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TopoTarget – the most attractive biotech company known by me

|Includes: ALTH, CELG, Spectrum Pharmaceuticals, Inc. (SPPI)

TopoTarget (TOPO), a Danish biotech-company with a market value of 88 MUSD, represents a very attractive investment as their lead candidate belinostat (within oncology) targets a multibillion dollar market and the company has a strong financial situation. Due to the low toxicity of belinostat, the approach is not to replace existing chemotherapy but to add effect and the compound has today been/is part of over 20 clinical studies whereof more than 10 are sponsored by the US-based National Cancer Institute (NCI). I judge that the upside in this company is more than 1000% within a year provided a few of the ongoing studies turn out positive. Based on the available data as well as on comparison with other similar compounds, I find that scenario likely with a possibility exceeding 50% and hence, TopoTarget should fit in most portfolios.

 

Belinostat is a HDAC inhibitor (HDACi), which represents a novel class of compounds for cancer treatment. Data from clinical trials have shown efficacy in both mono- and combination therapy with standard-of-care chemotherapy for this class of compunds for a number of cancer indications and a few HDACi’s have already been approved for some. Belinostat has shown an excellent efficacy in some indications however the main advantage over other HDACi’s (in a commercial sense) is its safety profile. That is, whereas other HDACi’s have shown toxicities close to the level of tolerance, the toxicity of belinostat is relatively mild and hence belinostat is likely to be the HDACi of choice when used in combination therapy (it may be used to add effect without increasing the overall toxicity). Belinostat is currently being evaluated in a number of clinical trials, some sponsored by the NCI. A few of the most notably are Peripheral T-Cell Lymphoma (PTCL, phase III, planned NDA filing in 2011), Cancer of Unknown Primary (randomized phase II) and a phase II study for Non-Small Cell Lung Cancer (NSCLC) are soon to be initiated. Whereas belinostat is being studied as monotherapy for PTCL, it is used in combination therapy for both CUP and the upcoming NSCLC study. Very important for an investors point-of-view is that both CUP and NSCLC represent so-called blockbuster indications with estimated sales exceeding 1 billion USD respectively.

 

Promising in this context is that US-based CelGene recently acquired Istodax (Romidepsin) from Gloucester for 640 M USD and that US-based Allos, the owner of Fotolyn, has a market value exceeding 500 M USD. Istodax was recently approved for Cutaneous T-Cell Lymphoma (CTCL), a smaller indication than PTCL but shows a significantly larger toxicity than belinostat. Fotolyn, on the other hand, is approved for PTCL but has shown both lesser efficacy as well as a larger toxicity than belinostat.

 

TopoTarget signed recently (feb 2010) an agreement with US-based Spectrum Pharmaceuticals (NASDAQ:SPPI) regarding distribution rights of belinostat in the US and India worth in total 350 M USD including a “very generous” royalty of future sales according to the previous CEO Peter Buhl Jensen. This leaves Europe, Japan and rest of the world open for either partnering or distribution of belinostat by TopoTarget themselves. The cash asset for TopoTarget was 287.5 M Dkr at the end of Q1 2010 which is sufficient to cover the coming 2-3 years without eventual milestones or sales. TopoTarget has estimated that the pre-tax profit for 2010 will be 0-20 M Dkr and the Q2 report, which is to be presented on Aug 19, will likely not contain any negative financial surprises.

 

Important knowledge for a new investor in TopoTarget is the fact that the share has been under heavy pressure the last years. The story is this; TopoTarget shares were part of the payment to CelGene when TopoTarget acquired belinostat, a former major share holder, BankInvest (BI) has recently terminated one of their bio-tech funds (thus non-company-selective sales) and also recently, HQ bank has terminated their trading activity. However, most technical indicators tell that massive sales of this kind is about to end or has recently ended.

 

There are a number of triggers that are to be presented for the remains of this year; interrim data from the ongoing PTCL- and CUP studies as well as the initiation of the NSCLC study. In addition, also results from studies sponsored by the NCI may have trigger value. I expect the upcoming Q2 report on 19 August to contain an update about these.

 

Today, I find three strong reasons to invest in TopoTarget.

1. I find it likely that the share price progressively will increase beyond 5-6 DKr as the negative effect of massive sales depletes. Technical indicators give a positive trend over the last four weeks and hence a short-term investment may give a decent pay-off within a few months.

 

2. From a fundamental point-of-view, I find a reasonable share price within the interval 10-15 DKr more reasonable today because #1. belinostat targets a multi billion $ market. #2. a thorough review of available scientific literature and clinical data supports the efficacy and safety profile of belinostat for a number of important indications. Based on those I find it likely that belinostat indeed will pass a few of the more important studies. #3. belinostats excellent safety profile over other HDAC inhibitors makes it very promising for combination therapy where the approach is not to replace but to add effect (this is the approach for the blockbuster indications CUP and NSCLC). #4. in comparison to other bio-tech companies within the field TopoTarget is a bargain however they differ both in terms of development stage and potential (note, belinostat is not approved but has an enormous potential), and finally #5 TopoTarget has a strong financial situation and cash assets covering the coming 2-3 years without including eventual milestones nor sales.

 

3. If belinostat eventually will be approved for the CUP indication, it will generate an income well exceeding 1 billion DKr annually for TopoTarget. Therefore, upcoming phase II data for the randomized CUP study are important as positive data (read data that may be the basis for registration) may lead to a share price within the range of 30-50 DKr and still have a large upside for NDA filing and final approval. Also, the to-be-initiated study for NSCLC represents the same kind of lottery ticket however an increased share price due to positive data lies further into the future

 

For more information concerning the clinical trials of belinostat, please visit www.clinicaltrials.gov and search ‘belinostat’. Related scientific papers can be found by using the ‘web of science’ or ‘science citation index’ however these databases are not free-of-charge (universities have access). A lot of information can also be found on the web free-of-charge although the level-of-detail generally is lower. Information concerning triggers as well as financial information about TopoTarget can be found on www.topotarget.com.

 

Briefly about me: I am a Swedish citizen, am 30+, have a Ph.D in chemistry and work as a researcher. I have had TopoTarget under surveillance since end of 2009 but initiated more thorough research of the company in february this year as the company presented their agreement with Spectrum. ‘Dr Linn Baal’ is a pseudonym.

 

all the best

/Dr Linn Baal