AMRN - Soleno Therapeutics: Impressive Data But Never Forget Amarin

2023-11-26 10:47:19 ET

Summary

• Soleno Therapeutics has seen a surge in stock value after positive data from Phase III trials of its Diazoxide Choline Extended-Release tablet for Prader-Willi Syndrome.
• The data showed improvements in body composition and hyperphagia-related behaviors in patients treated with the tablet.
• Soleno Therapeutics faces potential challenges in protecting its intellectual property for the formulation of the drug.

Soleno Therapeutics ( SLNO ), a rare disease therapy developer, has been in existence since 1999. Its lead asset is Diazoxide Choline Extended-Release tablet, a once-daily oral tablet in Phase III trials for the treatment of Prader-Willi Syndrome. In September, the stock soared 700% overnight after producing positive data from this trial.

This asset has been producing good data from this program for a while now. Last year, in July, the stock surged after producing data from the ongoing trial. Data showed that “patients experienced improvements in body composition, as evidenced by statistically significant changes in lean body mass and the ratio of lean body mass to fat mass, based on DXA scanning when treated with Diazoxide Choline Extended-Release ((DCCR)) tablets.”

Then, a few months later, the stock went up again after the FDA agreed that data from a withdrawal phase study would be sufficient to address certain earlier efficacy concerns. The company planned to add such a study to the existing trial and planned topline data in early 2023.

This data was released in September this year. Data showed the following:

According to data from the randomized withdrawal period of Study C602, DCCR extended-release tablets reached the primary endpoint related to hyperphagia-related behaviors, a clinical hallmark of the disease.

The analysis included 77 patients previously enrolled in the company’s Study C602. Patients were randomized to receive either DCCR (n = 38) or placebo (n = 39) for four months.

After 16 weeks, patients on placebo witnessed a significant worsening of hyperphagia-related behaviors with a statistically significant and clinically meaningful difference compared to those on DCCR, the company said.

Secondary endpoints related to disease severity and changes in condition, as evaluated by measures called CGI-S and CGI-I, also showed signs of worsening in the placebo arm.

Since the FDA apparently agreed to this design, this data is very positive for the company, as evinced by the market interest. PWS occurs in one in every 15,000 live births, so there should be approximately 2400 new PWS cases in the US every year (3.66mn live births in the US, 2021 figures). Key characteristics of PWS is hyperphagia , “a chronic and life-threatening feeling of intense, persistent hunger, food pre-occupation, extreme drive to food seek and consume food that severely diminish the quality of life for patients…”. There are no approved therapies for PWS.

Diazoxide, the parent molecule of the drug candidate, has been used to treat various diseases for decades, but is not approved for PWS. Diazoxide is used to treat hypoglycemia caused by hyperinsulinism. Diazoxide works by opening potassium channels in the beta cells of the pancreas, which reduces insulin release. Soleno has worked to produce a patent estate “on the therapeutic use of diazoxide, diazoxide choline and DCCR in patients with PWS.” Obviously, they do not have a composition of matter patent, since they would have mentioned that in their 10-K , and they don’t. Indeed, their Intellectual Property section in that 10-K is one of the pithiest we have seen, just mentioning that their patents expire in 2025 and 2035.

As is usually the case for companies with no composition of matter patents, this is a singular cause of worry. This company will do all the grinding work, produce the data, get the drug approved and launch it in the market - and I am quite convinced they will face dozens of ANDA applications before they can say “lawsuit.” Then it comes down to some judge in some court in some city, and investors suffer. We say this from long experience - however novel and exciting the data might be, if the molecule has not been actually invented by the company or been licensed from someone who is the original inventor, investors are going to see some pretty interesting times.

The formulation we have here is a choline salt of diazoxide. This formulation has been designed to improve solubility and GI tract absorption. Thus, the formulation we have here is developed for functional efficiency, and not for the function itself, which is treating PWS. That functionality is proven by the result of this positive clinical trial, however its conceptual framework’s novelty may be challenged in court - indeed, I am almost certain that it will be. We have seen time and again how difficult it is to predict the outcome of such a challenge. Part of the mechanism of action for PWS is reduced hyperinsulinism, like the company says here , and this has been known for decades. It is to the company’s credit that it has proven efficacy in PWS in a major trial, however, this is a point of vulnerability ANDA filers will surely exploit. I cannot underscore this enough, having suffered through the disaster that was Amarin ( AMRN ).

Here’s a look at the IP protection plan as shown in their Corporate Presentation. Again, this defensive planning shows they are, obviously, aware of the predicament and threat.

If you look at the above plan, they have “prosecutions” ongoing in “all major pharma markets” for KATP channel activator pharmaceutical formulations. Now, these KATM channel activators are substances that stimulate or activate ATP-sensitive potassium (KATP) channels found in various cells and tissues throughout the body, including pancreatic beta cells. Diazoxide is an example of a KATP channel activator. I am not sure what sort of argument they have for pharmaceutical formulations of “KATP channel activators like doazoxide,” which is well-known for decades.

Financials

SLNO has a market cap of $853mn and a cash balance of $52mn. They have pro forma cash of $174mn, which includes “additional net proceeds from Closing of Oct 2023 financing and Dec 2022 financing.” These include proceeds from public and private offerings, and also a $18mn amount receivable on FDA approval. This is a considerable amount of cash given their most important trial has been done; but no amount of cash will be enough if they face IP challenges.

Research and development expenses for the three and nine months ended September 30, 2023, were $6.0 million and $16.5 million, while general and administrative expenses for the three and nine months ended September 30, 2023, were $3.3 million and and $9.3 million. At that rate, they have a cash runway of nearly 20 quarters; of course, this does not count regulatory expenses, market and post-launch expenses, and so on.

Institutions and PE/VC firms hold 35% and 45% of the company, while retail ownership is a decent 13%. Key holders are Vivo, Perceptive and Carlyle Group. Individual insiders have mostly sold stock.

Bottomline

Don’t get me wrong, I have nothing against the impressive data they produced, and I am all for approving this much needed medicine for a morbid pediatric disease. But I also rooted for Amarin, as my readers know, and I thought the IP situation there was excellent. Investors should be cautiously optimistic for SLNO. Whatever the outcome is for the company, I am sure PWS patients will greatly benefit from this medicine.

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