Seeking Alpha
Long/short equity, medium-term horizon, hedge fund manager, tech
Profile| Send Message|
( followers)  

Summary

  • Company has ability to deliver DNA and stimulate a controlled therapeutic immune response.
  • Investor returns drive by multiple products and collaborations, not one or two.
  • Intrexon partnership is expanding pipeline.
  • Numerous upcoming clinical milestones.
  • High short interest makes this more interesting long investment.

Situation: Ziopharm is an interesting concept based biotechnology investment. However, given the high short interest and high cost of borrowing shares(30% at popular brokerage), Ziopharm may be an interesting trade, as longs can sit and wait comfortably while shorts have to pay a very high interest rate waiting for negative data. Any positive results or new collaborations could also send the stock flying. The main risk for longs is that the data from the stage 2 trials for melanoma and breast cancer are negative. However, the company is developing an expanded pipeline, so that the stock is less dependent on any single trial versus other typical biotechnology companies.

(click to enlarge)

Company Description: Ziopharm Oncology is a clinical stage Immuno-Oncology company with a focus on treatment through DNA expression and cell control(Synthetic Biology). The company obtained rights to Intrexon's synthetic biology platform for use in the field of oncology, which included two existing clinical stage product candidates, Ad-RTS-IL-12 + veledimex and DC-RTS-IL-12 + veledimex. The synthetic biology platform employs an inducible gene-delivery system that enables controlled delivery of genes that produce therapeutic proteins to treat cancer. Ad-RTS-IL-12 + veledimex is Ziopharm's lead drug candidate, which uses this gene delivery system to produce Interleukin-12, or IL-12, a potent, naturally occurring anti-cancer protein. Ziopharm is currently studying Ad-RTS-IL-12 + veledimex in two Phase 2 studies, the first for the treatment of metastatic melanoma, and the second for the treatment of metastatic breast cancer, both expected to announce early preliminary data from their Phase 2 studies in the fourth quarter of 2014.

Ziopharm Funded Into 2H 2015: Ziopharm ended the most recent quarter with $60 million on the balance sheet. Ziopharm only had a decrease in cash of approximately $8 million for the quarter as a result of heavy expense controls. This reduces the risk of dilutive financing over the 12 month horizon.

Rheoswitch Technology: On January 6, 2011, Ziopharm entered into an Exclusive Channel Partner Agreement with Intrexon, which they refer to as the Channel Agreement, to develop and commercialize novel DNA-based therapeutics in the field of cancer treatment by combining Intrexon's synthetic biology platform with their capabilities to translate science to the patient setting. As a result, their DNA synthetic biology platform employs an inducible gene-delivery system that enables controlled delivery of genes that produce therapeutic proteins to treat cancer. The first example of this regulated controlled delivery is achieved by producing IL-12, a potent, naturally occurring anti-cancer protein, under the control of Intrexon's proprietary biological "switch" to turn on/off the therapeutic protein expression at the tumor site. Ziopharm and Intrexon refer to this "switch" as the RheoSwitch Therapeutic System® or RTS® platform. Further collaborations within oncology are likely once the current phase 2 studies are competed.

(click to enlarge)

Kite Pharma IPO Shows Ziopharm Possibly Undervalued: Kite Pharma recently filed their IPO, pricing at $17 per share. Kite Pharma's pipeline does not appear drastically superior to Ziopharm in terms of breadth and both focus on the oncology space, yet the market capitalization of Kite Pharma is currently double that of Ziopharm. Although, the two companies employ different scientific mechanisms for cancer treatment.

(click to enlarge)

Valuation: Given that Ziopharm is a development stage biotechnology company, most analysts choose to value it based on a discounted cash flow. If Ziopharm gains approval and successfully markets its products analysts are forecasting sales of $200+ million in 2018. The bull case price target for Ziopharm is the highest $12 price target, which is based on a discounted cash flow and a takeout value analysis. Further research as an investor should be concentrated on examining existing trial data, further trial designs, and the competitors within the oncology space.

Risk Factors:

  • Ziopharm may require additional financial resources in order to continue development of their drug candidates; if they are unable to obtain them they may discontinue clinical testing
  • The technology on which the channel partnership with Intrexon is based utilizes novel technologies yet to be proven at a large scale
  • Oncology space is an extremely competitive sector
Source: Why Ziopharm Looks Worth Adding To Your Biotechnology Portfolio Pipeline