Cyclacel Heats Up On Clinical Trial Progression

The market is beginning to bid for shares of Cyclacel Pharmaceuticals (NASDAQ:CYCC), which hit a new 52-week high yesterday, Oct. 15. The 22.5% rally we saw by the closing bell was a reaction to the company's press release about Phase II data for sapacitabine in the treatment of elderly patients with myelodysplastic syndromes (MDS), which was presented over the weekend at the Eighth Annual Hematologic Malignancies 2012 Conference. Myelodysplastic syndrome is a precursor to Acute myeloid leukemia (AML), Cyclacel's intended target for another of sapacitabine's programs.

Cyclacel is still enrolling patients into its pivotal Phase III trial (called the "Seamless" trial), which will measure a combination of sapacitabine and decitabine against decitabine (a compound that is commonly used to treat MDS/AML). Acute myeloid leukemia isn't a very common form of cancer, but the likelihood of approval is very high due to the FDA's SPA agreement with Cyclacel, which allows for approval given that the drug can provide statistically significant and positive results. The market hasn't fully priced this into the value of sapacitabine, but Seamless is expected to take until late 2014 to reach primary completion.

Results from the Phase II trial for Sapacitabine in the treatment of MDS (and ALS) were encouraging, since it demonstrated that patients that failed first line therapy (hypomethylating agents) had a good chance of benefiting from sapacitabine. Still, the FDA's determination of the drug's efficacy will be made on the primary endpoint of the trials -- a statistically significant demonstration of one-year survival increases in sapacitabine arms vs. others.

Cyclacel's sources put new MDS cases in the United States between 15,000-46,000/year, which surpasses most estimates of AML incidence. Since sapacitabine has so much potential in MDS, and since the Phase III Seamless results are so far away, we can say that the market will trade very heavily on speculation over the soon-to-be finished Phase II results.

CYCC had some trouble earlier in the year and had to undergo a 1:7 reverse stock split on Aug. 24 to avoid Nasdaq delisting. While the market usually hates stocks that undergo reverse stock splits due to likely share dilutions down the road, nobody seems to want to short the stock. The latest Nasdaq listing shows only 28,525 in short interest, which gives a ridiculously low short interest ratio of roughly 0.1. Long-term shareholders can't count on any upside from a short squeeze at this point, and may have to worry about profit taking on good Phase II results for sapacitabine when they do come.

Due to this, the biotech investors who want confirmation of sapacitabine's Phase II endpoints before buying shares could get better prices after other shareholders take profits. Once the press release is out, some traders will probably not want to be stuck with their CYCC shares, waiting for Seamless results that are two long years away. Cyclacel is still a very catalyst-driven stock, after all, which was proved by the huge trading volume on Oct. 15. It's impossible to say how many of these new buyers are only chasing the confirmed Phase II results, though.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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