Tuesday, February 02, 2016

Soligenix And Rare Diseases

Soligenix (ticker SNGX) pursues several treatments for rare diseases and other critical problems. It is always intriguing to watch new drugs develop in the hope they can make life easier for pain sufferers. The management team has the requisite background in drug development to make this company worthy of serious analysis.

The company's SGX942 drug for oral mucositis is one of their leading products. Research for the oral mucositis treatment market from 2014 showed a significant number of competitors with treatments in their development pipelines. The Oral Cancer Foundation notes that Amifostine and palifermin are currently used in limited treatment of OM's effects. The National Cancer Institute's most recent coverage of OM also mentions Amifostine and palifermin. Amifostine is widely available from a subsidiary of AstraZeneca. The NCBI PubMed cites research on how clinical trials have established Amifostine's cost savings potential. A drug that beats Amifostine must generate mean per patient supportive care costs savings of at least $1472 (based on the cost difference in that PubMed article) if Medicare and health insurance reimbursement mechanisms are to find such an alternative compelling.

Several US government research agreements support Soligenix's development of biodefense products. Using federal research funds is a good move if it keeps the rest of an enterprise moving toward its larger business goals. The government's defense needs typically include drug stockpiles for emergency use. These stockpiles are not frequently consumed and typically need replenishment only when batches expire. Investors should note that the small government market and its infrequent demand will limit a drug maker's quality of earnings.

I reviewed Soligenix's most recent 10-Q filing dated November 12, 2015. The company had cash on hand of US$4M on September 30 that year. Their quarterly net income of almost $2.8M was largely due to a positive change in the fair value of their warrant liability. They continued to incur losses from operations of almost -$1.3M, although that is an improvement from the comparable 2014 quarter's loss from operations of over -$5.1M. Soligenix's success at raising non-dilutive funding keeps it in the game until its drugs can find large markets.

The good news for Soligenix is that it has many product options that have advanced through several trial phases. The risks for any drug company include some of the health care sector's structural problems I identified as ultimate lessons from the JP Morgan Healthcare Conference in 2016. Headwinds facing the health care sector can affect every company's valuation. Insurance affordability and the solvency of payment intermediaries can challenge companies like Soligenix that do everything they can to be successful.

Full disclosure: No position in SNGX at this time.