Poniard Pharmaceuticals: Oversold, Undervalued, Poised for Short Squeeze

Poniard Pharmaceuticals, Inc. (NASDAQ:PARD) is a biopharmaceutical company focused on the development and commercialization of oncology products. In recent months, the stock went down almost 70% from its high of over $9 to under $2, driven by the surprise outcome of their phase 3 trial using their lead product candidate, picoplatin, in small cell lung cancer (SCLC) in November 2009.

However, recent activity on PARD stock is suggesting that the downtrend has ended. On January 7th, PARD announced their goals for 2010 and the upcoming release of the results of two phase II trials, and investors are beginning to see the tremendous value that remains in PARD. As more “bargain shopping” investors pay attention, we expect more activity and share price appreciation in PARD; however, this small movement in PARD is likely only the beginning. There is currently an approximate 25% short position in PARD, setting up a perfect storm for a long investor driven stock rally causing a massive short covering which may result in a dramatic increase in PARD share price.

I feel that the following potential catalysts may drive a strong rally in PARD stock:

1) PARD will present additional data from their Phase 2 trial using picoplatin in colorectal cancer (CRC) l on January 24.

2) PARD will present data from their Phase 2 trial using picoplatin in prostate cancer on March 5th.

3) A massive short covering rally (with a current 20% - 25% short interest) caused by upward momentum from investors.

4) Talks with the FDA for a path forward for picoplatin in small cell lung cancer (SCLC) in the first half of this year.

5) More updates from trial of an oral formulation of picoplatin, which were presented in 2009, may also occur during this time.

6) PARD fundamentals: Picoplatin avoids many of the toxicities of the widely used platinum drugs, which represent an almost $4 billion market in the US. PARD currently has about $40 million in cash to continue to develop picoplatin and break into this large market.

7) Technical rally: Technical indicators show that PARD is oversold (probably due to its massive short position), with a strong trend of accumulation and a return to positive moving averages.

With data from approximately 1,100 patients treated with picoplatin in lung, colorectal, prostate and ovarian cancers, there is a lot of data available to gauge the likelihood of its success in clinical trials. If approved, picoplatin could be substituted for platinum-based therapies which is the current standard of care (SOC) in numerous indications. However, currently available platinum therapies have significant shortcomings, including toxicities and drug resistance (both intrinsic and acquired) that limit their use. Picoplatin has several potential benefits over existing platinum therapy:

1) It is broadly applicable for treatment of many types of solid tumors

2) It has demonstrated use with new therapies in several trials

3) Kidney toxicity (nephrotoxicity) and nerve toxicity (neurotoxicity) are less frequent and less severe than is commonly observed with other platinum chemotherapy drugs.

4) Nerve toxicity (neurotoxicity) are less frequent and less severe than is commonly observed with other platinum chemotherapy drugs.

5) No clinical cardiac-related events are reported with picoplatin.

6) It can address unmet medical needs by treating platinum-sensitive, resistant and refractory disease.

Since picoplatin has an improved safety profile relative to existing platinum-based cancer therapies it can be easily combined and safely administered with other currently marketed oncology products. As such, picoplatin would be a valuable asset as a drug marketed through partnership agreements between Poniard and larger pharmaceutical companies with already approved treatments who wish to combine platinum based therapies with their products. Jerry McMahon, Ph.D., chairman and chief executive officer of Poniard said:

Throughout the first half of this year, we plan to a have discussions with the U.S. Food and Drug Administration regarding a regulatory path forward for picoplatin in small cell lung cancer….. Our focus in 2010 is to secure a strategic partnership to continue the development of picoplatin as a preferred platinum agent in the treatment of solid tumor malignancies.

With its two recent equity raises netting about $14 million added to the nearly $40 million of cash on hand at the end of Q3 2009, we believe that PARD has plenty of time to reach these goals. PARD is trading right now for little more than its equity value of about $35 million, when clearly there is far more value in this company than its cash and tangible assets. Investors are not accounting for the potential value of the picoplatin franchise if it were to break into the $4 billion platinum therapy market. Nor are investors accounting for the likelihood of positive phase II news for its colorectal and prostate cancer studies: interim data released on these studies at ASCO are already quite optimistic. Traders are just beginning to reverse their position on PARD. It appears that PARD is clearly oversold due to its massive 20%+ short position - it should be noted that the $14 million it raised in equity occurred at levels higher than its current share price. PARD is a company with a strong balance sheet, proprietary intellectual property, and promising clinical study results. In our opinion the synergy of all the above mentioned catalysts are likely to develop into a perfect short squeeze as investors flock in anticipation of the upcoming release of two phase II trial results, talks with the FDA about their pivotal phase III trial, and continued developments in their pipeline.

More details on these developments:

1) Poinard will present additional data from the company's Phase 2 trial evaluating picoplatin in patients with metastatic colorectal cancer (CRC) on January 24, 2010 at the ASCO 2010 Gastrointestinal Cancers Symposium in Orlando, Fla. This trial is evaluating picoplatin as a neuropathy-sparing agent compared to oxaliplatin (the current standard of care) in the first-line treatment of patients with metastatic colorectal cancer (CRC). The trial is comparing the safety, including the incidence and severity of neuropathy, and efficacy, measured by overall survival, progression-free survival and disease control. Poniard’s inclusion of picoplatin is called the FOLPI regimen, in contrast to the current standard of care regimen called the FOLFOX regimen. Past data already shown at previous conferences have shown a statistically significant reduction in neurotoxicities with the use of picoplatin in Poinard’s FOLPI regimen compared to the standard of care FOLFOX regimen, while maintaining similar anti-tumor activity as assessed by progression-free survival (PFS) and disease control.

2) Poiniard will also present additional data from the company's Phase 2 trial of picoplatin in patients with metastatic hormone-resistant prostate cancer (CRPC) at the ASCO 2010 Genitourinary Cancers Symposium on March 5, 2010 in San Francisco. This study is evaluating the efficacy and safety of picoplatin as a first-line treatment in patients with metastatic CRPC. The primary endpoint of the study is Prostate-specific antigen (PSA) response (defined as a PSA reduction of at least 50 percent from baseline for 4 weeks). Secondary endpoints include safety, disease control, time to progression and overall survival. Past data already shown at previous conferences show that picoplatin, in combination with docetaxel and prednisone, shows promising efficacy and is well tolerated as first-line therapy for metastatic CRPC. This promising efficacy is assessed by several endpoints, including reductions in PSA levels, disease control, and PFS. In addition, no neurotoxicity has been observed.

3) Shortsqueeze.com reports a 24.6% short interest of over 8 million shares of PARD stock (34 million outstanding shares total), with over 4 days to cover at average volume. Interestingly, this is 3 million less short shares than the prior period. This data, combined with the recent 30% increase in share volume and price from its recent lows, suggests that shorts who took advantage of the failed phase III trial results in November are just beginning to cover now. Certainly a continued rally, based on the upcoming PARD events, would cause panic for shorts. With 4 days to cover, this is a set up for a short squeeze which could send the stock soaring.

4) PARD intends to work with the FDA to determine how to use the data from the Phase 3 SPEAR trial. Little progress has been made in advancing therapy for metastatic stage SCLC, with the current standard of care relying on platinum based chemotherapy. The SPEAR evaluated the efficacy and safety of picoplatin as second-line therapy (after patients failed the first therapy) in 401 cancer patients with SCLC. While the study did not meet the primary endpoint of overall survival, PARD states that the data suggests a potential trend toward survival which may yet provide a path forward. The large data set from this phase III study allows for closer examination of its enhanced safety profile (decreased kidney and nerve toxicity with no cardiac toxicity). The results from the ongoing Phase 2 studies in colon and prostate continue to suggest that picoplatin could be superior to existing platinum therapies as a neuropathy-sparing alternative. A closer examination of the SPEAR data may give PARD sufficient evidence to convince the FDA to allow a new Special Protocol Assessment (SPA) for a new trial patients utilizing equivalent efficacy with enhanced safety for picoplatin over existing therapies in SCLC.

5) Existing platinum therapy must be administered intravenously. In addition to considerable difficulty for patients, IV administration causes significant cost burden. Eliminating IV therapies where an oral form of the drug is preferred, especially in light of the considerable cost-cutting efforts being made in health care. Poinard has developed an oral formulation for picoplatin which they have demonstrated to deliver a dose with a sufficient pharmacokinetic profile as IV administration. This oral form opens new doors for picoplatin to be combined with the multiple oral anti-cancer agents coming to market.

6) The current market size for platinum based chemotherapy drugs in the US is about $4 billion. The currently used platinum drugs are Cisplatin (Platinol®) in cancers of the ovaries, bladder, head, and neck; Carboplatin (Paraplatin®) as a second-generation anti-cancer platinum drug; and Oxaliplatin (Eloxatin®), the most recent third generation platinum drug, which was approved by the FDA in August 2002. Picoplatin seeks to replace Oxaliplatin indications. Oxaliplatin is used in combination with other chemotherapy drugs for many indications including small cell lung, colorectal, and prostate cancers. PARD is seeking these indications for picoplatin, but is also seeking to partnerships with other larger pharmaceutical companies who may wish to include platinum drugs with their novel therapies. Indeed, the latest targeted cancer drugs such as Gleevec, Sprycel, Herceptin, Avastin, Tarceva, and others are currently used or are seeking to be used in combination with platinum drugs. With its current cash position, PARD should be able to complete phase III trials for picoplatin in prostate and colorectal cancer. This could be expedited by partnership.

7) With the surprise outcome of the SPEAR trial, PARD dropped from its $8-$9 trading range to a low of $1.60. It bounced back to close to $3 just days later, followed by a slow sell off to the low $2 range. This selloff continued through December into the $1.80 range. When PARD released their corporate outlook the stock saw a modest jump to the low $2 range where However, the TA of PARD is an interesting case. As might be expected, the accum/dist line of PARD dropped significantly upon release of the SPEAR news (-5M shares) on massive (14M) volume, but quickly turned up in the days following (+5M shares) on high volume as traders bought the stock for a quick “bounce play” as the stock rose from its bottom of $1.60 to the $2.80 range. As might also be expected, the accum/dist line dipped again to its lows (-5M shares) on high volume in the days following as the traders exited; but the stock price did not see its lows again and regained much of its accumulation. After some volatility, the stock began to settle back in the $2.25 range, but faced a long slow sell off into years end. We interpret this activity as normal volatility after big news; followed by year-end tax loss selling. As well, apart from the expected shorting and covering, there has been strong overall accumulation of the shares by investors, even in the face of massive short selling, realizing the longer term potential in PARD. Since the beginning of the year, the MACD and accum/dist line have turned positive, with the EMA (30) showing several breakout signals. In the last few days, all of these indicators as well as the MFI and ADI showing a spike into strongly bullish territory; with the ADX rising close to 40, confirming the trend. An ADX value of 50 is a confirmation that would signal another technical breakout of the stock, and we are almost there.

Disclosure: I have a long position in PARD.