a sampling fluke. In other words, repeating the study is likely to yield similar results. Using study data, statisticians calculate a p value, which is an estimate of the chances that a particular study finding can be attributable to a sampling fluke. The lower the p value, the better.

For example, if p = ≤ 0.05, it means that the chances are 5 out of a hundred (5% or 1 out of 20) that the finding can be attributable to a sampling fluke, or in other words that the chances are 100% minus 5% or 95% that repeating the study is likely to lead to similar results. If p = 0.0001 (as it does in a finding reported in Figure 1 and Table 2), the chances are only 1 out of 10,000 that the study finding can be attributed to a sampling fluke, and therefore 9,999 out of 10,000 that repeating the study is likely to lead to the same results.

However, even if a finding is statistically significant (and therefore repeatable), it does not mean that it is clinically significant. For a therapeutic effect to be clinically significant, it has to make a noticeable difference to the patient. You can have very small effects that are statistically significant, and you can have sizable and noticeable effects that are merely attributable to sampling flukes (not repeatable). For informed people to take notice, outcome data should be both...