As Pfizer Eyes It, Celgene Calls Cellceutix

Includes: CELG, CTIX, PFE
by: James Burke

At the 2012, J.P. Morgan Health Care Conference, Celgene's (CELG) CEO Bob Hugin heralded the company's psoriatic compound as a potential blockbuster that appeared destined to become a primary drug in the psoriatic area of dermatology for which it is in trials to address. However, several weeks later, the compound was reported as having difficulty in phase three clinicals and appeared to be unlikely to generate as promising of an advance as indicated. Expectations for Apremilast have been halved and Celgene now touts that its safety profile instead of its once speculated superior efficacy will be the agent of its market penetration. That said, the once diminished hopes for Apremilast have been bolstered by the latest announcement. However strong the recent announcement, Celgene quickly added a need for increased therapeutic advancement in treating the disease.

In an interview with KarinCA, Cellceutix (OTCQB:CTIX) CEO, Leo Ehrlich, said that Celgene called Cellceutix and requested publicly available documents from the company. Cellceutix's two primary compounds are Kevetrin and Prurisol (KM 133). Kevetrin is for a number of cancers including melanoma, carcinomas, and blood cancers. Prurisol is designed to treat psoriasis; in laboratory mice, it seemed to produce a cure. Although Prurisol is directed to advance against a different kind of psoriasis than Apremilast, its value for Celgene is that Prurisol is a possible psoriasis-related dermatological blockbuster (note the mice study pictures) with more potential than Apremilast was prematurely touted as having. One can also imagine a possible conversation about a study involving Apremilast and Prurisol. Cellceutix's Prurisol was given invitation to apply for an FDA stage 2/3 but management wisely chose a meaningful proof of concept study that will help Prurisol avoid the type of bloated anticipation that analysts and shareholders observed with Apremilast. Indeed, the proof of concept trial could conclude that KM 133 is deserving the highest of clinical trial expectations. Cellceutix has another preclinical compound KM 227 to treat rheumatoid arthritis. One thousand animal experiments have been done with KM 227; that certainly is grounds for discussion among research scientists. Also, in preclinicals is KM 278 for osteoarthritis. Kevetrin, as a preclinical compound was introduced by Beth Israel for studies with two of Pfizer's multi-kinase inhibitors, one of which, Sunitinib, was already FDA approved. Although this sort of ambitious promotion is not the norm in preclinical pharma, Dr Krishna Menon is an exceptional research scientist and pharmaceutical developer. KM 227, KM 278 and more likely Prurisol could become the object of a conjugation study as has been the case with Kevetrin. By 2016, the annual US Market for psoriasis therapeutics is projected to be more than $9 billion. Remember in the mice study with Prurisol, the animals treated did not experience recurrence after the treatment ceased. I project that Prurisol will capture 15 to 20 percent of the US domestic market.

Celgene's Apremilast compound has absorbed substantial research and development money, and the acquisition of Avila cost $350 million in cash. Such expenditures have had very small impacts on Celgene's recent earnings, which are over $400 million per quarter. Celgene sports a PE of 37 vs Merck's (NYSE: MRK) PE of 24, Roche's (NYSE: RHHBY) PE of 22, or Pfizer's (NYSE: PFE) PE of 20. This PE premium relative to its peers, in juxtaposition with the aforementioned R&D expenditures, is indicative that the markets perceive Celgene as engaging in prudent research and development and embarking on an accretive merger and acquisition strategy. However, both AVL 292 and Apremilast are vulnerable to being compared over the next 7-12 months with Cellceutix's Kevetrin and Prurisol. By December of 2013, Prurisol should have completed its human proof of concept trial with hard data available. Prurisol could then become a featured compound worthy of the former robust expectations that surrounded Apremilast. Will the Street realize as I have that Celgene's pipeline may not be as promising as promoted when compared with Kevetrin and Prurisol. If that happens, Celgene's shareholder family might see a price-to-earnings ratio contraction.

For those following Celgene, close attention should be paid to both the Kevetrin results at Dana Farber as well as those to come from the University of Bologna's hematological cancer trial. Observers should bear in mind that as Kevetrin advances to maximum tolerable dosage in FDA stage 1, Bologna's hematological trial should begin as an advanced 1b or perhaps a stage 2 trial. Celgene should be concerned this will position Kevetrin into a conspicuous comparison with Celgene's AVL 292. At the sequel of FDA 1, if Kevetrin is awarded "breakthrough" fast track FDA status, pressure will not only be upon Celgene/Avila but also numerous other companies with oncolytic compounds that simply do not hold the triple promise of safety, efficacy, and broad therapeutic index that Kevetrin appears to offer. In such a scenario, Kevetrin as a "breakthrough" compound for P53 activation will probably become and reign for some time as the centripetal force for oncolytic compound conjugation. Concomitantly, Kevetrin will become a primary preemptive weapon against the woeful concern of metastases, as it will provide an immune system defense against the spread of the same cancer throughout other parts of the human body. Where the expectancy of the onset of cancer can be linked to the probability of contribution from P53 dysfunction, then Kevetrin as a non toxic form of chemotherapy might play an important part in perhaps successful early intervention. The aforementioned are all logical outcomes for the pharmaceutical compound that wins the P53 race. This I believe will be a major contribution in humankind making the third step forward in the War on Cancer.

Remember Beth Israel made this risky but now clairvoyant marriage for Pfizer's Sunitinib, before Kevetrin began FDA 1 trials at Dana Farber. After the ASCO meeting, we should be able to prudently speculate whether or not a Kevetrin/Sunitinib combination will be able to dethrone Glaxo's (GSK) Pazopanib. In order for Pazopanib to maintain its number 1 status, Glaxo will probably need to find a companion compound that can rival the Kevetrin and Sunitinib conjugation. The preclinical introduction of Kevetrin for study with an FDA approved cancer drug accentuates what Beth Israel's keen researchers thought about the then pre-clinical Kevetrin. In the recent Beth Israel update, Pfizer remains conspicuously absent from mention. This was probably intentional in order not to bring a deluge of inquiries into their investor relations department. However, I would like to inform Pfizer shareholders that Pfizer's interest in Kevetrin goes far beyond Sunitinib, or the second kinase inhibitor of focus at Beth Israel. Kevetrin is possibly Pfizer's primary opportunity to obtain a compound that could rival or supercede PFE)/Data/Revenue_-_Lipitor" rel="nofollow">Lipitor's formerly 12 billion dollar annual revenue. Merck has invested substantially in P53 research, Kevetrin appears ahead of Merck's best efforts to date in the P53 race. One of the most important but least recognized values of Kevetrin is its ability to regulate HDAC2 histone deacetylase. Dr. Ashok Kumar discovered this extremely important mechanism of action, which is a therapeutic target of powerful anti-tumor activity. This discovery seems to have made a contribution in Cellceutix's move toward using Kevetrin in a future "breakthrough" trial against the devastating retinoblastoma. Would Celgene like to intercept Kevetrin, from Pfizer, and or Roche?

On Jan 26, 2012, Celgene acquired a private company owned named Avila. Avila's lead clinical compound AVL 292 was in the middle of FDA stage 1 clinicals for hematological cancer. Celgene made a structured deal paying 350 million in cash and the other 575 million was structured in milestones and royalties. Assuming Avila's (AVL 292) success, this will become a 925 million dollar acquisition. This was a tremendous deal for Avila's venture capital shareholders Polaris Venture Partners, Abingworth Management, and Advent Venture Partners. Celgene's shareholders and its institutional followers evidently believed similarly as Celgene shares rallied slightly up on the acquisition news. Apparently such a premium for Avila with a midstage FDA 1 drug was digested with the understanding that Celgene was acquiring both a potential blockbuster as well as a technological platform that could develop many pharmaceutical compounds in the future. In searching to find a biotech company with an FDA mid-stage 1 compound that has attracted close to a $1 billion buyout offer, I could only find one for comparison, but it had completed FDA 1 and was designated a breakthrough therapy. So my conclusion is that a $1 billion mid phase 1 biotech buyout is both recent and rare. Because of the rich price paid for Avila, I can only conclude that Celgene executives believed that they were obtaining a substantial intermediate and long-term blockbuster.

Celgene's executives have possibly asked themselves three questions. The first, how does the AVL 292 acquisition compare with Kevetrin? Before the Bologna trial begins, it should be considered speculative but shortly thereafter the convergence of several different streams of clinical data should render a decisive verdict on which compound is both hematologically and also oncologically superior. Within the next 7 to 12 months, this will be a revealing comparison that might speak volumes about how thoroughly Celgene's merger and acquisition crew assessed the early stage hematological cancer therapeutic market prior to buying Avila. Succinctly, I think they had a case of myopia. Kevetrin along with its enviable safety profile has therapeutic application to hematological, carcinoma and melanoma cancers, whereby AVL 292 appears limited to hematology alone. One of the most important values of Kevetrin is its ability to regulate HDAC2 histone deacetylase. This information was shared with the public on January 17, 2012. Kevetrin's patent covers the 30,000 or more potential compounds. The issue of Avila (AVL 292) as a therapeutic platform is certainly valid and probably worth the price that Celgene paid. However, Kevetrin as a therapeutic platform begins another round of multiple billion dollar blockbuster speculations that range from animal cancer (canines, felines, and equines) fibroid tumors, and a host of other human maladies and diseases. The second and third question that Celgene's executives might ask: could Cellceutix's Prurisol alone provide the economic promise of Apremilast, prior to its recent halving? Could Prurisol be used in conjugation with Apremilast in order to revive its now diminished hopes? After the short Prurisol proof of concept study, the answer to either question could be yes. Celgene's shareholders need to understand that facts will be generated toward the answers to these relevant but hypothetical questions between October 1st and December of 2013. As hard data regarding Kevetrin and Prurisol is generated, it will reflect substantially on Celgene's merger and acquisition team's ability to compare and contrast early stage biotech and communicate with discrimination to their executive leadership.

On January 26th, 2012 when Celgene made the Avila acquisition, Cellceutix closed at 0.50 cents a share, with a little over 91 million shares outstanding and about 40 million shares in the float. Whether by private placement or open market purchases, an investment of roughly 10% of the amount that Celgene paid for Avila could have very possibly been used to acquire a 30% to 40% position in Cellceutix. Essentially the next 7 months will validate or once again bring into scrutiny Celgene's executive intelligence. Also note how Mr. Hugin, in his J.P. Morgan HealthCare speech spoke very highly of merging the research and development cultures of immunotherapy and inflammatory diseases with oncology. Many of Cellceutix' preclinical and clinical drugs are exemplars of such cross pollination. From Mr. Ehrlich's mention of Celgene to KarinCA, it would appear that Cellceutix has only recently come under serious surveillance by Celgene's decision makers. However, Seeking Alpha readers had earlier indication of Avila as a suggestive model for Cellceutix. The indication of that article was Cellceutix was probably of greater value than Avila.

Celgene with 70 billion capitalization now joins the ranks of those big pharmaceuticals like Pfizer and Roche. If either are documented to be drooling over Cellceutix, it will bring many awkward inquiries into their investor relations departments. Given Cellceutix's current clinical trajectory, executives at Celgene, Pfizer and Roche will not have to monitor Kevetrin or Prurisol for many months, hence before these matters become very advanced toward probable conclusions. It's very possible that by December of this year that Cellceutix will have data available on both Kevetrin's FDA 1 trial at Dana Farber and also Prurisol's KM 133's proof of concept study. Also, data should be forming in the Bologna clinical involving Cytarabine with Kevetrin against acute myeloid leukemia. For Kevetrin, part of this could be fast forwarded to early June at the "ASCO" meeting in Chicago. If Kevetrin is granted a "Breakthrough Therapy" designation by the FDA, which I believe will happen during the first half of 2014, we should see a remarkable markup in Cellceutix's capitalization. If Prurisol's short proof of concept study is as convincing in humans as it was in animals, "remarkable" will sound like a restrained comment.

Although early, it's possible that Kevetrin and AVL 292 might complement each other and produce a conjugated blood cancer blockbuster. Prurisol or the preclinical KM 227/KM 278 may have similar potential with Apremilast. On another level, a post proof of concept Prurisol holds promise of a near-term opportunity for a resurrection of Celgene's clinical intelligence and clairvoyance to properly guide its shareholder family. Others like myself, may have already concluded that Celgene has difficulty guiding its shareholder family. Samuel Johnson once said, "The use of traveling is to regulate imagination by reality, and instead of thinking how things may be, to see them as they are." Celgene CEO Bob Hugin has a first-rate ability to communicate scientific market sensitive journalism. However, I think his imagination is better than Celgene's research and development and certainly superior to his merger and acquisition department's ability to compare and contrast fledgling biotech companies. Regarding Prurisol, Cellceutix has done an excellent job of progressively using facts to create expectancy and then delivering results. Should Celgene have an opportunity to unite with a post proof of concept Prurisol -- either solo or in conjugation with Apremilast -- Celgene should move like an arrow from a fully drawn bow. After the Prurisol proof of concept psoriasis results, we can see Cellceutix's Prurisol conjugating with KM 227 and or KM 278 in order to also encompass broader psoriatic maladies as well. In November, we will be able to say with possibility as to whether or not Prurisol KM 133 will also become a centripetal compound in psoriatic treatment.

What do I believe Kevetrin to be worth? It hinges on the 3 near-term facts to be established soon. One, if FDA 1 at Dana Farber is conclusive regarding Kevetrin's non toxicity to the human genome system. Two, if Kevetrin is indicated to measurably advance therapy to a broad variety of cancer types in patients. Three should the FDA also designate Kevetrin as a" Breakthrough Therapy," then I will begin at 15 billion dollars minimum and perhaps 25 billion. At approximately 100 million shares issued and outstanding, I see Cellceutix moving toward $100.00 a share during 2014. This is based entirely on a joint venture licensing or buyout of Kevetrin. We will probably have some idea of the possibility of these criteria being met after the ASCO meeting in Chicago, in early June, 2013. It appears likely that prior to this year's end that the first two criteria will either be affirmed or become doubtful. The first two affirmed makes the third, most likely. Kevetrin might soon be appropriately proven the "Holy Grail of P53 Therapeutics."

After making the call to Cellceutix and receiving the information, if Celgene passes on the obvious opportunities it has with Cellceutix, then I certainly will watch for them to find similar elsewhere. Without such opportunity, I consider it a possibility that Celgene should trade at a significantly lower price-to-earnings multiple than its current 37 PE ratio. If Celgene makes a successful move toward Cellceutix's pharmaceutical compound portfolio, then I believe that we can have stronger expectancy from the Celgene pipeline. Based upon the previous, I anticipate that by 2017-18 Kevetrin will add billions of dollars to any company's quarterly revenue. Should Prurisol capture 15% of the G7 psoriasis market, it should bring in over 1.5 billion a year in revenue. This does not include revenue from possible psoriatic conjugation. Succinctly, I expect Cellceutix's Kevetrin and Prurisol in 2017-18, to together generate as much or more revenue than many very good biotechnology companies like Celgene currently have in the last year.

Disclosure: I am long OTCQB:CTIX. 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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