Cellceutix and Kevetrin Aligning with Pharmacyclics Growth Curve
Deja Vu: The Tale of the Sisterships............
Were we and Allan Trends 1 year too early?
On December 18, 2012 I published a Seeking Alpha article naming Cellceutix (CTIX.OB) as my Stock of the Year for 2013. Six months into the year, let’s take an updated look why CTIX is still my 2013 Stock of the Year.
The recent offer by Amgen (NASDAQ: AMGN) to buy Onyx Pharmaceuticals (NASDAQ: ONXX) is the latest in a string of acquisitions that has cancer drug makers on the hot list again. Effective oncology drugs can command a premium like no other, which is why I maintain an extremely bullish stance on Cellceutix (OTCBB: CTIX) as one of the most compelling biotechnology companies today and for the future. Shares have spiked to deliver gains as high as 150 percent since I first discussed the company with our members, but I believe that is just the beginning and the pullback on shares to the area of $1.70 presents a unique opportunity to take a close look at CTIX again. Cellceutix is particularly attractive because its flagship cancer drug, Kevetrin, acts upon the key protein p53, often called “the Guardian Angel Gene,” a mechanism of action suspected of holding a key to a next generation of cancer therapies.
Investors will be looking over the next six months for data on Cellceutix’s clinical trial being conducted at the heralded Dana-Farber Cancer Institute, Massachusetts General Hospital and Beth Israel Deaconess Medical Center. The trial is evaluating Kevetrin in solid tumors in late-stage cancer patients, a perfect patient population for Cellceutix to potentially glean efficacy data while evaluating safety and maximum tolerated dose.
The company said that one of the stage 4 cancer patients, an 80-year-old woman with endometrium stroma sarcoma (a rare form of uterine cancer), has completed seven months worth of dosing already, a fact that bodes extremely well for Kevetrin.
As I considered the possible future value of Cellceutix, I searched to find a biotech that I felt was comparable to Cellceutix at this stage, which uncovered Pharmacyclics (NASDAQ: PCYC) as a similar growth story.
Late in 2010, Pharmacyclics was a coming off some FDA failures that took the company from having late-stage promise to reach commercialization back to early and mid-stage development of its pipeline. The failures, coupled with the rest of the markets crumbling during the “Great Recession” sent shares of Pharmacyclics to lows of 57 cents in February 2009. Shaving their staff and regrouping, Pharmacyclics began an uphill march from those levels that investment dreams are made of. Here’s a look at their pipeline as of June 2010 from their SEC filings:
In June 2009, the company had $16.33 million in cash, largely because of about $12.5 million in payments through a new licensing agreement with French company Laboratoires Servier giving Servier rights to develop Pharmacyclics’ Pan-HDAC Inhibitors, including PCI-24781, outside of the U.S. With some additional payments and fund raising efforts, Pharmacyclics grew its cash reserves to $74.2 million in June 2010. As of June 30, 2010, Pharmacyclics had an accumulated deficit of approximately $377.93 million and no commercialized products, or even any in late-stage product development.
Shares had climbed to around $7.00 each at that time and the company was sporting a market capitalization of approximately $340 million.
Fast-forward through 2012, and you will see that Pharmacyclics has advanced and expanded its number of clinical trials, especially with PCI-32765, now called Ibrutinib, a novel, orally active, first-in-class BTK inhibitor being developed for the treatment of hematological malignancies, including non-Hodgkin’s lymphoma, chronic lymphocytic leukemia and multiple myeloma. One drug, six indications.
Several of the late-stage trials on Ibrutinib are being conducted by Janssen Biotech, a Johnson & Johnson (NYSE: JNJ) company, via a partnership forged in December 2011. The agreement included an upfront payment of $150 million to Pharmacyclics as well as future milestone payments of up to $825 million. Through the end of 2012, Pharmacyclics had realized $300 million in payments from the deal so far.
Additional payments from Servier have added another $9 million to corporate coffers.
Moreover, Pharmacyclics penned a deal in October 2012 with Novo Nordisk A/S (NYSE: NVO) which for $5 million gave Novo exclusive worldwide rights for the Pharmacyclics small molecule Factor VIIa inhibitor, PCI-27483, in a restricted disease indication outside of oncology. Additional developmental milestones will net another $55 million for Pharmacyclics, plus royalties on sales, if commercialization happens.
In February, Ibrutinib was the recipient of FDA “Breakthrough Therapy” designations as part of the 2012 FDA Safety and Innovation Act as a monotherapy for two B-cell malignancies: in patients with relapsed or refractory mangle cell lymphoma who have received prior therapy, and in patients with Waldenstrom macroglobulinemia.
Pharmacyclics still doesn’t have any drugs approved by the FDA, but the large licensing deals have given them $317.1 million in cash and equivalents and a $5.33 billion market cap. Not too shabby of a reversal from where they were only 30 months earlier. From the lows in 2009, of 57 cents, the stock has delivered returns of 17,180% at their high of $95.85 in March.
I believe that Cellceutix offers the opportunity for the type of exponential growth over a few years similar to that of Pharmacyclics that delivered multi-bagger returns to early shareholders with risk-on strategies.
The reasoning is the similarity in the companies, with the one exception that Cellceutix runs much more “lean and mean” than Pharmacyclics ever did. Pharmacyclics has maintained a large staff, generally in excess of 100 staffers. Cellceutix has built itself so far with only a few highly motivated employees and a world-class advisory/scientific team. Other than that, the parallels support the concept that Cellceutix could outperform Pharmacyclics during its growth spurt.
Take a look at the Cellceutix pipeline as it should stand by the end of 2013:
The stages are based upon public information from Cellceutix about the commencements of both the AML trial at the University of Bologna and the Prurisol trial that should be starting in the next couple months. Cellceutix also disclosed that the University of Bologna is interested in another clinical trial testing Kevetrin in combination with a drug from a “major European pharmaceutical company.” The latest news is that the University of Texas’ MD Anderson has signed a material transfer agreement to begin conducting research on Kevetrin for a range of concentrations and time points in both mutant and wild-type p53 Myeloma and Lymphoma cell lines. MD Anderson will also test Kevetrin against cell lines that have proven resistant to some of the most potent FDA-approved drugs on the market today. This opens the door to countless opportunities down the road for Kevetrin for accelerated regulatory reviews, should data show that Kevetrin can be effective when cancer patients have no other options. Obviously, interest is growing and this could represent the beginning of the hockey-stick growth for Cellceutix that others have experienced as majors came calling.
It’s also pertinent to note that the Prurisol proof-of-concept trial will be completed in short order (scheduled to last 8 weeks), allowing the company to move into a large-scale, multi-center trial in 2014 if the PoC data is supportive of laboratory research as expected. The FDA previously told Cellceutix that, because the active moiety of Prurisol is already approved, pursuing a 505(b)(2) designation would be an acceptable approach, which presents an opportunity to expedite the development process.
At the end of year, the trial at Dana-Farber should be nearly complete with Maximum Tolerated Dose (MTD) established, a safety profile compiled and, probably most importantly, clinical data collected on Kevetrin’s effect on p53 via the p21 biomarker. If they hit p53, I would suspect that leading drug manufacturers are going to amplify their efforts to test Kevetrin on a great many indications. Cellceutix taking its anti-cancer drug to Dana-Farber is underscored by a critical benefit that most investors don’t consider because of the cancer center’s tumor mapping program. Ultimately, the mapping technology should help define which types of cancer Kevetrin may prove most efficacious, delineating a pathway to specific indications similar to catalytic situation with Pharmacyclic’s ibrutinib.
This directly lends to the Pharmacyclics comparison. The PCYC pipeline exploded from 2010 going forward because of licensing agreements and partnerships based upon Pharmacyclics collecting clinical data that supported the potential of Ibrutinib as a new therapeutic candidate for a host of hard-to-treat diseases.
Kevetrin has the same type of potential because of its unique mechanism of action to impact p53, meaning it could be effective on solid tumors across the body as well as blood tumors. Because of the robust data that has been collected over the years and belief that the p53 pathway is an inroad to completely new wave of chemotherapy, it seems logical to say that Kevetrin’s MOA actually has greater potential than Pharmacyclics’ BTK and HDAC inhibitors.
PCYC had $16.3 million in cash in June 2009. Cellceutix has $10 million at its beck-and-call through a funding agreement with Aspire Capital. Licensing deals packed PCYC coffers in 2010 and going forward. Given the high profile of Cellceutix trials and the Non Disclosure Agreements that it has signed, it seems major pharmas have their eyes on them. Kevetrin is being evaluated at two of the most prestigious cancer centers in the world, an enviable position for any drug in development. It is not a stretch to imagine that a lucrative agreement could come their way based upon data from the Dana-Farber/Beth Israel trials alone.
What Could Go Wrong
Some biotech investors make the argument that companies in Cellceutix’s position are still too early in development for an investment and that is certainly a matter or interpretation and strategy as small caps most definitely carry a high degree of risk. I bet those that believed in Pharmacyclics in 2009 at 57 cents per share would have a few things to say about that. But not every developmental biotechnology stock has enjoyed the stellar returns of Parmacyclics. The truth is that most do not make it, or are snatched up by a larger pharmaceutical well before their product development begins to reflect significant potential. Some see their products not make it through the testing required of the FDA and some just languish year after year while begging for capital to just make it through that long and expensive road to approval.
Where does CTIX fall within the continuum of success to failure? We can assess potential by rigorous analysis of the science, the products and bank account. Assumptions and comparisons to other companies can carry us only so far. There is no way logic and rational extrapolations can eliminate or even diminish risk. But if you’ve been in this game long enough, you understand that with that risk comes reward, at times, monstrous, staggering reward as we have seen with Pharmacyclcs. There is no free lunch in speculation, you just add up the underlying facts and take your best shot. In my case, that best shot for 2013 remains CTIX.
AI
