Soleno Therapeutics, Inc.

Moat: 1/5

Understandability: 2/5

Balance Sheet Health: 2/5

Soleno Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing novel therapeutics for the treatment of rare diseases, particularly Prader-Willi Syndrome (PWS).

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Soleno Therapeutics operates in the highly competitive and risky biopharmaceutical industry, specifically focusing on rare diseases. This space, while offering potential for high rewards due to orphan drug designations and limited competition, also carries significant challenges related to clinical trial success, regulatory approvals, and commercialization.

  • Revenue Distribution:
    • As a clinical-stage company, Soleno currently has no products approved for sale and generates no revenue from product sales. Their existence is contingent on the development and successful commercialization of their lead drug candidate, Diazoxide Choline Controlled-Release (DCCR).
  • Industry Trends:
    • Increasing focus on rare diseases: Regulatory agencies like the FDA offer incentives such as priority review and market exclusivity for orphan drugs, making this an attractive area for pharmaceutical development.
    • Advancements in drug delivery: Soleno is leveraging controlled-release technology to improve the therapeutic profile of Diazoxide Choline, which has been previously used for other indications.
  • Margins: As they don’t sell any products, it is impossible to talk about margins.
  • Competitive Landscape:
    • PWS treatment landscape: The current standard of care for PWS primarily involves growth hormone therapy and management of associated symptoms like hyperphagia (excessive hunger) and behavioral issues.
    • DCCR’s potential competition: If approved, DCCR would face competition from existing therapies and potential future entrants focusing on similar or different aspects of PWS. There are other companies like Rhythm Pharmaceuticals that are in Phase 3 for PWS. A company called Zafgen, previously developing a PWS therapy, faced significant setbacks due to safety concerns.
  • What makes the company different?
    • Soleno’s lead drug candidate DCCR is designed to address hyperphagia, a key unmet need in PWS, by potentially reducing appetite and improving behavioral control.
    • DCCR’s controlled-release formulation aims to improve the tolerability and efficacy of Diazoxide Choline compared to previous formulations.
    • Clinical Development: The drug has already been through numerous clinical trials and showed some success. DCCR has completed a Phase 3 clinical trial in PWS patients and has been granted Orphan Drug Designation and Fast Track Designation by the FDA.

Moat Assessment: 1 / 5

Soleno’s “moat”, or sustainable competitive advantage, is extremely weak at this point in time. This is based on the following factors:

  • Intellectual Property: They have some IP as it relates to their drug candidate DCCR. However, there are significant risks attached to this regarding patent validity and enforceability.
  • Regulatory Approvals:
  • Regulatory approval is a BIG question mark. It faces challenges in regards to clinical trials and regulatory environment, in addition to its uncertain safety benefits. It’s highly possible and probable that the drug could be rejected which is a major risk for the business, because there are currently no other assets.
  • Competition: Despite the relative focus on rare diseases, Soleno faces direct and potential competition from existing therapies and other companies developing novel PWS treatments.

Risks to the Moat and Business Resilience

  • Clinical Trial Failure:
  • DCCR’s success is dependent on clinical trial results. Any negative or inconclusive results, safety concerns, or failure to meet endpoints in future trials could severely impact the company’s prospects.
  • Regulatory Hurdles:
    • FDA approval is by no means guaranteed. Delays, rejections, or requirements for additional trials could significantly impact Soleno’s timeline and financial resources.
  • Competition:
    • New PWS therapies could emerge, offering different or superior benefits compared to DCCR, affecting its market share.
  • Commercialization Challenges:
    • Even if approved, successful commercialization requires effective marketing, pricing, reimbursement, and market access strategies.

Financials In-Depth

As of March 31, 2024, Soleno is in a financially precarious situation. Given that it does not have a product to sell, their health is extremely important.

  • Liquidity and Cash Runway:
    • Cash and cash equivalents totaled approximately $45.8 million. It is down from $51.2 million in Dec 31, 2023.
    • According to the latest 10Q, management anticipates the current cash balance will be sufficient to fund operations into the first quarter of 2026, without accounting for any potential revenue from DCCR. This suggests reliance on further financing via debt or equity.
  • Operating Expenses:
    • Research and development expenses were $3.9 million for the three months ended March 31, 2024.
    • General and administrative expenses were $1.5 million for the three months ended March 31, 2024.
  • Net Loss:
  • For the three months ended March 31, 2024, the company reported a net loss of $1.6 million. This is concerning. * The latest reports shows that the company has been undertaking efforts to reduce operating costs, which can include measures like restructuring or streamlining research efforts.
  • Debt: Total Liabilities of $8.2m. They also had Stockholders’ Equity of $55.4m

Recent Concerns/Controversies

There are not a lot of recent news about the stock. In the latest earning’s calls, management has been emphasizing and reinforcing the strengths of DCCR.

Understandability Rating: 2 / 5

Soleno’s business model is of average complexity, due to reliance on clinical trials, and regulatory environment.

Balance Sheet Health: 2 / 5

Soleno’s balance sheet health is weak but their plan is that their current liabilities will continue to be met into 2026.