CytRx: Small Oncology Firm Offers Unique Exposure to Big Pharma Culture

Jun.14.11 | About: CytRx Corporation (CYTR)
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. One such firm is Los Angeles, California-based CytRx Corporation (NASDAQ:CYTR).
New drug approvals are on track to breach levels last seen at the turn of the 21st century (observe chart below). Midway through 2011, the Food & Drug Administration has already given the thumbs up to 16 applicants, as of last week.
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Source: FDA

The FDA provides a detailed schedule of approved compounds in its Spotlight on Drug Innovation page, where, almost unanimously, healthcare conglomerates like Bristol-Myers Squibb (NYSE:BMY), Forest Laboratories (NYSE:FRX), GE Healthcare (NYSE:GE), and others, govern. Leveraging their economic resources, state-of-the-art technologies, and know-how, these healthcare moguls are able to push drugs past the FDA hurdle, where small innovators often lack needed experience.

At CytRx, the team that overlooks the development of the Los Angeles-based clinical-stage oncology firm has brought a combined six compounds to market. The company’s management comprises one of the most talented pool of executives in the healthcare sector, offering investors an exotic combination of coveted know-how at unprecedented prices.

In an interview with Reuters in May, Dr. Janet Woodcock, head of the FDA's drugs center, discussed the FDA’s tightening of requirements for winning approval, which gives the experienced leadership at CytRx a significant competitive advantage over peers, having been there previously.

Personalities Who Have Gone the Distance

  • CytRx chief executive Steven A. Kriegsman helped fund decitabine, a compound that found FDA approval in 2006 for the treatment of patients with myelodysplastic syndromes (MDS). SuperGen (SUPG) markets the drug under the brand name Dacogen. David Haen, VP of business development at CytRx, is said to have played an important role in the process that led to FDA approval.
  • Scott Geyer, senior VP of manufacturing at CytRx, was instrumental in the development of oncology drug Nexavar, which is distributed by Onyx Pharmaceuticals (NASDAQ:ONXX) to patients with kidney and liver cancer. In 2005 the compound received FDA approval for the treatment of patients with kidney cancer; Onyx’s Nexavar was given the go-ahead by the FDA for treating liver cancer two years later.
  • Chief medical officer Dr. Daniel Levitt was integral in the development of Leucomax, interleukin-3, interleukin-6, Sandostatin and PSC-833 during his tenure at Sandoz Pharma, a division of Novartis (NYSE:NVS). As director of clinical oncology and immunology at Roche (OTCQX:RHHBY), Dr. Levitt introduced interleukin-2, one of the first FDA-approved therapies for the treatment of melanoma. Earlier this year, Bristol-Myers Squibb’s Yervoy became the first melanoma drug to receive FDA approval since interleukin-2.
CytRx provides investors exposure to big pharma culture at little pharma prices. In an earlier report, we broke down the intrinsic value of shares of the oncology company, agreeing with analysts’ median price target of $2 in that CytRx was, and still is, evidently undervalued.
CytRx has erected trials for three novel compounds in seven kinds of cancer. On Monday, the company announced encouraging preliminary results from their Phase II trials involving bafetinib in B-Cell CLL (leukemia):

Preliminary results from its ENABLE Phase 2 proof-of-concept trial demonstrated that bafetinib, the Company's Bcr-Abl, Lyn and Fyn kinase inhibitor, was clinically active in a group of patients with relapsed or refractory B-cell chronic lymphocytic leukemia (B-CLL) who have failed several other treatments for their cancer. Based on this indication of clinical activity and the low incidence of adverse events, additional patients enrolled in the ENABLE Phase 2 clinical trial will receive bafetinib as a single agent at a higher dose.

In the Reuters interview, Dr. Woodcock explains that the increasing number of new drug approvals has everything to do with the quality of applicants the FDA is receiving. CytRx has done well to offer investors reduced risk by extending pipeline exposure to seven indications, improving the firm’s chance at commercializing a drug for one or more cancers.
Where CytRx lags to leading biotechnology firms, management’s deep industry experience is largely a compensable factor that brings it back to par -- and then some.
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.