Sophiris is a very small biotech (77 million market cap) with no approved products, zero revenue streams, and only one drug in the pipeline. The drug is called PRX302, or topsalysis, and they are trying to get it approved for two indications, BPH and prostate cancer.

Financial Situation

The company is running out of money and has been for a while. Last year they did a couple things to raise money. Last August they had another public offering which did its job of raising money but made the stock price drop 50%. They also laid off about half of their employees to cut operating costs.

At this point they have about 29 million in cash while their operating expense was 10 million last year. The CEO has stated that they have enough funds to stay in business until about Q2 of 2018.^1

BPH Market

BPH is an enlarging of the prostate that is extremely common. Something like half of men over 60 have it. Only a subset has bothersome enough symptoms to be candidates to take drugs. In the US, only 3 million people take medication for BPH. There are a handful of drugs already FDA approved and they work okay but have side effects such as sexual dysfunction. I’ve read some market research estimates suggest that the BPH market has $5 billion potential. ^2

Science

PRX302 has completed a small phase III clinical trial to treat BPH that met its primary end point.^3
I mentioned that PRX302 is also being studied for prostate cancer but you can mostly ignore this in your valuation of the company. There has been a promising Phase II study for the prostate cancer indication but I won’t mention this indication from here on out for two reasons. One it’s too early to tell if a drug is going to be worth anything at this point in development and two, it would still take years to bring to market in a best case scenario for a company that is running out of time. It’s BPH or bust for this drug and this company in my opinion.

The primary end point to measure efficacy in BPH for these drugs is the lowering of the IPSS score. IPSS is a patient scorecard that is filled out asking a series of questions about how bad the symptoms.^4 The numbers for each section are tabulated at the end and you get a number from 0-35, with anything in the mid 20’s or over being pretty severe. One interesting thing that we’ve seen from almost every BPH drug trial is that the placebo affect is huge. You typically see a -4 to -6 point difference in IPSS score in the placebo control group whereas the drugs will have a -6 to -8 point difference in score. The handful of FDA approved drugs are only about -1.5 or so IPSS points better than a placebo.^5 Even though they aren’t much better than a placebo, the results are “statistically significant” and thus were able to be approved by the FDA.

The PRX302 trial displayed about the same amount of efficacy as the FDA approved drugs. The safety profile looked better though. A side effect of the current standard of care is impotence and PRX302 did not show any signs of that. In other words, PRX302 sucks about the same as all of the other shit drugs on the market but at least it doesn’t give you limp dick. The results of the phase III trial were not enough to submit to the FDA approval though. The phase III trial was not robust enough and the sample size was weak, less than 100 patients.

Based on the results of that first phase III trial, I’d say that there is a better than 50% chance that a second, bigger, well-designed phase III clinical trial would confirm what the first trial suggested, that PRX302 is about as efficacious as the existing standard of care with less side effects. The potential here is obvious. If this PRX302 proves that it is as good or better as the current standard of care in a 5 billion dollar market, this becomes a blockbuster, billion dollar drug. But until that second clinical trial is performed and succeeds, PRX302 is considered a promising but unproven and experimental treatment for BPH.

Path Forward From Here

The company has been open in saying that they need another phase III trial that succeeds before they can submit to the FDA but do not have the money to perform such a trial. Sophiris is completely dependent on another company to save them.^6 If they don’t find someone to partner with or to purchase them they will go bankrupt. There is no more significant work or science going on at Sophiris right now. Their only focus right now is to find their big pharma savior with big pockets to pay for the PRX302 clinical trial.

Here are two scenarios that SPHS needs to stay alive.

Scenario 1: A big pharma company buys out Sophiris. The best chance for this to happen would have been Q3/Q4 2016 in my opinion. I don’t think that the CEO was happy with the offers he was getting. As time goes by and Sophiris gets closer and closer to bankruptcy they get more desperate and lose negotiating leverage. At this point, I’m not confident that any remaining offers for purchase would benefit shareholders. Could happen but I wouldn’t bet on it.

Scenario 2: Sophiris finds a big pharm company to partner with on PRX302. I think this is what the CEO is aiming for. Like before though, each day that goes by Sophiris will lose negotiating leverage as they get closer to going belly up. They may be forced to accept a crummy deal that signs away the rights to the majority of the profits. In this scenario, Sophiris moves forward with the phase III clinical trial. That clinical trial needs to be successful, which is probably a 50/50 shot. So this isn’t a rosy scenario either, because even if they get lucky and PRX302 hits, they’ll being handing over a large chunk of the revenue to whomever they partnered with. The stock price would certainly go up from its current value in this scenario, it just puts a cap on the upside.

All other scenarios end in bankruptcy.

Potential Competition

A company called Nymox has a drug called NX-1207 that is trying to fill the exact same market niche, BPH treatment without sexual side effects.^7 It’s a different biological mechanism but is in almost exactly the same situation as PRX302. Like PRX302, NX-1207 is one large, well designed and successful phase III clinical trial away from being ready for FDA approval. Like Sophiris, Nymox is looking for a big pharma company to partner with to execute this needed trial. The odds of NX-1207 being successful are a bit less than PRX302, but it’s not to be ignored completely. NX-1207 failed to meet its primary end point of its first small phase III trial, however it did great in some of its secondary end points. Though a bit of a long shot, it’s certainly plausible that NX-1207 is able to show efficacy with a larger sample size and a better designed trial using what they learned from the last trial.

My Take

The science looks okay but the financial situation is abysmal. PRX302 isn’t a landmark drug that will cure BPH, but there is certainly potential for billion dollar revenues if everything goes well. There are a lot of “ifs” that need to happen though. They need someone with deep pockets to take a chance on them in a time when biotech companies are starting to be more risk averse due to some high profile failures. If that happens, they need a deal that favors shareholders at the current share price, which isn’t a sure thing since Sophiris is getting increasingly desperate to avoid bankruptcy. Then they need their phase III trial to be successful, which is a coin flip. Even if all of that comes true, they still need to avoid NX-1207 stealing their potential market share if NX-1207 gets lucky and has a better phase III trial than them.

On the surface you have a $75 million dollar market cap company with a billion dollar revenue potential drug in the pipeline. But after doing due diligence I’ve determined that I’m too risk averse to buy into Sophiris. If it was as simple as the billion dollar drug has a 50/50 shot of getting approval I’d be all over it, but it’s more complicated than that. If you’re risk tolerance could be defined as “YOLO” then go for it. Otherwise, there are likely better value plays on the market today.

^1 http://investor.sophirisbio.com/secfiling.cfm?filingID=1437749-17-5320&CIK=1563855

^2 http://www.drug-dev.com/Main/Back-Issues/Benign-Prostatic-Hyperplasia-Treatment-Market-Valu-993.aspx

^3 http://www.jurology.com/article/S0022-53471205468-7/abstract

^4 http://www.urospec.com/uro/Forms/ipss.pdf

^5 http://onlinelibrary.wiley.com/doi/10.1111/j.1442-2042.2009.02357.x/pdf

^6 https://www.sec.gov/Archives/edgar/data/1563855/000143774916028287/ex99-1.htm

^7 http://www.nymox.com/default.action?itemid=23

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