CytRx soars on data update, Orexigen resubmits Contrave NDA, Immunocellular crashes on phase 2 readout readthrough for Northwest Biotherapeutics, Mannkind cash position update. Let's go over the stories we've been watching, commenting upon, and trading over the past week.
Cytrx Corporation (NASDAQ:CYTR)
Here is what we wrote to our premium service beta testers afte the frist read of the Cytr Press release on Wednesday:
CYTR just announced that a 123 patient open label phase 2 trial of aldoxorubicin vs doxorubicin showed an 80 to 100% increase in Progression free survival in 1st line metastatic Soft Tissue Sarcoma (STS).
The stock is up over 35% in the pre-market.
One caveat- There is a wide difference between the median PFS reported by the clinical investigators vs the blinded radiology reviewers. Clinicians reported median PFS of 8.4 months and 4.7 months for Aldox vs dox.
Blinded radiology reviewers reported median PFS of 5.7 months vs 2.8 months for aldo vs dox. In typical phase 3 trials in STS doxorubicin demonstrated PFS of 4 to 6 months; therefore the radiology review in this case shows a lower than expected PFS. The discrepancy between radiologists and clinicians also hints at possible bias due to the open label nature of the trial.
Note, Aldoxorubicin is doxorubicin combined with a linker molecule that bind to blood albumen. This allows for much higher doxorubicin dosing (3X - 4X as high) without dose limiting toxicity.
If these results prove durable, it would be a major breakthrough in STS therapy as Doxorubicin has been the gold standard for over 20 years.
We will be listening to the conference call with interest. - But the stock should see a major run off this news.
Sure enough, CYTR saw a massive run based on this data. The stock, which opened the week at $2.57 traded as high as $6.79 before closing the week at $5.72. We attribute the Friday sell off from the highs to short term traders taking profits after such a massive run.
CYTR has some 42 million shares outstanding with another 11.5 million shares issuable due to options and warrants (as of their latest 10-Q). The company had $23m in cash as of September 30th and raised another $20 million in October, putting their current cash position in the $38 - $40 million range.
CYTR is not the first company to report a large PFS advantage over doxorubicin in STS. In 2009 Ziopharm Oncology (NASDAQ:ZIOP) stopped an open-label phase 2 trial of palifosfamide early due to a strong advantage of plaifosfamide plus doxorubicin over doxorubicin. In ZIOP's case, the early data from 62 patients demonstrated a median PFS of 7.8 months for Plaifosfamide plus doxorubicim Vs a median PFs of 4.4 months for doxorubicin alone. We know the rest of the palisoffamide story. ZIOP conducted a phase 3 trial which read out in March of 2013. Palifosfamide plus doxorubicim showed no significant advantage over doxorubicin alone in the double-blinded phase 3 trial.
Notice how similar the phase 2 numbers for ZIOP and CYTR are regarding degree of benefit compared to doxorubicin? Let's try to understand why the CYTR result might be a bit more reliable. First, the CYTR phase 2 trial involved 123 patients, which is double the size of the ZIOP phase 2. Next, ZIOP's PFS advantage was based on just 19 progression events. Much of the patient data was censored to reach the faulty conclusion of strong clinical benefit which was later shown to be non-existent. While we do not know the exact number of progression events used by CYTR, since their data is based on a much larger study, it is clear that more progression events must be in their data set.
As we mentioned to our premium service beta testers, there are a few caveats to this data. The large difference between the clinician PFS measures and the blinded radiology reviewers suggests bias due to the open label nature of the trial. Second, the low median PFS of the doxorubicin arm is a bit disconcerting. Proper analysis would require a comparison of the CYTR enrollment criteria vs those of widely published studies of doxorubicin in metastatic STS. As we mentioned in our note, 4 months is the median PFS one would generally expect to see for doxorubicin. Note, in looking at the CYTR data, investors would do well to ignore the clinician reported PFS data and focus upon the blinded reviewer data because blinded data is less subject to bias.
Nevertheless, the reason that investors may be willing to give CYTR the benefit of the doubt is that the mechanism of action of aldoxorubicin makes logical sense. aldox is doxorubicin coupled with a linker molecule that binds to blood albumin. This means that the drug attacking the tumors in both arms of the study is doxorubicin. Due to the linker, Aldoxorubicin can be administered at doses 3 to 4 times higher than doxorubicin alone. Doxorubicin has dose limiting toxicities, including negative effects on the heart, which prevent doses larger than 75mg/m2 (maximum total lifetime dose of 475 mg/m2) from being administered. According to CYTR, Aldoxorubicin has been administered at doses up to 2000 mg/m2 without negative cardiac effects. Because the active chemotherapy agent in aldoxorubicin is in fact doxorubicin, investors seem willing to give CYTR the benefit of the doubt regarding the discrepancies between the clinician PFS numbers and the lower blinded reviewer numbers.
Is CYTR a good bet going forward?
At roughly $250 million market-cap, CYTR is certainly not overpriced if aldox demonstrates a PFS and/or OS benefit in double blind phase 3 trials. The big risk here is that somehow the doxorubicin arm of their phase 2 trial was less effective than it should have been. In a phase 3 trial, if the aldoxorubicin arm demonstrates a similar 5.7 month median PFS while the doxorubicin arm demonstrates a median PFS of 4 months (as is typical in other STS trials), achieving statistical significance will require a larger number of patients than the current data suggest. On the flip-side, if there is a reasonable explanation for the 2.8 month doxorubicn PFS, the buy side will quickly figure this out, and CYTR's market cap will not stay below $300 million for very much longer. When further details of the phase 2 data are reported at ASCO, if the data are legit, we may witness the transformation of CYTR from a sub $300m market cap company to one with a market cap well in excess of $500 million. This is how the Feuerstein-Ratain rule works. Recall that the F-R rule suggests that the market cap of oncology drug companies about 4 months before a phase 3 trial result is predictive of the chances for success. if the CYTR data are indeed clean, the buy side will not let the stock remain in the F-R rule dead zone. Make no mistake, even a 1 to 2 month overall survival advantage over doxorubicin would mean that aldox would replace doxorubicin as the gold standard in STS chemotherapy.
Over the next few weeks CYTR is likely to find a new basein the $5 to $6 range. However, we would not be surprised to see the stock bid up in late May as the date for ASCO abstract release approaches.
We have no position in CYTR.
Orexigen Therapeutics (NASDAQ:OREX)
On Wednesday OREX announced that the company resubmitted the Contrave New drug application (NDA) to the FDA. This resubmission was highly expected, and comes on the heels of the LIGHT study interim analysis results which were announced the week before last. Recall that in their Q3 conference call OREX indicated that the rest of the NDA resubmission was ready to go and just awaiting the LIGHT study interim results. Within 60 dys after the resubmission, OREX will need to submit the final clinical study report from the LIGHT study interim analysis.
This resubmission sets up a potential PDUFA date of June 11th. However, it is also likely that an advisory committee meeting may be convened, in which case traders will focus their attention on the dates of the ADCOMM first. While OREX traded up slightly in the pe-market when this news was first released, the stock ended up selling off to close the week $5.58, down 6.8% from Wednesday's opening price. The struggling sales of the two already approved obesity drug from Arena pharmaceuticals and Vivus pharmaceuticals are a potential overhang on OREX. Nevertheless, we expect the stock to begin trading up at some point this spring ahead of the PDUFA date. Announcement of an advisory committee meeting would be a likely catalyst for the start of a run in the stock.
We have no position in OREX
Immunocellular Therapeutics (NYSE:IMUC)
On Wednesday, IMUC issued a press release reporting that in their phase 2 trial, ICT-107 failed to meet it's primary endpoint of demonstrating an overall survival advantage over placebo. In the study, ICT-107 demonstrated a statistically significant progression free survival (PFS) advantage of 2 months. Naturally IMUC stock sold off, falling more than 60% in the post-market and continuing to slide on Friday, closing the week at $1.02, a 65% drop from the week's opening price of $2.93.
The readout of this trial in mid December caught many retail investors by surprise. Many investors were expecting data to readout in late Q1 2014. At Red Acre we've been Ahead of the Curve regarding the data timing. Recall that in early November after a careful reading of the company's public statements during the Q3 conference call, we suggested that the 64th event had already occurred and that data analysis was underway. We have also been on record warning our readers that the phase 1 data for IMUC should not be relied upon. Recall back in September when we wrote:
The caveats above must be kept in mind. Investors should not be fooled by single-center open label phase 1 trials that show very large OS "benefits" vs inappropriate historical controls.
More recently, at the end of November, we recommended to our premium service beta testers that booking gains in IMUC was a good idea. Indeed, later that same week, IMUC insiders exercised options and booked gains themselves.
Ostensibly, a PFS benefit of even 2 months is a potentially approvable therapy in glioblastoma multiforme (GBM). So why did the stock sell off so severely? IMUC failed to manage expectations properly. We've been on record noting that IMUC's current CEO, Andrew Gengos has done a good job of trying to properly set expectations; however, the company's past practice of hyping a cherry-picked phase 1 trial has come back to haunt them. Recall that in the phase 1 trial, the median time to progression was 16.9 months. The company compared this PFS number to the historical Stupp et. al. PFS of 6.9 months for radiation+temezolomide. Since the phase 2 trial only showed a 2 month PFS benefit, we are left to wonder whether the PFS for the placebo arm matched the historical number from Stupp, or was significantly greater. Note, the company did not report the actual PFS or OS numbers for either arm of the trial, only the PFS and OS difference between the arms were reported in the press release and in the conference call.
One unfortunate first-time author on Seeking Alpha had the great misfortune of publishing an article suggesting that "patience will pay off " with IMUC the morning before the phase 2 results were announced. We point this out not to pick on the author, but because this article serves as a useful case study. The author uses a mix of known facts, and assumptions, some reasonable, some not so much, to create a "model" which indicated that the data will read out in late Q1. Let's try to understand why the author was SO wrong about the data timing.
This author put amongst the "known" facts that the 32nd death in the ICT-107 trial occurred in May 2013. This assumption was completely wrong because it failed to factor in the trial logistics. Just as with the 64th event - there would be several months' delay from the 32nd event to when the company reported it. When the company said final analysis would take 3-4 months - why would the author assume that interim analysis only takes 1 month? The same logistical issues are there regarding CRO telling DSMB 32 events had happened, DSMB getting together, validating data and doing analysis. The conclusion about timing of the 32nd event would have been different had the author thought it through. It is likely that the 32nd event occurred in February or March just based on the company's guidance of 3-4 months from 64th event to top-line result. Indeed, the article in question states at one point
"If the treatment group resembled the placebo group, the 32nd death would likely have occurred at least two months earlier."
The wider point here is that the author's analysis suffered from confirmation bias. People wanting to believe the ICT-107 phase 1 results look for ways to explain why they are right - rather than looking at the facts and realizing what's really going on. The author in this case was looking for a way to explain why the 9 month overall survival benefit that the ICT-107 trial was designed to demonstrate would naturally result in a data readout sometime next year. But this analysis completely ignored the more reasonable explanation for the fluke phase 1 results - namely that Cendar's Sinai, where IMUC insider John Yu worked, cherry-picked patients who were naturally predisposed to survive a long time.
Learning to avoid confirmation bias is a key skill in biotech investing. It is something even the best buy-sider has to constantly be vigilant about, but it CAN be learned.
Note, while IMUC management suggested that the overall survival data will still mature - this does NOT mean that the numerical OS advantage will increase significantly. Just like the phase 1 trial, there may be a cohort of patients in the present trial who live much longer than the average GBM patient; however, the median overall survival number is unlikely to change appreciably because 67 of the 124 trial patients have already died.
Here's another clue to ruminate upon. The side effects were similar between the two arms of the trial. If ICT-107 was getting the immune system to aggressively fight cancer cells, one would expect that the therapy would induce cytokine reactions and similar side effects in at least some patients. Without further details we do not know whether or not such reactions occurred, but the omission of a mention of side effects in the press release is noteworthy.
What's next for IMUC?
Once the OS data "mature", the company will meet with the FDA to discuss design of a phase 3 trial. If the 2 month PFS and OS benefit are to be the goal for a phase 3 trial, the trial size will have to be in excess of 500 patients. (Note ZIOP had 447 patients with an assumed 3 month PFS benefit for their phase 3 trial of palifosfamide). Such a trial would cost over $50 million (IMUC estimated a cost of $100,000 per patient). In order to mount a phase 3 trial IMUC either needs to partner (extremely unlikely) or needs to conduct a very large financing that, at current prices, would more than double the number of shares outstanding.
Read through for NWBO
The read through for other GBM immunotherapy developers, especially those relying on dendritic cell approaches, is that the phase 1 results from these companies are completely unreliable. Northwest Biotherapeutics (NASDAQ:NWBO) will have an interim look at their phase 3 trial for DC-VaxL within the next 6 to 8 weeks. Note, this interim analysis is similar to the interim analysis IMUC conducted earlier this year. in other words, unless the data are particularly bad, or extremely good, the results of the interim analysis will simply be a recommendation to continue the trial. Given the failure of IMUC to meet it's primary endpoint, investors have correctly become more skeptical of NWBO. While the tumor lysate approach of DC-VaxL is different than the 6 antigen approach of ICT-107, it should be clear by now that the large OS and PFS numbers in these phase 1 GBM trials were almost entirely due to patient selection.
We have no position in IMUC or NWBO.
Mannkind Corporation (NASDAQ:MNKD)
On Thursday, MNKD disclosed that the third tranche of the Deerfield convertible debt financing was received on December 9th. This $40 million tranche was used this week to help pay off the $114.9 million in December 2013 notes. Let's update MNKD's cash position and understand how the company is posied as their 3rd PDUFA date for Afrezza approaches.
Recall that, as of the end of Q3, MNKD had $93.8 million in cash. Subsequent to the end of the quarter they received another $45 million from the exercise of warrants. Accounting for $25 million of cash burn from the end of September to mid-December, MNKD had about $113.8 million cash on hand before the 3rd Deerfield tranche. So, adding in the $40 million, and subtracting the $114.9 million to be paid to note holders, MNKD's current cash position stands at $38.9 million. MNKD's PDUFA date for Afrezza is April 15th. This means that the company will need $40 million to get to PDUFA based on their cash burn of $10 million per month which CFO Matt Pfeffer re-iterated as accurate during their Q3 conference call.
In addition to the $38.9 million in cash, MNKD has up to $30 million that the company can borrow under their line of credit from the Mann group. Additionally, if Afrezza is approved, the company will have the 4th tranche of the Deerfield debt available - another $40 million. So, assuming that no further capital raises occur, the company could have about $70 million in cash available upon approval. This would fund operations for just 7 months, and much shorter if the company has to launch Afrezza themselves. Note, MNKD has a $50 million at-the-market financing facility which, as of Q3 2013 was yet untapped. This facility, if used in full, would provid another 5 months' cash bringing the potential post-PDFUA cash runway (assuming the same $10m/month burn) to 12 months.
From the above cash analysis it is clear that Mannkind will need more cash. Whether this cash comes from a partner, from further financing from the Mann group, or from 3rd parties, is irrelevant. The point is that more cash will be needed. The exact timing of a cash infusion is unknown at the moment but our view is that a secondary offering of either debt of equity will come before the PDUFA date.
UPDATED 9:50 AM 12/16/13.
We have no position in MNKD
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