ZIOPHARM (ZIOP) Biopharmaceuticals, founded in 2003, focuses on the development of cancer drugs and therapies. Since its original IPO, ZIOPHARM stock has seen a $0.58 low in early 2009 and a $7.56 high in mid-2011. As of after hours on Friday February 15, 2013, ZIOP shares were priced at a market value of $4.58. On Tuesday February 12, ZIOP spiked nearly 25% upon company news that its major drug candidate Palifosfamide, a cancer therapy that is currently in Phase III trials, has successfully met the primary endpoint target. Investor sentiment quickly flooded the markets, hoping that the news signals full "sails" ahead for this drug.
ZIOP has received higher than usual trading volume this past week as investors are anticipating reviews of Palifosfamide Phase III trails or PICASSO 3 to be released to the public during the last week of March 2013. PICASSO 3 is an international, double blind, randomized, and placebo-controlled trial of Palifosfamide, a DNA alkylating agent designed to inhibit the noxious proliferation of multiple lines of sarcoma tumors (cancer of the muscle, fat, bone and tissue derived from the mesenchymal cells). As of February, 12, 2013, the company has announced that PICASSO 3 passed the primary endpoint of achieving the target number of Progression-Free Survival (PFS) events. PFS indicates the length of time after a certain event, usually after treatment, that a patient's condition has not worsened, and is used as an indicator for drug efficacy by the U.K. Health Department and the U.S. FDA. This is indicative of a potentially successful drug candidate, and the next checkpoint to be met will be a positive review from an independent third party analysis by the Independent Data Monitoring Committee (IDMC). Results from this review will be published by the last week of March 2013.
Pitfalls of Palifosfamide:
A major concern for alkylating agents is the non-specificity of these drugs as they are blind to the uniforms and cannot discern the good guys from the bad. Once Palifosfamide is injected or consumed orally, the drug will alkylate the DNA of all cells and damage the genetic blueprint of all cells. As a result, these alkylating drugs may also cause mild to devastating side effects on certain patients, and may lead to hair loss, weakness, and infertility. Most of the time, patients will sacrifice certain comforts and privileges in order to surmount cancer, but if these drugs inflict pain to the extent that patients wish he/she were rather dead, then I would argue that such therapies are ineffective. During the PICASSO 3, these non-specific side effects will be monitored and if they are controlled, this drug will be one step closer towards becoming a blockbuster treatment option.
Like most chemotherapies used to treat cancer, Palifosfamide is not an entirely predictable drug and may react to different cancers and people differently. For any given sarcoma in the same body region, there will be many different lineages, mutations, and versions of cancer cells that cause the same physiological effect. However, each of these tumor cell lines will have a different genetic makeup and will be affected by Palifosfamide differently. Some tumors may be highly sensitive and some may not be damaged at all. On the other side, patients also have different genetic makeups, and while some individuals may be able to stomach the alkylating agents, others will have a very difficult time managing because of different efficacies of DNA repair enzymes, age, and inexplicable factors. With the development of personalized medicine, sequencing technologies are gradually allowing physicians to determine the genetic makeup of individual patients and determine which chemotherapies are most effective for that patient. The upside is that such therapies will optimize tumor suppression and minimize collateral damage. The downside is that these therapies are expensive and not commonplace yet.
Lastly, can this drug find an optimal pricing and marketing scheme so that it is not only successful, but popular among physicians and insurance companies alike? Can this drug be affordable enough so that the maximum number of patients will be put on this treatment, but still generate a high enough margin to remain profitable within the patent years? These questions may be jumping the gun as the drug has not even been approved for market.
Currently, out of the $58.86 million floating shares, there 11.7 million short position which accounts for 18.59% of the float. That is a significant percentage of short positions, and it indicates that in January plenty of investors expected ZIOP shares to drop from negative news concerning Palifosfamide. As of now, shares of ZIOP have only done the opposite since January, so I would expect that if shares keep rising, there may be a strong short squeeze causing prices to rise even higher.
According to the annual report published on November, the company has accumulated deficits of $235.2 million as of September 30, 2012 and maintains a market cap of $365.5 million. According to company executives, there is sufficient capital to cover the company's Operating Costs into the latter half of 2013 during which the company must derive alternative means of funding whether it be a public stock offering or signing of an acquisition.
|(in thousands)||3 months ending 9/30/12||3 months ending 9/30/11|
|sell/Gen/Admin Expenses||5, 712||3, 742|
|Research and Development||16, 215||10, 667|
|Total Operating Expense||21, 927||14,409|
|Operating Income||(21, 727)||(802)|
(Taken from ZIOP)
When comparing the same 3 month period from 2011 to 2012, we see that total Operating Expense has increased by 34.6% due to an unusually high increase in Reseach and Development costs. Between the two periods, R&D expenses increased by $5.548 million or 52% due to the higher trial costs, clinical costs, and employee expenses related with Phase III trials of the Palifosfamide drug candidate. These expenses, in other words, were inevitable and a necessary acyclical cost to take Palifosfamide towards eventual profitability. It takes some cajones to invest in a biopharmaceutical like Ziopharm, but in this case I believe investments will pay off as the pipeline for Palifosfamide has been smooth. Currently, it takes on average of 8 years for a drug to complete clinical trials and then reach approval for market, but ZIOP estimates that clinical trials will be completed in 2-4 years. Once a positive review of the results have been achieved, they will file a NDA and should achieve a marketable product well before the 8 year average. The development of this drug is going to, of course, cost additional expenses related with financing clinical studies, but in lieu of the average, this drug will not be expending that much cash.
The future of ZIOPHARM:
Currently, according to the National Cancer Institute (NCI), there were 11,280 people diagnosed with soft tissue sarcomas, and 3,900 people were expected to pass from this disease in year 2012. Furthermore, the NCI has increased funding for sarcoma research in 2011 indicating the continued threat of this disease.
Furthermore, there are ongoing talks of a large Biopharmaceutical takeover of ZIOPHARM in the near future or after the March 2013 release of the IDMC reviews. If the reviews are positive and Palifosfamide continues to be a hopeful drug candidate, ZIOPHARM should be acquired and shares of ZIOPHARM will skyrocket just from the news of a future acquisition. With a large company takeover, the new company will have the existing capital, infrastructure, and manpower to further develop, market, and generate profit from Palifosfamide.
As of now, the drug Palifosfamide is on the right track to become a blockbuster drug that will spark the interests of multiple large cap biopharmaceuticals such as Novartis (NVS) or Johnson and Johnson (JNJ). The question for the future of the drug will be answered by the end of March 2013. Upon that decision, the share price of ZIOPHARM will eventually mimic the surge of Keryx (KERX) pharmaceuticals a couple weeks ago or plummet like Celsion (CLSN) after dismal Phase III performance of Thermodox. The future remains binary for ZIOPHARM. Let us hope that we are on the right side of the coin.
Disclosure: I am long ZIOP.