Editors' Note: This article covers one or more micro-cap stocks. Please be aware of the risks associated with these stocks.
With the market at all-time highs, investors worried about a potential market sell-off are likely looking for investments that aren't tied to the overall market. One such area is biotechnology. Specifically, companies focused on developing superior treatments and products in the cancer space appear poised for significant growth, despite how the overall market performs. One company that has been releasing a string of positive news over the last couple of months has been CytRx Corporation (CYTR).
CytRx Corporation is a biopharmaceutical company focused on developing and commercializing potential treatments for various cancer indications. The company is concentrating on developing aldoxorubicin, a vastly superior version of the standard chemotherapeutic agent doxorubicin. CytRx is currently pursuing multiple indications with aldoxorubicin:
- 2nd-Line Soft Tissue Sarcoma (STS)
- 1st-Line Soft Tissue Sarcoma
- Glioblastoma Multiforme (GBM)
- Kaposi's Sarcoma
What is Aldoxorubicin?
Aldoxorubicin combines doxorubicin with a single-molecule linker that binds to albumin, which is the most abundant protein in one's bloodstream. Tumors typically require a great deal of protein and thus tend to congregate close to albumin. The goal is to maximize the delivery of the linker molecule with the attached doxorubicin to tumor sites.
After all the trials are completed, CytRx expects that aldoxorubicin will prove to be much less toxic than doxorubicin and be able to increase efficacy by delivering 3.5-4 times more drug at each cycle.
Promising Interim Results
On October 31st, CytRx reported additional interim results from its Phase 2b Trial for 1st-Line Soft Tissue Sarcoma. The trial enrolled 123 patients between the ages of 18-80. All of these patients were confirmed to have metastatic, locally advanced or unresectable soft tissue sarcomas. The patients were randomized 2:1 to receive either 350 mg/m2 aldoxorubicin IV or 75 mg/m2 doxorubicin IV every three weeks for up to six cycles.
So far, it appears that investors have a lot to be excited about. Patients in the trial that were treated with aldoxorubicin had a higher Overall Response Rate (22%) compared to those treated with doxorubicin (0%). Additionally, those taking aldoxorubicin had a lower chance of showing progressive disease (32%) than those on doxorubicin (50%).
One of the main reasons why CytRx is developing aldoxorubicin is to reduce the side effects associated with doxorubicin, including decreased cardiac output. Thus far, the interim results are encouraging in that regard. While 22% of the patients on doxorubicin suffered from decreased cardiac output, only 11% of those on aldoxorubicin suffered from similar issues. This is in spite of the fact that aldoxorubicin patients were receiving 3.5x the standard dose of doxorubicin.
The critics may point to one part of the press release as a negative but that simply isn't the case. The announcement did state that there were 24 serious adverse events associated with aldoxorubicin versus just 6 serious adverse events with doxorubicin. However, investors must understand that the trial was randomized 2:1, meaning that twice as many patients received aldoxorubicin. Additionally, all the SAEs resolved and did not require treatment discontinuation. This is critically important because it means that the drug is being released and is active. Investors will find out exactly how well it's working when CytRx releases top-line progression-free survival results in December.
Bakers Brothers Have Taken An Interest
With all of the biotechnology stocks in the universe, it is critically important to follow the smart money. The Baker Brothers have established themselves as one of the best names in the healthcare/biotechnology universe. The company has taken early and sizable positions in huge success stories such as Pharmacyclics (PCYC), Seattle Genetics (SGEN), and most recently, Acadia Pharmaceuticals (ACAD).
Each of those companies has soared in value creating millions in gains for the investors who had the foresight to invest early and follow the Baker Brothers. While most of us (me included) missed those fantastic opportunities, there is another opportunity with CytRx.
The Baker Brothers currently hold a position of 1 million shares in CytRx. While this may not seem like a large position in comparison to the fund's earlier investments, it is still early. As CytRx continues to demonstrate outstanding trial results like they are doing so far in the Phase 2b for 1st-Line Soft Tissue Sarcoma, I expect more institutional investors like Baker Brothers to take a stake.
As investors consider taking a position, it's important that the upcoming catalysts are outlined to determine a timeline for potential share appreciation. The company currently has 4 major events coming up that investors should have circled on their calendar.
- 4th Quarter 2013 - CytRx plans to commence a Phase 2 trial with aldoxorubicin in patients with relapsed glioblastoma.
- 4th Quarter 2013 - CytRx plans to begin a Phase 2 trial evaluating the preliminary efficacy of aldoxorubicin in treating AIDS-related Kaposi's sarcoma.
- December 2013 - As mentioned above, the company will release top-line progression-free survival results from the Phase 2b 1st-Line Soft Tissue Sarcoma trial.
- 1st Quarter 2014 - CytRx will start a Phase 3 pivotal trial with aldoxorubicin for 2nd-Line Soft Tissue Sarcoma in patients who have failed chemotherapy.
Lots of Cash - Minimal Dilution Risk
When investors consider taking a position in a micro-cap biotechnology stock, they must take a long hard look at the company's balance sheet. On October 29th, CytRx reported their third quarter earnings and the company ended the quarter with approximately $23 million in available cash. Additionally, the company had no long-term debt on the books. This means that the company can use all available resources for operating expenses, including research & development, rather than having to worry about making interest payments.
It should also be noted that CytRx raised approximately $25.9 million in a stock offering in the middle of October. So combining those proceeds with the cash on the books at the end of the third quarter, and CytRx has over $45 million for future operating expenses. Given that the company's monthly burn rate is roughly $1.5 to $2 million, the company's current cash position is more than enough to fund the company for at least the next two years. This means that investors can take a position now and not have to worry about dilution.
As always, investors need to be aware of the risks associated with a micro-cap biotechnology stock. Although dilution appears to a minimal risk because of the company's extremely healthy cash position, it cannot be discounted. It is still possible and depending on the company's expenditures and future trial additions, the need for additional cash may occur.
A second risk is from trial failure. As with all micro-cap biotechnology stocks, trial success is critical. The events facing CytRx were outlined above and investors should be aware that those events can have a significant impact upon the share price and the future prospects of the company. The one positive is that CytRx is building a diversified pipeline of treatments for various indications. This diversification should ease the selling pressure should any one trial fail.
CytRx appears poised for significant growth over the next 6-12 months. The company is developing potential treatments in areas with a major unmet medical need. Should any of those treatments prove to be successful, it is likely that the share price could soar. With 4 major catalysts and a healthy financial position, investors may want to consider taking at least a small position in the company now before it's too late.