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CytRx Corporation – Well Worth A Look

|About: CytRx Corporation (CYTR)

Summary

CytRx has a solid pipeline and technology platform, with important trial results through the year.

Aldoxorubicin has shown positive results in previous trials, and phase III trial results by the end of this quarter are also expected to be positive.

Multiple catalysts throughout the year, including trial results, NDA filing, trial initiation and new drug selection.

CytRx Corporation (NASDAQ:CYTR) is a biopharmaceutical company, which specializes in oncology. The company develops its candidates using its proprietary drug delivery technology Linker Activated Drug Release (NYSE:LADR) platform. The lead candidate, Aldoxorubicin, is an enhanced version of the common chemotherapy agent Doxorubicin. It's in various clinical trials for the treatment of Soft Tissue Sarcoma, Small Cell Lung Cancer, Glioblastoma Multiforme, pancreatic and Ovarian Cancer. The other candidate, DK049 is expected to enter phase I trials by the second half, and the company also expects to announce another drug-conjugate using the LADR technology, by the end of this year.

CytRx has a number of catalyst through the year, and is even expected to roll out the NDA for its lead candidate in Soft Tissue Sarcoma by the second half of 2016. That, obviously, depends on the trial results which are expected to be announced by June, 2016.

Technology

CytRx has proprietary drug development technology, invented and developed by the company, known as LADR (Linker Activated Drug Release) technology platform. This platform allows the chemotherapeutic and immunotherapy agents to be directed to the tumor, without the side effects. This method not only minimizes the exposure of the drugs to other parts of the body, but allows for higher doses, without the added adverse effects.

The technology works by binding its novel linker molecules to the albumin present in the blood. Albumins are globular proteins, which are water-soluble, and have the ability to transport molecules through membranes. In addition, these proteins, found in the blood plasma, differ from other blood proteins, as they are not glycosylated - i.e. the covalently attachment of a carbohydrate with another molecule. The drug conjugates, thus formed, bind to these albumin and remain inactive while they circulate throughout the body. The vascular structure surrounding the tumor is weak, which allows the albumin to leak from the blood vessel and enter the tumor. The drug-conjugate is thus, only allowed inside the tumor and does not permeate into healthy tissues. The linkers, after entering the tumor release agents in a controlled manner, targeting the various conditions present in the tumor. The linker splits into the compartments of the cancer cells or in the acidic conditions in and around the tumor, and induces cell death. What this means is, if the linker only cleaves in the acidic conditions, this leaves out the normal tissues, since they are not generally acidic. This means that this method of drug delivery results in minimizing toxicity to the healthy tissues, and can be dosed in higher concentrations.

Source: Investor Presentation

Currently, the company has two candidates using the LADR technology platform; the lead candidate Aldoxorubicin for soft tissue sarcoma, small cell lung cancer, glioblastoma multiforme, and Kaposi's Sarcoma; and DK049 for non-small cell lung, pancreatic and ovarian cancers.

Aldoxorubicin - Lead Candidate

The lead candidate of CytRx is Aldoxorubicin, a conjugate of a common chemotherapeutic agent Doxorubicin, developed using the LADR technology platform. Doxorubicin is the first anthracycline (a common agent for cancer treatment) that has been approved and is widely used to treat cancers such as breast cancer, lung cancer, lymphomas and sarcomas. Despite its widespread use and efficacy, the drug comes with a number of side effects, which include myelosuppression, gastrointestinal disorders, stomatitis, mucositis, cumulative cardiotoxicity and extravasation. This is where Aldoxorubicin comes in with its ability to specifically target the tumor and spare the healthy tissues thus, minimizing toxicity. It also improves the efficacy of Doxorubicin, and also reaches the tumor site more quickly.

Source: Investor Presentation

Aldoxorubicin is in a number of clinical trials, which include phase III trials for the treatment of soft tissue sarcoma (NYSEMKT:STS), Phase II/b for small cell lung cancer, phase II for glioblastoma multiforme, and phase II for Kaposi's sarcoma. In addition, combination studies for Aldoxorubicin are also underway; phase I/b in combo with gemcitabine, and phase I/b in combo with ifosfamide. The drug also has orphan drug status granted by the FDA for STS, GBM, small cell lung cancer, pancreatic and ovarian cancer.

Source: Investor Presentation

Soft Tissue Sarcoma is a type of cancer that develops in the soft tissues of the body, including blood vessels, muscles, tendons, fat, lymph vessels, nerves and tissues around joints. The tumors are most commonly found in the arms, legs, chest or the abdomen; and have approximately 50 sub-types. There are approximately 40,000 new cases annually in the U.S. and Europe, with approximately 13,000 deaths.

The standard of care for 1st-line STS is Doxorubicin, and it has shown efficacy, however, there exist side effects. These side effects and other short comings have been minimized by the use of Aldoxorubicin, which has Orphan drug designation for STS. The phase Ib/2 clinical trial of Aldoxorubicin showed that 10 of the 13 patients showed clinical benefit, viz. tumor shrinkage of more than 30% (38.5%); prolonged stable disease (53.8%). While 5 of 8 patients responded to Aldoxorubicin, who had previously been treated with doxorubicin and failed to respond. In addition, the administration of Aldoxorubicin didn't result in cardiac toxicities and no drug-related patient deaths.

Source: Investor Presentation

The phase III trial, to treat 2nd-line STS, is designed such that it compares Aldoxorubicin to five common treatment options used, viz. doxorubicin, ifosfamide, dacarbazine, pazopanib (Votrient) or gemcitabine plus docetaxel. The trial enrolled 433 patients and has been granted the Special Protocol Assessment (NYSE:SPA) by the FDA. This allows CytRx to dose patients with Aldoxorubicin until disease progression and also to analyze the data at 191 progression events. The primary endpoint of the trial is Progression Free Survival, while the secondary endpoints are overall survival, response rates, safety etc. The progression event target was reached earlier this month, and the company expects to announce top-line results by the end of this quarter. Given the sound performance in previous trials, I expect the results to be positive, and the NDA filing to take place as planned by the end of 2016.

Glioblastoma Multiforme (GBM) is the cancer of the brain, which is highly lethal and has an approximate 25% 2 year overall survival rate. The brain tumor grows aggressively and spread fast, thus, its prognosis is often measured in months - with death usually occurring in the first 15 months following diagnosis. The existence treatments for GBM are not curative, attributed mainly to the disruptive blood supply to the tumor, limited capacity of brain to repair itself, neurotoxicity, among others. Chemotherapy resistance, of otherwise effective agents, is thought to be caused by the agent's inability to cross the blood brain barrier into the tumor. Thus, the drug is not effectively delivered to the site of the tumor. GBM is most common and malignant primary tumor, and has over 12,000 new cases in the US annually.

Aldoxorubicin is being administered and evaluated in patients with unresectable GBM, who have seen tumor progression even after surgery, radiation and the drug temozolomide. The interim phase II results showed tumor shrinkage and prolonged stable disease in the patients. However, overall survival has not been reached; and 16 of 28 patients continue to be followed with 6 of the patients still receiving Aldoxorubicin. Three patients did show complete response, as the tissue examined after surgery, showed no microscopic evidence. The results provide evidence that Aldoxorubicin has the ability to cross the blood-brain barrier - a major breakthrough. CytRx is expected to announce the Overall Survival data for the trial in the second half of 2016, till mid-March no OS had been reached. If further results and trials continue to show the efficacy of Aldoxorubicin, this would not only prove to be beneficial for the patients suffering from GBM, but will also prove to be extremely valuable for the company. Given the precarious nature of GBM there are chances of not-so-encouraging trial results, however, I'm betting on the positive results.

Small Cell Lung Cancer (SCLC) is a form of lung cancer, where the malignant cells form in the tissues of the lung. Among the cases of lung cancer, almost 10%-15% cases are of SCLC. The American Cancer Society, estimates almost 224,390 new cases of lung cancer, both small cell and non-small cell, in the year 2016. And the number of deaths from lung cancer are estimated at about 158,080. Despite these staggering numbers, there is no curative treatment for lung cancer. Currently, Topotecan is the only 2nd-line chemotherapy agent approved for SCLC, and that too causes severe toxicities, where some patients are even unable to complete a single course of the therapy. Thus, CytRx aims to fill this gap with Aldoxorubicin, and will announce data from the Phase II/b trial underway, in the second half of 2016.

DK049

DK049, is in the pre-clinical stage and has been developed using the LADR technology, and binds with the albumin. The conjugate on reaching the tumor site releases the drug in a controlled manner, which results in longer duration of exposure in the tumors. The candidate has showed clinical activity during the pre-clinical stage for non-small cell lung, pancreatic and ovarian cancers. 85% dose administration of DK049 showed 13 times greater anti-tumor activity than the comparator, viz. Gemcitabine. The xenograft models have shown prolonged inhibition of tumor growth and that too without apparent toxicity, as shown in the figures below. The data will be presented at the American Association for Cancer Research (AACR) Annual Meeting on April 18, 2016. In addition, CytRx expects to initiate phase I trials for DK049 by the second half of 2016.

Source: Investor Presentation

Management Analysis

The Chairman and Chief Executive Officer of CytRx, Mr. Steven A. Kreigsman, has been with CytRx since 2002. He became the chairman of the company in 2014. He is also the director of Galena Biopharma Inc. (GALE) and the Chairman of Galena's Compensation and Transaction Committees. He has previously served as Director and Chairman of Global Genomics and also as Director and former Chairman of Audit Committee of Bradley Pharmaceuticals Inc. He has a BS degree in Accounting, and also completed the Executive Program of Mergers and Acquisitions at the New York University. In 2014, Mr. Kreigsman received a total annual compensation of $2.2 million, including $903,000 of option awards. His total beneficial ownership of stock stands at 2.2 million shares, a 3.6% ownership, according to the Proxy Statement dated May 05, 2015.

The Executive Vice President and the Chief Medical Officer of CytRx is Dr. Daniel Levitt, has been with the company since October 2009. He joined as Chief Medical Officer but by 2013 was promoted to Executive Vice President. He has over 24 years of senior management experience, and has received ten major research awards, and also authored and co-authored nearly 200 papers and abstracts. His previous experience includes implementation, overseeing and management of various clinical trials. He had senior R&D positions at Cerimon Pharmaceuticals, Dynavax Technologies Corporation, Affymax Inc., and Protein Design Labs Inc. He also held senior positions at Geron Corporation, Sandoz Pharmaceuticals Ltd., and Hoffman-LaRoche Inc.

In January, 2016, CytRx appointed Ms. Olivia C. Ware as the Chief Commercial Officer. She worked at Genentech from April 1997 to January 2010, and was also responsible for the initial commercial launch of Avastin in the US. She also managed almost 20 senior leaders under the drug development team for the oncology portfolio at Genentech. She was also the head of marketing for Herceptin. In addition, she also served with Baxter Healthcare and Apria Healthcare. She has over 20 years of experience of biotechnology and pharmaceuticals. Thus, with the launch of Aldoxorubicin expected in 2017, this appointment is right on time.

The management is granted with Option awards each year, however, since 2003 no options have been exercised by the executive officers. Thus, the interest of the management team are hypothesized to be aligned with the interest of the company.

Insiders and Institutional Ownership

CytRx has an encouraging institutional holding of 30.8%, with a total number of holders at 75. QVT Financial and Vanguard Group Inc. are the top two institutional holders for the company. However, during the fourth quarter of 2015, the institutional ownership did decrease by a significant amount. The most decline came from Baker Brothers at almost 50%, which did compel investors to worry; since Baker Brothers have been a substantial investor in CytRx. After the position decrease, Baker Brothers still own shares to the tune of $1.6 million.

The insider beneficial ownership stands at 9.7%, which includes the executive officers and directors, a group of nine persons. The updated stock ownership for the FY2015 will be made available following the Annual Meeting of CytRx. In addition, a renowned neurosurgeon Dr. Gene Salkind has also remained a consistent owner of CytRx stocks. According to his recent 13G filing, as of December 31, 2015, he owns almost 4.96 million shares of CytRx - a 7.5% ownership.

Market Performance and Short Interest

CytRx has a year-to-date performance of 18.11%, as of yesterday. The stock has seen an upward trend based on positive news and the expected data announcement by the end of this quarter. Only yesterday the stock posted a 0.97% increase and closed at $3.13. This may be a good entry point, before the presentations and the earnings next month. The stock has a bullish trend, according to technical indicators, and may be in for a breakout at the current level.

Source: Finviz

CytRx has a consensus price target of $8.13 - an almost 159.58% upside from the previous close. The consensus rating for the stock is a Buy, with 3 analysts rating it a Buy and 1 analyst rating it a Hold. The highest price target has been set by Aegis at $12, which was boosted from $9 at the end of March. The analysts covering the stock include Aegis, Oppenheimer and Jefferies Group. Thus, the overall sentiment for the stock is positive.

CytRx has a substantial percentage of its float short, which poses as a worrying signal. There are differing short interest percentages on financial sites, Yahoo Finance lists a 17.85% as of March 15, 2016; whereas another website lists the short percentage of 23.79%, and WSJ also shows a short interest of 21.31%. This suggests an increase of almost 6% from the previous short interest, which could signal a bearish sentiment. The reason for the increase may be attributed to the clinical data expected by the end of this quarter. The increase suggests that there are significant number of people that expect the results to be unfavorable, and thus are betting against them. However, I expect the results to be positive, and this increase in short interest may eventually be beneficial for the stock price.

Financials

CytRx reported the fourth quarter and full-year 2015 financial results on March 11, 2016. The company reported net loss of $0.97 per share for FY-2015, as compared to $0.55 per share in 2014. The company ramped up its pipeline development, which lead to the increase in the research and development costs in 2015.

CytRx finished 2015 with cash and equivalents of $57.3 million, with monthly burn rate of approximately $1.71 million. However, on February 8, 2016, CytRx announced that it had secured a long term loan and security agreement with Hercules Technology Growth Capital to finance the activities related to Aldoxorubicin. The loan is valued at $40 million, where $25 million was received by CytRx. The remaining portion will be available till the end of the year, based on positive trial results from Aldoxorubicin for soft tissue sarcoma and the initiation of second drug candidate based on LADR technology platform. This loan brings the cash position of CytRx to $82.3 million. The quarterly burn rate is approximately $5 million, which leaves approximately $77.3 million in cash. This cash is expected to last for the foreseeable future, as the company expects to make approximately $58.9 million expenditures in the year 2016, which includes approximately $34.3 million for the clinical programs of Aldoxorubicin.

Upcoming Catalysts

CytRx will be making poster presentations at the 2016 American Association for Cancer Research (AACR) Annual Meeting from April 16-20, 2016. The first presentation on April 18, 2016 is titled "DK049, a novel acid-sensitive prodrug of gemcitabine: design, in vitro properties and in vivo efficacy." While the second presentation on April 20, 2016 will highlight the superiority of the LADR technology of CytRx.

CytRx is expected to present top-line data for its lead candidate Aldoxorubicin by the end of this quarter - June 2016. The phase III trial has reached the 191 progression events to trigger analysis, which were required under the Special Protocol Assessment granted by the FDA. The announcement of data will have a strong impact on the stock price of the company. I expect CytRx to announce positive data, which will lead to a price hike. However, given the uncertain nature of clinical trial results, a negative result will slash the stock price, this being the worst-case-scenario.

CytRx is expected to report the first quarter earnings between April 29-May 3, 2016 according to Yahoo Finance. Whereas, WSJ expects the earnings to be announced on May 5, 2015. The average EPS estimate for the first quarter 2016 stands at -0.27, as put forward by 3 analysts. Historically, the company is bad with meeting the analyst expectations and in the last five quarters the actual EPS was very different than the estimated EPS. Thus, the negative surprise may impact the stock price.

Source: Investor Presentation

Risks

CytRx is expected to announce the Overall Survival data for Aldoxorubicin for GBM, in the second half of 2016. A treatment for GBM to date eludes the researchers, and thus, the clinical trials are looked at with skepticism. Only recently, Celldex Therapeutics (NASDAQ:CLDX) announced Rintega's inability to improve overall survival in newly diagnosed GBM. Please note - I'm in no way comparing the two drugs, but merely stating a recent GBM failed effort; I'm aware that they are polls apart. As for Aldoxorubicin, the inherent risk of the drug's inability to meet the OS primary endpoint stands, and if that happens it will severely affect the stock price and general investor sentiment.

In December 2014, the company was sued for stock promotion, however, a settlement was made in December, 2015. Under the terms of the settlement, the plaintiff is set to receive $4 million (to be paid by CytRx insurer) and $4.5 million in company stock. The agreement was reached to avoid lengthy and costly litigation, and is in no way admission of wrongdoing. The court's final approval of the settlement agreement is yet to be announced. The issue has been settled, and even if the claims are true, a lesson must have been learned, and we can move forward.

Bottom Line

CytRx is a sound company, with a valuable pipeline and effective technology platform. The lead candidate Aldoxorubicin is in trials for major cancers, and the trial results thus far, have shown to be positive. The company has a number of catalysts throughout the year, and is on its way to a possible drug approval by 2017. The company doesn't come with major risks, going forward; thus, I believe it is a good long term investment. However, additional due diligence is obviously recommended.

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.