CytRx Corporation (CYTR)
Why buy CytRx now?
While the recent Phase IIb clinical trial results are driving the current move, we believe there is still a lot of room for the company to grow. First, CytRx had low institutional ownership of 11%, primarily by index funds. We believe we are seeing the beginning of a shift and that it will take the "smart money" some time to do their due diligence before taking a position. The start of a new year often brings with it the need to deploy capital which could be advantageous for CytRx. As evidence, CytRx's volume on the first day of trading in 2014 was more than 9.2 million shares. Second, aldoxorubicin is moving into a pivotal Phase III trial. CytRx's valuation will likely work its way upward to be more in line with companies that have a Phase III drug. Third, aldoxorubicin has broad potential. CytRx has clinical trials on-going in soft tissue sarcoma, glioblastoma, and will soon start one in HIV-related Kaposi's sarcoma. The company has indicated that it has plans to expand into other cancers given proper resources. That leads to the fourth point. The company is talking with potential pharmaceutical and big biotech companies about a partnership to develop and commercialize aldoxorubicin on a global basis. This could be quite lucrative bringing in substantial, non-dilutive capital, lowering CytRx's burn rate, and expanding the number of indications which in turn increases the potential future revenues. Fifth, the platform and next drug candidates will soon emerge as a value center. Aldoxorubicin has done the heavy lifting to prove the viability of this technology. Lastly, CytRx is gaining more notoriety. A December 27, 2013, Forbes article highlighted CytRx's aldoxorubicin as a promising new approach to treat brain cancer. There have been numerous articles on financial websites like SeekingAlpha.com, thewallstreetcheatsheet.com and 247wallst.com. We believe this is a trend that will continue.
CytRx Corporation is a biopharmaceutical research and development company specializing in oncology. CytRx currently is focused on the clinical development of aldoxorubicin, its improved version of the widely used chemotherapeutic agent doxorubicin. CytRx has completed a global Phase IIb clinical trial with aldoxorubicin as a first-line therapy for soft tissue sarcomas, a Phase Ib/II clinical trial primarily in the same indication, a Phase Ib study of aldoxorubicin in combination with doxorubicin in subjects with advanced solid tumors and a Phase Ib pharmacokinetics clinical trial in subjects with metastatic solid tumors. CytRx plans to initiate under a Special Protocol Assessment (SPA) a pivotal Phase III global trial with aldoxorubicin as a therapy for subjects with soft tissue sarcomas whose tumors have progressed following treatment with chemotherapy. CytRx has initiated a Phase II clinical trial with aldoxorubicin in subjects with late-stage glioblastoma (brain cancer), and plans to initiate a Phase II clinical trial in HIV-related Kaposi's sarcoma. CytRx plans to expand its pipeline of oncology candidates based on a linker platform technology that can be utilized with multiple chemotherapeutic agents and allows for greater concentration of drug at tumor sites.
On December 11, 2013, CytRx announced highly statistically significant results from its global Phase IIb clinical trial in patients with soft tissue sarcomas, a deadly form of cancer. On all efficacy endpoints tested: progression-free survival (PFS), PFS at six months, and overall response rate, CytRx's aldoxorubicin was vastly superior to generic doxorubicin, the standard chemotherapy for patients with soft tissue sarcomas.
CytRx announced that they will start their pivotal Phase III clinical trial in Q1 2014. This is the final trial prior to filing with the FDA for approval. The company is conducting a Phase II clinical trial for patients with glioblastoma (stage IV brain cancer) and results are expected in Q3 2014.
Why are these results significant?
Aldoxorubicin is basically a turbo-charged version of doxorubicin, a chemotherapy that has been widely used for 40 years. Doxorubicin is used to treat a wide variety of cancers including breast, ovarian, and stomach cancers as well as non-Hodgkin's lymphoma and certain leukemias. CytRx's aldoxorubicin optimizes the delivery of the chemotherapy to the tumor while minimizing side effects throughout the rest of the body. This allows for 3.5-4 times the standard dose of doxorubicin to be given to the patient each time they come in for treatment. In addition, CytRx has shown in clinical trials that patients can get more than six cycles, the maximum limit for doxorubicin. Being able to administer more chemotherapy over a longer period of time could be tremendously advantageous to a patient battling cancer.
Aldoxorubicin is less toxic chemotherapy. CytRx reported that there is 250 times less drug taken into healthy tissues than doxorubicin. The company has not seen cardiotoxicity (heart damage) that has historically limited the use of doxorubicin. Therefore, a more potent and less toxic way to deliver the same chemotherapy payload should prove to be beneficial for patients.
CytRx proved in their global Phase IIb clinical trial that aldoxorubicin is superior to doxorubicin setting the stage to potentially replace doxorubicin wherever it is used. In addition to that, CytRx has shown that aldoxorubicin can enter the brain in mice, while doxorubicin and most chemotherapy drugs cannot. This opens up a whole new frontier to treat brain cancers which we will discuss later.
Importantly, these results prove in humans that CytRx's platform technology for improving the delivery of chemotherapy works. Aldoxorubicin is the first drug into clinical trials, however, the technology has been combined to make optimized molecules with several other widely used chemotherapies. CytRx has exclusive worldwide rights to this technology from the KTB Tumor Biology Institute in Freiburg, Germany.
CytRx's Global Phase IIb Clinical Trial with Aldoxorubicin
Now let's dig into the detail of the clinical trial. 123 patients around the globe were enrolled in the trial and it was randomized so that twice as many patients were in the aldoxorubicin-treated arm (n=83) than the doxorubicin-treated control arm (n=40). Each patient received a 30 minute IV infusion once every three weeks. Patients could receive a maximum of six infusions because that is the limit for doxorubicin. Patients were scanned every six weeks to determine tumor shrinkage or growth. The scans were evaluated at the clinical trial site by the local investigator which reflects how the drug would be used in practice. In addition, the scans were sent to an independent lab that was blinded, meaning they had no information on the patient nor did they know which drug the patient received. Central lab assessments in cancer trials are historically more conservative in their interpretation of the scans. As you can see from the table below, aldoxorubicin improved the Progression-Free Survival by 79-104% depending on which method of assessment was used. Progression free survival is the time until the patient's tumor starts to grow and was the primary endpoint for the trial.
Source: Company presentation
The second efficacy endpoint in the clinical trial was progression-free survival at six months. This accounts for how many patients' tumors had either shrunk or were stable (not growing) after six months. Again, aldoxorubicin nearly doubled the benefit compared to doxorubicin and the results were highly statistically significant.
Source: Company presentation
Lastly, CytRx reported overall response rates meaning there was substantial tumor shrinkage. A Complete Response is defined as no detectable disease and a Partial Response is tumor shrinkage of >30%. Yet again, CytRx's aldoxorubicin markedly outperformed the generic doxorubicin.
Source: Company presentation
The ability for aldoxorubicin to surpass doxorubicin on every efficacy endpoint by two different assessments gives confidence that the drug has a high probability of obtaining FDA approval.
CytRx announced that the full set of results will be submitted for presentation at the largest medical meeting focused on cancer which is the American Society of Clinical Oncology (ASCO) Annual Meeting at the beginning of June 2014, in Chicago, Illinois.
The market reaction to CytRx's clinical trial results
Not only are the Phase IIb results compelling, the stock has enthusiastically responded. The day prior to the announcement of the trial results, CytRx stock closed at $2.39. The stock today is currently at $6.66. A big swing on clinical trial results is not uncommon in the biotech world yet they are often short lived. However, the biggest part of the story, which is different for CytRx, is the trading volume. CytRx used to trade a few hundred thousand shares daily. Since the news, the stock is trading like a monster. Over 82 million shares traded in the three days following the announcement, and more than 132 million shares traded from the news through the end of December. Keep in mind the company has about 42 million shares outstanding. That is over three times the number of outstanding shares. This volume indicates that institutions are starting to take sizeable positions. Further, now that the stock is above $5 it is marginable and opens the door to a larger universe of funds that can buy the stock.
The Potential Market for Aldoxorubicin
Soft tissue sarcoma is the initial indication CytRx is pursuing. There are approximately 40,000 new cases in the US and Europe each year and approximately 13,000 deaths. Roughly 25-30% of those patients will receive chemotherapy. Let's estimate 12,000 patients will get treatment.
Treatment can be broken down into first-line, second-line and so on. Unfortunately for STS patients, virtually all patients will progress from first line therapy meaning their treatment is no longer working. The next treatment is second-line, and these are the patients that CytRx is treating in its pivotal Phase III trial. Therefore, aldoxorubicin will be an option for the majority of STS patients. For clarity's sake, the Phase IIb trial results previously discussed are in first-line STS patients and demonstrated that aldoxorubicin was greatly superior to generic doxorubicin in extending survival. There is the possibility of it being used in either setting if clinical trial results support it. Based on this, let's assume that 10,000 patients move on to second-line therapy and are eligible for aldoxorubicin.
HC Wainwright's analyst Andrew Fein estimates that aldoxorubicin will have 80% uptake in 2nd-line treatment of STS because there is no standard of care. He estimates 40% use in the 1st-line setting. We estimate the average treatment duration of nine and six months for 1st- and 2nd-line respectively based on the results from the aldoxorubicin trials. CytRx has indicated that it can treat for many more cycles than doxorubicin and the absolute number is still unknown. Below is our analysis of the STS market.
New STS Cases (US & Europe)
Patients receiving chemo
Aldox treated patients
Average treatment duration
Cost per month
Potential Aldox Revenue
This pegs a potential revenue stream of $638 million annually. Keep in mind this is only the US and Europe. If you added Asia, South America and the rest of the world this could be a much bigger number. Biotech companies traditionally have traded at a multiple of 8x revenue. That means CytRx's valuation would be in excess of $5.1 billion just on sales for soft tissue sarcoma, a relatively rare form of cancer. Based on the current 42 million shares outstanding, that would equate to a price of approximately $121 a share.
CytRx notes in their corporate presentation the number of other indications where aldoxorubicin could be used. Combined these are markets worth more than $21 Billion. If CytRx garnered a portion of it, that would be a substantial.
Ovarian Cancer: $ 1.6B Breast Cancer: $10.9B
Liver Cancer: $ 2.0B Gastric Cancer: $ 2.3B
Small cell lung cancer:$ 0.4B Glioblastoma: $ 1.0B
Brain Metastases: $ 3.0B
With the exception of breast cancer and brain metastases, all of these indication and soft tissue sarcoma are "Orphan" indications. This means that aldoxorubicin can receive Orphan Drug Designation from the FDA. It provides for market exclusivity of seven years in the USA and 10 years in Europe. This makes the types of cancer that CytRx is pursuing even more attractive. Aldoxorubicin has received Orphan status for treating STS and pancreatic cancer.
The Game Changer
While the recent trial results indicate that aldoxorubicin should one day replace doxorubicin, early stage data shows that aldoxorubicin can potentially treat cancers where doxorubicin never had a chance. Aldoxorubicin has proven to enter the brain in animal experiments of stage IV brain cancer. Getting into the brain is a major hurdle for most drugs due to the blood-brain barrier which serves as a gatekeeper for entry into the brain. Beyond entering the brain, the animals treated with aldoxorubicin lived more than twice as long as those treated with saline or doxorubicin. This was repeated in three separate experiments.
CytRx's collaborators at Louisiana State University (LSU) took images of the mice brains to determine if the drug got to the tumor. As you will see from the slide below from the Company's presentation, there is a night and day difference between the two drugs. Doxorubicin reflects red when imaged with a specific UV wavelength. The doxorubicin treated animal has virtually no drug in the brain. The aldoxorubicin treated animal, not only has a concentrated amount of drug in the brain, but it is only in the tumor, avoiding healthy brain tissue.
CytRx is conducting a Phase II clinical trial in glioblastoma at three sites: LSU Cancer Center in New Orleans, John Wayne Cancer Center in Santa Monica, and City of Hope ). Data is expected in Q3 2014. The goal is to determine if aldoxorubicin gets across the blood-brain barrier in humans. If positive, the company plans to aggressively move into a pivotal Phase III trial and then file for FDA approval. Of note, CytRx is allowed to treat patients continuously until their tumors start to grow again.
Glioblastoma is the most common primary adult brain tumors with 12,500 new cases in the US each year. The five year survival rate is 4% and the median survival from diagnosis is about 14 months. There is a dire need for options for these patients and even an incremental benefit could be substantial win for CytRx. There has only been one approved drug for glioblastoma that was Schering-Plough's Temodar. It offered a two month improvement in survival leading to annual sales of more than $1 billion before it went generic. Celldex Therapeutics (CLDX) is in Phase III with its glioblastoma treatment but it only addresses a specific mutation found in less than 20% of the entire population. Celldex's market cap is $1.98 billion driven by this program. Aldoxorubicin can potentially target the entire market yet CytRx's market cap is only $280 million.
If aldoxorubicin and CytRx's linker technology work for glioblastoma, the next logical extension would be to target brain metastases from other cancers. According to the American Association of Neurological Surgeons (AANS), more than 170,000 new cases of brain metastases are diagnosed in the US each year. Lung cancer, breast cancer, and melanoma are the three largest contributors. In fact, 20-30% of breast cancer patients will develop brain metastases. Interestingly, doxorubicin used to be the standard of care for treating breast cancer despite its toxicity. If glioblastoma with 12,500 cases can generate $1B in sales, imagine the potential with 170,000 cases to treat.
What if a single drug was able to treat both primary breast cancer and the brain metastases? Well it looks like aldoxorubicin could be that drug.
But wait, there is more!
CytRx is collaborating with the inventors of aldoxorubicin to make new molecules based on existing chemotherapies. This could create a very valuable pipeline now that the linker technology has been de-risked from the experience with aldoxorubicin. The new drugs could lead to additional partnerships again bringing in more non-dilutive capital and allowing CytRx to flourish. Truly, aldoxorubicin may be the tip of the iceberg and the start of an oncology behemoth. The following slide from CytRx's corporate presentation highlights drugs that had $8.6 billion in revenue at their peak but are now generic. These include the core drugs that constitute the backbone of chemotherapy cancer treatment.
Source: Company presentation
CytRx's Financial House Is in Order
CytRx reported $23 million in cash at September 30, 2013. Two weeks later, the company raised $25.9 million in a straight common equity offering priced at $2.25 (). The full over-allotment was exercised resulting in a net inflow of $24.1 million for CytRx. Based on their burn of about $5 million a quarter, they should end 2013 with $40-43 million in cash. This should carry them into mid-2015. They will need to raise additional capital prior to completing their Phase III trial. However, CytRx has mentioned that it is in active negotiations with pharmaceutical and biotech companies for partnering on the development and commercialization of aldoxorubicin. This would bring in substantial non-dilutive capital and reduce the clinical development costs.
We believe that CytRx has been an underappreciated story although that sentiment is starting to change. Aldoxorubicin has blockbuster potential in multiple indications, but this may just be the beginning of the story for CytRx's technology platform. The current valuation provides ample room for upswing and a broad-acting, established drug de-risks the clinical development while providing for multiple shots on goal. We think institutions are just waking up to this story and you should too.