Timeless Wealth is compensated for research coverage, which denotes a clear bias to our investment opinion. We believe that our research is objective, weighing both the risks and rewards of an investment opportunity. However, our end goal is to highlight firms that we believe are innovative and offer compelling investment propositions. As we explain, Cytrx Corporation (NASDAQ:CYTR), a cancer-drug developer based in Los Angeles, California, fits this description.
Dr. Joseph Rubinfeld, who co-founded Amgen (NASDAQ:AMGN) in 1980, joins Nobel Prize winner Dr. Louis Ignarro on the board governing CytRx Corp. The board's chair, Max Link, Ph.D., was formally CEO at Centerpulse, Ltd., a large Swiss pharmaceutical company employing over 3,400; Corange Ltd., a multi-billion dollar firm taken over by Roche (OTCQX:RHHBF) and Sandoz Pharma, the second-largest generics manufacturer worldwide.
Complimenting an impressive board is a management team consisting of some of the most talented and experienced executives in the healthcare sector. CytRx's chief executive, Steven Kriegsman, has put together a fantastic whirlpool of human capital. Chief medical officer Daniel Levitt has led R&D at Dynavax Technologies (NASDAQ:DVAX), Affymetrix (NASDAQ:AFFX), Geron (NASDAQ:GERN), and PDL BioPharma (NASDAQ:PDLI), which was a multi-billion dollar enterprise during his time, among other large pharmaceutical firms. Senior VP of manufacturing Scott Geyer held the same position at Biomarin (NASDAQ:BMRN) and Onyx Pharmaceuticals (NASDAQ:ONXX), both large biotechnology firms.
Yet neither the experience, know-how nor industry credibility behind the tall line-up of seasoned executives seems to have been accounted for in CytRx's market price. As of Monday, May 9, the clinical-stage oncology company was valued at just $86M.
Less cash and marketable securities, totaling roughly $30M, the market suggests that the company's proprietary technologies and advancing pipeline of cancer-drug prospects are incorporated in a $56M valuation (which they are not).
Three compounds are under study for the treatment of seven kinds of cancer. Three Phase II trials are underway with at least another three being planned for later this year. As such, meaningful data could be revealed at any point.
Tamibarotene, for instance, used to treat Acute promyelocytic leukemia (APL), is particularly promising given that all-trans retinoic acid (ATRA), the current standard of care for first-line treatment of APL, has serious side-effects, some of which can be fatal. In a description of the compound, CytRx states:
Patients often fail to respond to a second course of treatment with ATRA. There is no standard of care for patients who do not respond to ATRA ...
Tamibarotene provides treatment that's otherwise unavailable beyond ATRA, at a significantly lower rate of toxicity. This implies side effects are limited. In the United States and Europe, the market for Tamibarotene could be $150M/annum, should the remedy be commercialized.
In observing the pipeline CytRx offers, two crucial characteristics stand out. The first is the breadth of the pipeline. By studying multiple compounds at once, the risk associated with failure is significantly reduced as resources can quickly be reorganized and redirected towards a remedy that's shown efficacy. Arena Pharmaceuticals' (NASDAQ:ARNA) Locaserin is a prime example of a firm that had its hopes and dreams riding on a single product. When its weight-loss drug did not get FDA approval, Arena saw most of its market value wiped out in just days.
The other pivotal characteristic is the stage at which the disease(s) are observed. By studying late-stage disease, meaningful data is gathered quicker than it would otherwise be. This allows CytRx to accelerate in their trials and save on expenditures. XOMA Ltd. (NASDAQ:XOMA), which is in a similar stage of clinical development as CytRx, expends more than $50M on operating activities each year. This is significant when compared with the $15M CytRx spends.
Further on the topic of expenditures, with approximately $30M in cash on hand, CytRx remains in excellent financial condition. The company has expressed an interest in engaging in the divestiture of non-core oncology assets such as its molecular chaperone regulation technology. Other sources of capital may include licensing of core products, or strategic partnerships that call for milestone payments.
CytRx also recently received 163,000 shares of common stock in ADVENTRX Pharmaceuticals (ANX) when the specialty pharmaceutical company bought SynthRx, Inc., in which CytRx held a 19.1% stake. If and when ADVENTRX brings ANX-188 to market, CytRx will be eligible to receive an additional 2.9M shares of ANX stock. At current prices, the value of that holding could garner CytRx an additional $7.7M. Add on top of that a schedule of royalty payments.
Liquidity favors CytRx as a clinical-stage biotechnology firm, yet the market hasn't factored in the negated risk as a result of the firm's strong financial position.
At the low end, Zack's Investment Research has a $1.80 target on CytRx. On the other end of the spectrum, Griffin Securities has awarded CytRx a $3/share 12-month target price. Other analysts fall in between at $2, still a significant premium over the current market price.
Evidently, if prudent leadership, prospective product, and liquidity mean anything to a clinical-stage biotechnology company, then CytRx is truly undervalued.
Disclosure: I am long CYTR.
Additional disclosure: In April, Timeless Wealth was retained by JSDC Inc., a boutique advisory firm, to provide research coverage on their client, CytRx Corp. Timeless Wealth receives compensation for providing said services. However, the views expressed are purely our own.