I read Richard Pearson`s article on Seeking Alpha (NYSEMKT:SA) and felt confused. I didn't read all the articles on SA addressing CytRx corporation (NASDAQ:CYTR), rather, I was reading about CytRx`s technology the company`s results, and all Richard Pearson said was that he thinks CytRx misled investors. Well, I think it is Richard Pearson who misled investors and not for the first time. I argue that the short position was taken three days before the publication, thus using SA as an "insider information" source promoting his position and his friends. As a PhD in biochemistry I am arguing that CytRx is undervalued with respect to its technology and pipeline of cancer treatment development. To the best of my knowledge the phases II results were nothing less then excellent, and, based on the recent approval for phase III, the FDA appears to agree with me.
I would like to address Richard Pearson, starting from his statement in his article in SA "Behind The Scenes With Dream Team, CytRx And Galena". He stated: "My goal in submitting dummy articles to DTG was to determine the level of involvement of management of these companies in reviewing and editing articles." This is funny since I found a nice article about CytRx and GALE. This article was published in "The Street", relating to three companies: "3 Oncology Biotechs to Watch". In this article Richard Pearson wrote: "CytRx's approach to oncology is noteworthy to CytRx bulls because it potentially could entail lower risk. Not only is CytRx's aldoxorubicin essentially just an improved delivery mechanism for an existing chemotherapy drug, but this delivery mechanism itself has been proven by Abraxane, which also combined an existing chemotherapy drug with an albumin binding molecule. The drug is currently in a phase III trial for second line treatment of soft tissue sarcoma and a phase IIB trial as a second line treatment for glioblastoma multiforme." This is an extremely bullish approach, maybe even a pump article by Richard Pearson. As you can see, Richard Pearson has written very positive things about CytRx's drug and now he writes "Readers should keep in mind that drugs do not "pass" Phase 2 trials. It is the decision of the sponsor (ie. CytRx) whether or not to proceed to Phase 3. The FDA would certainly halt a study if it was deemed to be dangerous to the patients enrolled. But the FDA would not otherwise rule on effectiveness or stop a trial at Phase 2." Now I'm confused, on January 27th, 2014, as shown above, Richard Pearson stated that "the drug is currently in a phase III trial", so what is true and what is a lie? Well, in order to answer this question, I need to write about CytRx's platform.
Aldoxorubicin is a tumor-targeted doxorubicin conjugate. This means doxorubicin is attached to an acid sensitive linker (EMCH). After administration Aldoxorubicin rapidly binds endogenous circulating albumin through the EMCH linker. The albumin delivers the drug via blood circulation to the tumor where it is released due to the tumor`s acidic environment(the linker is acid sensitive). This mechanism results in free doxorubicin at the site of the tumor. To make it simple, imagine a guided missile aiming tumors.
Now back to Richard Pearson, and also addressing Adam Feuerstein: They claimed that the results are not conclusive and Pearson also stated in his article: " Feuerstein also notes that more than 60% of the patients enrolled in CytRx's aldox study were in India, Romania, Russia and Ukraine, implying that accuracy may not be as high as for a study which had been done primarily in the US and/or Western Europe". Well, they are saying that you can only conduct a trial in the USA. However, many of the known drugs were developed outside of USA. Are these drugs judged on where they were developed? Also, "For some reason patients in this trial had a 0% response rate for tumor shrinkage with the legacy drug doxorubicin. This is unusual in that dox is considered the standard treatment for sarcoma patients. A 0% response in this control arm provided a very strong (apparent) boost for CytRx's aldox." They mean to say that the results are fabricated. So let's have a look at the results: "Additional analysis determined hazard ratios for the primary endpoint of progression-free survival (NYSE:PFS) by both investigators at study sites and by a blinded radiology review performed at an independent central laboratory. The hazard ratio for investigator-read scans is 0.37 (95% confidence interval, range of 0.212 to 0.643) (p=0.0004), reflecting a 63% reduction in the risk of disease progression; and the hazard ratio for central lab scans is 0.59 (95% confidence interval, range of 0.36 to 0.96) (p=0.034), reflecting a 41% reduction in the risk of disease progression." I looked at the statistics and at the conclusions of the investigators and I am also taking into account the doctor and the FDA that checked the results. Do they all have less knowledge then Adam Feuerstein or Richard Pearson? The FDA`s recommendation was to approve "dosing patients with aldoxorubicin until disease progression in a planned pivotal, global Phase 3 clinical trial with aldoxorubicin as a second-line treatment for soft tissue sarcomas." The FDA based the approval on the success of the trial. They approved high doses of aldoxorubicin!!! Well, I think the FDA has more qualified employers then Adam Feuerstein or Richard Pearson.
Richard Pearson`s allegations a regarding the electronic signature seem unpersuasive as it is easy to manipulate such signatures. This is not a proof, not even close. I didn't see any of the management selling their stock. The stock actually rose after the good result and the beginning of other trials. It's a nice story, but Richard Pearson has a position to sell, so he tells a "007 story" without a smoking gun. I hope the company will reply to this week`s allegations with a lawsuit.
Is CytRx the only one? According to the article there is more than one or two, so why CytRx. Looking at Richard Pearson`s articles, most of them are short and match his position. Let us look at the article about Kandi Technologies Group Inc (NASDAQ:KNDI). Richard Pearson gave this stock a 4$ target, while, today, the stock is around 17$. Look at the same method, first he is long as he stated :"My last article was long, but the key points can be summarized as follows" but he has the same point for short: " Aggressive articles predicting a meteoric rise in the stock". Looking at this misleading article and others, I don't really understand SA approving his last article.
Let's look ahead, CytRx has approximately 125M$. The market capitulation is around 225M. Therefore, the entire company pipeline is valued by 100M. I won`t go and value CytRx, I just state what Aegis recommended and published (January 23rd 2014) few days before Richard Pearson (January 27th 2014): "Aegis increased their price objective on shares of CytRx (NASDAQ:CYTR) from $9.00 to $12.00 in a research note issued on Thursday, American Banking & Market News reports. The firm currently has a "buy" rating on the stock. Aegis's target price suggests a potential upside of 66.20% from the company's current price." At that time, CytRx had a market cap of $297.1 million. If we take this recommendation to date, CytRx has 200% upside. I believe the potential is even higher.
Disclosure: I am long CYTR.