Soleno Therapeutics: A Promising Rare Disease Player For 2020 – Seeking Alpha

Posted: Published on January 26th, 2020

This post was added by Alex Diaz-Granados

Today, we will study why Soleno Therapeutics (SLNO) is an attractive pick in 2020.

Soleno Therapeutics is a clinical-stage biopharmaceutical company focused on the development of treatment options for rare diseases. In December 2016, Capnia, Inc. and privately-held Essentialis merged to form this rare disease player. The company's lead asset, DCCR (Diazoxide Choline Controlled-Release) is currently being studied in Phase 3 for an orphan indication, PWS (Prader-Willi syndrome). Soleno has already secured orphan drug designation and fast-track designation for its investigational therapy in the U.S. and Europe.

Soleno Therapeutics has completed enrollment in the Phase 3 DESTINY trial for evaluating a once-a-day DCCR tablet dosage in PWS patients. The company expects topline data in the first half of 2020.

Soleno estimates the prevalence of PWS in the U.S. to be 21,000 -28,000.

PWS is caused by the loss of gene expression on chromosome 15q11- q13. In Empowered Patient Radio Podcast, Soleno Therapeutics' CEO, Dr. Anish Bhatnagar has explained the disease in detail. Accordingly, in 70% of the cases, the part of chromosome 15 inherited from the father is missing. In most of the remaining cases, both parts of chromosome 15 are inherited from mother and none from the father. Finally, a very few numbers of PWS cases are caused due to genetic mutation in the PWS-specific part of chromosome 15, making the part inactive.

The manifestations of the disease vary from childhood to adulthood. In babies, PWS is characterized by low muscle tone, difficulty feeding, and failure to thrive. These symptoms change as the baby grows. While the children start improving in strength and muscle tone, they lag in terms of motor milestones. By age three or four, the children start showing abnormal interest in food. By age eight, almost all PWS patients have hyperphagia (excessive appetite). This symptom lasts for the rest of their lives. Subsequently, these patients suffer from obesity and high BMI (body mass index). This is a form of genetic obesity caused due to the combination of hyperphagia and slower-than-normal metabolism in the patients. Although a few patients may not be obese if managed properly by caregivers or at PWS-specific houses, they remain hyperphagic throughout their lives.

Currently, the life-expectancy of PWS patients is around 30 years. The available treatment option is restricting access to food. This, however, makes patients aggressive. Patients may have to be sent to PWS-specific homes. The disease has a traumatic impact not only on the patients but also on the care-givers.

PWS patients suffer from an abnormality in the hypothalamus. The brain of a normal individual signals them to stop eating food after they are full. This switch does not exist in PWS patients. Besides, the patients are also present with lower IQ, cognitive abilities, short stature, specific facial features, and infertility.

Currently, there is no FDA approved therapy for managing PWS symptoms. The only treatment used is growth hormone since PWS patients are almost always growth hormone deficient. This normalizes growth pattern, and may also improve fat distribution and lean muscle mass. It also improves some amount of cognition. But it does not improve the main symptom of the disease which is hyperphagia as well as behavioral abnormalities.

Soleno Therapeutics is evaluating the potential of a once-a-day DCCR tablet formulation on the brain as well as peripheral systems including liver, muscle, and fat cells.

DCCR activates KATP (adenosine triphosphate-sensitive potassium) channel proteins, which is expressed in multiple cell types such as pancreatic b cells, neurons, and smooth muscle cells. DCCR crosses the blood-brain barrier and then targets this KATP channel in certain nerve cells of the hypothalamus. This, in turn, reduces the secretion of appetite-stimulating neuropeptides.

DCCR also works on the liver cells and controls the amount of fat and cholesterol. Soleno aims to deploy DCCR for opening the KATP channel in fat cells, thereby reducing the deposition of fat on organs and tissues. Instead, fat will be used as fuel for the body. DCCR is also targeting the KATP channel in liver cells and skeletal muscle cells.

Soleno Therapeutics reported positive data from the Phase 2 pivotal trial evaluating the safety and efficacy of multiple-dose levels of DCCR in genetically confirmed PWS patients.

Soleno reported robust efficacy for DCCR in terms of a statistically significant reduction in hyperphagia, with effect starting within two weeks of treatment.

The decline in hyperphagia was even greater for patients with moderate-to-severe hyperphagia and on a higher dose of DCCR. The trial also demonstrated a statistically significant reduction in body fat mass and an increase in lean body mass for patients treated with DCCR. Patients on DCCR also reported a decline in waist circumference, consistent with loss of visceral fat. This is associated with an overall improvement in the patients' cardiovascular health.

DCCR therapy also demonstrated statistically significant improvement in at least one aggressive or destructive behaviors demonstrated by PWS patients.

DCCR's safety profile was seen to be consistent with that of diazoxide. Commonly observed side-effects include glycemic impacts, peripheral edema, upper respiratory tract infections, constipation, and somnolence.

Proglycem (diazoxide) works by inhibiting insulin release from pancreatic b cells, which in turn causes blood glucose to rise. This mechanism has been used to treat hypoglycemia due to hyperinsulinism and insulinoma. DCCR, a tablet formulation of the choline salt of diazoxide, is also aiming to improve the metabolism of PWS patients who are generally insulin and leptin resistant.

Soleno plans to use its patents to block the use of Proglycem in PWS patients. Besides, Proglycem is not approved by the FDA in this indication. Hence, it will become difficult for physicians to secure reimbursement for Proglycem, once DCCR is approved.

DCCR also differs from Proglycem in terms of convenience and safety. While DCCR is a once-a-day tablet, Proglycem has to be dosed twice or thrice a day. Soleno has also demonstrated milder and fewer side-effects for DCCR as compared to Proglycem, with similar efficacy in clinical studies.

Soleno compared the pharmacokinetics of single-dose DCCR with Proglycem in a study in obese subjects called PK001. The company also evaluated steady-state pharmacokinetics for DCCR in 4 studies in healthy normal weight, obese, and obese PWS patients.

It was seen that diazoxide was readily and extensively absorbed from Proglycem and DCCR. The highest concentration of the drug after a single dose (C-max) was 6.5 hours for Proglycem and 22 hours for DCCR. Besides, Proglycem's C-max at 13.32 mcg/ml dosage was 47% higher than that of DCCR at 9.07 mcg/ml. Soleno anticipates lower likelihood and severity of side-effects with DCCR which are mostly Cmax-related adverse events compared to Proglycem. The constant intraday circulating drug level that follows from the continual absorption of the drug from DCCR likely results in a consistent therapeutic response in treated PWS patients. A linear rise in circulating DCCR levels may also result in a consistent therapeutic effect.

Soleno Therapeutics' future growth prospects are solely dependent on the clinical and commercial success of DCCR in PWS indication. This exposes the company to a high degree of business concentration risks.

The company completed enrollment in the Phase 3 DESTINY trial in January 2020. The probability of final approval for an investigational rare disease drug from Phase 3 is estimated to be 65.7%. Hence, the company is also facing significant R&D failure risk.

Soleno Therapeutics is a clinical-stage company with no revenue stream and a negative bottom line. The company is not expected to record revenues in the next few years. In this backdrop, the company may continue to be loss-making for the foreseeable future. There is no certainty when the company will break even or become profitable.

The high prices of rare disease drugs make it challenging for patients to secure access. In this backdrop, the company may be forced to offer discounts or patient assistance, thereby reducing margins.

Finally, the company had only $11.22 million cash and zero debt on its balance sheet at the end of September 2019. The company further raised net proceeds of $14.5 million from public offering that was closed in October 2019. The company spent 16.0 million cash on operational activities in the last twelve months ending September 2019. Assuming this spending rate to be proxy for the company's annual cash burn, Soleno can be expected to sustain its operations with external cash infusion till the end of 2020. However, the company will have to opt for dilutive financing, debt, or licensing to raise funds after 2020.

According to finviz, the 12-month consensus target price of Soleno Therapeutics is $11.33.

On January 8, Craig-Hallum analyst, Frank Brisebois initiated coverage for the stock with a "Buy" rating and a target price of $8. Based on DCCR's robust efficacy in terms of reduced hyperphagia in PWS patients in the pivotal trial, the analyst believes that the company's Phase 3 program is relatively low risk. He believes Soleno's valuation at current market capitalization levels to be attractive, considering that DCCR's revenues may cross $500 million by 2025.

On December 23, Laidlaw analyst, Yale Jen, resumed coverage for the company with a Buy rating. On December 23, Oppenheimer analyst Leland Gershell also initiated coverage for the stock with "Outperform" rating and target price of $10. He highlighted that the drug has demonstrated proof-of-concept in PWS and also has a long track record of safety. The analyst claimed that the stock had a favorable risk/reward ratio. He has recommended investors to build a position in the stock prior to data reveal from the Phase 3 trial.

The above table highlights the change in analyst recommendations and target price for the stock since December 2018.

Soleno Therapeutics is expected to report an increase in losses in 2020. This is anticipated since the company has no revenue stream. However, its expenses will now rise further as it tests DCCR in the Phase 3 trial.

In this backdrop, I believe the target price of $8.0 may be a fair representation of the true value of this rare disease player's share price after 12 months. Hence, I recommend retail investors with a preference for high risk/high gain biotechnology stocks to consider this one in 2020.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Soleno Therapeutics: A Promising Rare Disease Player For 2020 - Seeking Alpha

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