CytRx (NASDAQ:CYTR) Corporation is a clinical-stage, biopharmaceutical company focused on discovering, developing, and commercializing new therapeutics to treat patients with cancer. Its proprietary platform (LADR technology) consists of a drug delivery system that employs a broad portfolio of tunable linker molecules that selectively bind to circulating albumin and have the ability to be linked to a wide variety of cancer drugs and released from the linker under an impressive profile of different extracellular and intracellular mechanisms. The primary cancer therapy in late stage clinical trials for CYTR is aldoxorubicin, which consists of an acid-sensitive linker that selectively binds to albumin in circulation. Once in circulation, aldoxorubicin-albumin complexes accumulate into and near albumin-hungry rapidly growing tumors. It has a well established and superior safety profile to doxorubicin administration alone.
Doxorubicin, approved for medical use in the US in 1974, is still considered a primary treatment for many cancers, often used in combination with other chemotherapies. It is on the World Health Organization list of essential medicines. It is an anthracycline and mediates its anti-cancer effects by intercalating into DNA base pairs and inhibiting transcription and replication. Because doxorubicin is highly cardiotoxic, and known to cause free radical cycling of DNA, proteins, and lipids, it is considered one of the most dangerous means of treating cancer by safety experts. Not only can it complicate cardiovascular issues for those contraindicated for heart disease concerns, it can also lead to mutation of other healthy tissues during treatment, and has earned itself the nickname of "red devil" or "red death".
This video is a nice representation of how aldoxorubicin works as a Trojan horse. It is imperative to watch this video to understand how scientists have been working to elucidate these pathways and develop anti-cancer therapies over the past 30 years. That's right, aldoxorubicin is not a new technology, it has simply taken science and medicine that long to go from concept to reality, with initial publications representing tireless years of work on the interdisciplinary concepts finally printed in 2004.
Clinical data supports the contention that aldoxorubicin treatment allows the cytotoxic anti-cancer payload (doxorubicin) to preferentially accumulate in tumor tissue while sparing surrounding healthy tissue, especially relative to doxorubicin alone. This mechanism leverages the tumor's low pH microenvironment and intracellular lysosome environment to enable safer targeted multifold dosing of doxorubicin compared to brute force treatment with doxorubicin itself. At the end of November 2016, in fact, aldoxorubicin met phase 3 pivotal trial endpoints in major and several minor subsets of soft tissue sarcoma (NYSEMKT:STS), in a one of a kind study which allowed physicians to use one of five treatments of choice (including a combination option) or aldoxorubicin as a monotherapy. Impressively, aldoxorubicin demonstrated a statistically significant improvement in PFS over investigator's choice in 312 of 433 total patients treated in North America (p=0.028, 95% confidence interval 0.53-0.97). For the entire patient population, statistically biased to favor physician's choice, aldoxorubicin outperformed the other monotherapies and one combination therapy but narrowly missed statistical significance before removal of statistical outliers. We do not have the individual drug/STS subtype breakdown of data, but it is likely aldoxorubicin outperformed all 4 monotherapies in the treatment of choice study based upon FDA guidance for broad NDA approval pathway. We know that aldoxorubicin performs magnificently when used in combination; with a 97% disease control rate in advanced STS (and even 100% at the higher concentration as of the last update), with nearly 40% of 42 patients undergoing a partial response, with over half of those having a greater than 50% reduction in tumors. This is truly a rare and unique finding for aldoxorubicin.
This success came as a surprise to some of the company's critics who had mistakenly written off the study as a failure, not fully understanding that the interim study data was incomplete and immature. Out of fairness to those who prematurely ejected aldoxorubicin from their portfolio as failure in STS, Strong Bio calculated that the interim data carried an event threshold that would have required an 84% patient success rate of the monotherapy to have detected success in that interim scenario. Most second line STS therapies are only to 15% to 30% successful for improved progression free survival. The reason for confusion of those without proper clinical training and/or evaluative expertise is because each treatment population has a significant number of non-responders, and the data inclusion threshold was designed to screen out the patients that responded to treatment (they didn't contribute to data array until a time after events required for interim analysis were completed), selectively eliminating aldoxorubicin positive responders from the interim summary. In fact, FDA agreed aldoxorubicin versus treatment of choice study was a success (with approximately 38% reduction in risk of tumor progression for patients receiving aldoxorubicin monotherapy versus treatment or combinatory treatment of choice) for aldoxorubicin in second line STS and provided guidance for CYTR to proceed with fast track rolling NDA submission not just for STS, but with aldoxorubicin as a pre-surgical neoadjuvant and doxorubicin replacement for combination therapies as well. In addition, no further studies were deemed necessary for approval.
This might lead one to ask was the interim study cutoff set up to purposefully mislead potential investors into thinking the study failed? Dr. Levitt, the CMO at CYTR, stated that the PFS would not change much in the final analysis, which is exactly wrong. At least Dr. Sant Chawla, M.D., principal investigator, had it right and stated that the data would have to mature before it could be evaluated properly. So if you were confused you were not alone. The study design with 5 physician's treatments of choice favor patient outcome rather than treatment group (aldoxorubicin) outcome and is certainly an atypical model for a clinical study. This gold award winning study was conducted by PRA Health Sciences (NASDAQ:PRAH), recognized for two years in a row as the best clinical research company of the year by PharmaTimes. Surely a group of clinical professionals that are among the elite in the field of conducting trials would know the ins and outs of setting up trials. Why the interim analysis would not have been set up to include aldoxorubicin positive responding patients is perhaps the greatest mystery of all. The stock got absolutely hammered on what was in part FDA approval data, dropping from about $3 per share to about $1 in the summer of 2016. Watching that happen, Strong Bio wrote an article in aldoxorubicin maturation defense (it is a major breakthrough) and follow-up article (Saddle Up Partner) later in the year.
If the Street is determined to have CYTR be regarded as a failure even after it has succeeded, that might help provide some kind of roundabout explanation why the company has chosen to dilute its retail investors out 200% in three offerings in the past nine months as well. After all, the company management seems to want the stockholders who paid $3 per share (like our group, who likes to refer to aldoxorubicin as "red death" to our portfolio) to fail as well, having chosen to dilute at the interim data misinterpretation. On July 15, 2016, the company diluted at a discounted rate to the market of 0.70 per share. But the company diluted at every other turn this year too, including an offering again in December of 2016 at 0.42 per share, again under its normal trading price. But that's not all! This management ran the good common folk longs out of Dodge again on April 27, 2017, with an offering of 0.50, nearly 40% lower than the fair market trading value of 0.81. And the company was kind enough to choose to let the shareholders know en route through a tweet by Adam Feuerstein, who somehow knew of the dilution event a day before it was press released to the public via the SEC. In all, the shareholders have had the outstanding share count go from 68 million shares to 200 million shares in about 9 months. So doing the remedial math, to make the $3 per share back, the company has to earn $9 dilution-adjusted in price per share.
Adding to the Wall Street drama, CYTR has also gotten in trouble with the SEC for promotion of its stock. Although some media coverage of the situation are rather ridiculously overstated, claiming CYTR never planned on developing a drug at all, but promoted its stock to make money, the reality was not as dramatic. In December 2013, CYTR hired the DreamTeam Group to publish an article promoting results of a phase 2 study for aldoxorubicin (versus doxorubicin). It was a seeking alpha article described here that did not publicly disclose payment for publication. In the end the SEC did fine the company for $75,000, but did not find any false or misleading statements in the publication.
Equally controversial, Sabby Management, one of if not the largest CYTR shareholder of record, increased its stake in CytRx to 7.36% from 4.7 million shares to 10.4 million shares with its 13G filing May 1, 2017. Adding to the drama, we know Sabby was recently fined by SEC for short selling in advance of stock offerings. Is it a coincidence that Sabby is adding shares during each quarterly dilution of CYTR? It certainly is a mystery! After all, naked shorting isn't real, we all know it's just a conspiracy theory — right?
Strong Bio is long CYTR, and patient enough to let the market catch up to the science of aldoxorubicin. The market for cancer drugs in 2015 reached $100 billion, and is expected to grow 50% by 2019. Edison Research estimates the market for STS at about $1 billion per year. Lastly, the global market for doxorubicin (generic) is estimated to be about $1.4 billion by 2025. The current FDA approval pathway for aldoxorubicin includes STS (1st and 2nd line), presurgical neoadjuvant use, and combination replacement for doxorubicin as indications for use. Drugs already approved by FDA for STS are listed in this link, but have total markets much greater than for STS use alone (many are approved for multiple or off-label indications). CYTR has conducted phase 2 studies on kaposi sarcoma ($100 million market estimate by 2025) and gliosarcoma ($600 million market estimate by 2019) with positive results, and a fairly large phase 2 small cell lung cancer (SCLC; $2.5 billion market estimate for 2025) study will have results reported in quarter 2 2017 (later this quarter). SCLC results are not yet known, but it highly likely if the study failed we would have known some time ago, given assumptions used before in data analysis of STS (when everyone else said Strong Bio was wrong).
Adding these indications, we have a total market potential of $5.6 billion for which aldoxorubicin if approved by FDA for these uses with some kind of evidence for success. Using doxorubicin as a guide, many other future indications are likely to be treated by physicians with aldoxorubicin as well (for instance breast cancer is often treated with doxorubicin as a pre surgery neoadjuvant). And finally, because aldoxorubicin is not a generic and can be dosed until disease progression, Strong Bio expects its market to have some upside from these estimates, easily surpassing a $10 billion total market potential albeit in a competitive environment. One must expect aldoxorubicin to have to prove itself in the second line mosh pit of additional indications outside of STS before rising to its potential. And because any cancer drug can be linked to albumin binding LADR technology, the total potential market of the pipeline is, well, hard to imagine.
Taking the market into account, and being hopeful that management does not find it necessary to dilute 50% every quarter, there is plenty of room to recoup our initial investment at $3+ per share. Using Celator (NASDAQ:CPXX) and Exelixis (NASDAQ:EXEL) as cancer stock models, both traded at a sub-$1 share price (with markets much smaller than aldoxorubicin) and were/are priced in the multiple billion market cap at time of buyout or at this time, respectively. With a cash runway of about $70 million, CYTR has plenty of resources to get an aldoxorubicin manufacturing partner ready to meet FDA demands for NDA submission. Oh and CYTR still has a market cap under $300 million, indicating a serious flaw in what was once a 100% predictive measure of cancer drug success.
As with all investments, there is always risk. Biotechnology risks are regarded as higher than average for stocks, and include standard risks associated with failed FDA approval, regulatory, scientific, or business delays, dilutive events, and volatile markets. New and rare unforeseen setbacks and obstacles are always possible, especially when dealing with life threatening diseases like cancer. Strong Bio encourages investors to discuss investment options with financial professionals and always maintain a diverse portfolio to help account for unforseen potential losses. StrongBio assumes no responsibility for losses due to investments based in part on this report or recommendation. And as always fellow investors, diversify your portfolios! That's why we do all of this work to find good candidates. It would be irresponsible to mortgage the house, sell the cars, sell businesses and properties, and invest in any one technology. Even if Strong Bio did.
Disclosure: I am/we are long CYTR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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