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After substantial devaluation in a number of solid biotechnology stocks I follow, I'm taking another look at the novel cancer drug developer Stemline Therapeutics (NASDAQ:STML). Although the company already had a strong run following its introduction to the public markets earlier this year, there is more upside to be had if the company continues to present encouraging data from its drug candidates.

Decent trial results can later be used to expand further into currently-targeted disease areas, or to justify the creation of new development programs targeting CSCs in other forms of cancer. There is also a chance that Stemline may be given an accelerated approval pathway from the FDA for SL-401 in the treatment of blastic plasmacytoid dendritic cell neoplasm (for which orphan drug status was already granted), which would allow the company to generate significant income within the next 2 to 3 years.

Cancer Stem Cells

Stemline is one of the few companies that focus on cancer stem cells (CSCs). Although they represent a small percentage of total tumor mass in a cancer patient's body, they are responsible for the regrowth of a tumor after surgical resection or other therapies that target tumor mass. Their presence in various forms of cancer has been verified, including the forms that are being targeted by Stemline's development programs.

To develop drug candidates that will be effective against cancer stem cells, the company uses a cutting edge drug discovery platform known as StemScreen which tracks CSCs in vivo with high-throughput screening. This kind of monitoring allows the company to discover target proteins that are expressed by cancer stem cells. Once identified, the company can later develop an antibody that targets this particular protein.

Developmental Pipeline

Stemline has two primary drug candidates that are being tested in blood and brain cancers.

SL-401

SL-401 is a targeted therapy that consists of the protein IL-3 attached to a cytotoxic payload that inhibits protein synthesis. The drug's mechanism of action is designed to exploit high expression of IL-3R (Interleukin Receptor) specific to cancer stem cells. By isolating IL-3R specific to cancer stem cells, it is possible to target and allow SL-401 to attach. After it attaches, it enters the cell and stimulates cancer cell destruction.

While some normal cells may express IL-3 receptor, there is heavy overexpression of the receptor protein both cancer stem cells and tumor bulk cells of hematologic cancers (cancers that spread via blood). The targeting portion of SL-401 molecule allows drug to deliver cytotoxic payload almost exclusively to malignant cells, preventing unnecessary destruction of non cancerous afflicted cells. This is a distinct characteristic of this treatment , unlike standard chemotherapy which necessarily affects all cells undergoing cell replication, healthy and cancerous, resulting in compromising side effects.

The therapy is being developed for a number of hematologic cancer indications, although the most mature programs are targeting blastic plasmacytoid dendritic cell neoplasm (BPDCN) and acute myeloid leukemia (AML).

For BPDCN, phase I/II trials showed that SL-401 is both safe and tolerable, which verifies the viability of the IL-3R targeting mechanism attached to the drug itself. Efficacy is harder to interpret from a statistical standpoint because of small sample sizes. However, this type of cancer is very rare (incident of ~1,000 cases diagnosed each year in the US), which implies that the FDA may be more lenient when evaluating the data.

5 out of 6 patients saw tumor shrinkage or disease stabilization, which is also defined as a "response". Case studies of the 3/6 (50%) patients that achieved a complete response (a disappearance of the cancer) with SL-401 were also encouraging, since many had already failed conventional methods of treatment. The planned Phase IIb trial will enroll about 40-50 patients, and will generate a much larger pool of data for interpretation. If SL-401 can achieve an overall response rate near 83% and a comparable complete response rate, it is implied that the FDA will be very eager to approve SL-401 for BPDCN.

SL-401 was studied in a Phase I/II trial for AML with 83 patients that had failed conventional chemotherapy treatment or bone marrow transplantation. These patients, who were physically weakened by previous treatments, were able to tolerate the mild toxicity of a SL-401 regimen although the trial did see that 5% of patients reached dose-limiting toxicity (DLT). The overall response rate was 46% in patients with relapsed or refractory disease, and three patients saw a complete response.

SL-701

SL-701 is a vaccine that is designed to generate a powerful immune response in patients with gliomas (brain cancer). This is done through the targeting of two key receptors that are overexpressed in glioma cells - IL-13Ra2 and EphA2 - with peptides. Perhaps the most important target of this vaccine will be glioblastoma multiforme (GBM) - a common and extremely difficult-to-treat form of brain cancer that is characterized by aggressive growth and recurrence following remission.

A Phase I/II trial was conducted to evaluate the safety, tolerability and efficacy of SL-701 as a treatment for high-grade gliomas (including GBM). 22 adult patients were treated with SL-701, which produced an overall response or disease stabilization rate of 59%. Two patients had a complete response, one of which lasted over 23 months following treatment.

Summary

There are a few key elements that differentiate Stemline from other cancer drug developers. Perhaps the most important has to do with the company's uniquely distinct method of drug discovery allows the company to determine targets that are present on all cancer stem cells. discovery Historically, I think there has been too much focus on reduction of tumor mass. As we continue to collect more data, we are finding it more practical to focus on the underlying factors that affect patient survival rates. Cancer stem cells, which seem to be present in virtually all forms of cancer, seem to be a very important one as ongoing cancer research points to their significance.

Another key factor would have to be the company's target indications in blood and brain cancers - and especially blastic plasmacytoid dendritic cell neoplasm. Although these are not the largest indications, patients with these types of cancers have few options if they fail front-line therapy. This creates a disproportionately large unmet need for new, effective therapies. After clinical development, it is unlikely that Stemline would have any trouble marketing its products - especially SL-401 for BPDCN.

Stemline is a biotechnology company that has yet to reach the commercialization stage. Due to this, the company may see continued unprofitably for the next few years, although the market should continue to add value to Stemline's market capitalization based on its prospects, as more data trickles in. As stated earlier, this is contingent upon the company's continued success on the clinical development front. The recent pullback also makes the company much more attractive from a fundamental investment standpoint. The data that has built the stock up since IPO remains solid.

In the near future, I'm particularly excited about the BPDCN indication due to the possibility of an accelerated approval. This could lead to commercialization within a few years. Utilization of the drug in this indication may also be high due to the lack of alternatives. Stemline is a biotechnology company and is not going to generate revenues for at least a couple of years. The only source of revenue before approval would have to be done through partnerships. According to their most recent quarterly earnings, the company is holding roughly $94 million in cash. The company will probably have to raise more money to continue clinical development for SL-401 and SL-701, although the value of these therapies should increase quite dramatically if the data is good. These raises can either be done through debt or stock offerings, and are used to cover expenses for running clinical trials. In the next 1-2 years, I think STML could easily have a market capitalization north of $1 billion if the data is good enough to support an application for SL-401 FDA approval as a therapy for BPDCN. If data is also solid in the other indications, Stemline could become another multibillion cancer drug success story.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Source: Recent Drop In Stemline Therapeutics Creates Buying Opportunity