Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) has had a roller coaster month. Having traded essentially flat in and around the $0.50 mark for the entire first quarter, the company effected a reverse split on March 17 that saw it boost to a little over $4 a piece. The ten-day period subsequent to the split (which ends today) has brought it in line with NASDAQ listing requirements, and that was the goal of the event. During this period, however, there’s been a couple of major events, and these have served to polarize sentiment somewhat.
Here’s a look at what the company has done, and what it means for shareholders.
This one’s a biotech play with a lead development asset called TNX-102. The drug is a reformulation of an already approved drug called cyclobenzaprine HCl, which is used in combination with bed rest as a pain management therapy. It blocks certain signals going back and forth between muscles and the brain, and this signal blocking basically mutes pain resonance. In the 102 formulation, Tonix is trying to get this same mechanism of action to work on serotonin receptors in the brain, and in turn, trying to use it to help takers sleep better. That’s not all, however. The company is taking it one step further, and trying to get it approved as a PTSD asset, on the premise that better sleep results in a reduced frequency and severity of PTSD symptoms, and it’s targeting an initial population of military sufferers.
For any company, an attempt to bring a drug to market that claims to improve the lives of suffering vets is a nice sound-bite. In the US, even more so. And Tonix recognizes this. It’s just kicked off the very patriotically named phase III HONOR study, investigating the efficacy of 102 in a group of patients with military related PTSD.
Regular readers will remember we first highlighted this initiation as a potential major catalyst back at the beginning of February, and in any other scenario, we’d have seen some sustained upside momentum on the back of this tiny company kicking off a pivotal study in a blockbuster indication.
Unfortunately for Tonix shareholders, however, the company followed the initiation announcement with a raise announcement. The offering detailed in the release, and the subsequent SEC filing, will see 1.8 million shares issued at a price of $4.45, with net proceeds set to come in at around $7.2 million.
So what’s the combined impact of these two developments?
Well, dilution is always tough to stomach, and even more so when it’s brought about like this – announcing it just as you make a major operational step forward. Not that we can blame management for doing so (it’s a bit sneaky, but it’s also pretty smart), but that doesn’t make it any easier for the diluted parties.
With that said, this company is going to need capital to get this study completed, and beyond that, to get a submission with the FDA that will underpin registration in the PTSD target indication. Beyond that, of course, there’s going to be commercialization capital required.
So, while the dilution is never great, if the company that initiates it puts the capital to good use (and at this end of the biotech space, we define good use as funding the company through to a catalyst that can induce some upside momentum), then it’s not all bad.
As such, if Tonix can use the capital it raises to complete the phase III study, and assuming the phase III data comes out as indicative of efficacy for 102 in the target PTSD indication, then the upside that comes about on the back of the news should outweigh any value impact that the dilution brought about.
Of course, the data might not hit, and that’s the binary risk.
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Disclosure: We have no position in TNXP and have not been compensated for this article.