Biotech Values

[DewDiligence]

How not to play RNAi:

[CytRx (CYTR) is a cheap company, but it’s cheap for a reason. The company has a checkered history, as detailed in the Forbes article below, and it is currently the target of an ethics investigation by the Commonwealth of Massachusetts. I listened to one of CYTR’s recent webcasts and it sounded like an infomercial. The company has some luminaries on its scientific advisory board, but that in itself doesn’t impress me. Caveat emptor.]

http://www.forbes.com/business/forbes/2004/0524/182.html

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By Seth Lubove
05.24.04

Steve Kriegsman is trying to revive a struggling biotech firm. It will take a small miracle.

For Steve Kriegsman the hardest part of his parents' deaths was watching them endure years of pain and suffering from obesity-related ailments and the onset of blindness. "Their quality of life for 15 years was horrendous," Kriegsman, 62, says quietly.

That awful experience prompted the onetime investment banker for health care companies to turn research entrepreneur. In a reverse merger with an investment fund he controlled, Kriegsman became the chief executive and largest shareholder of Cytrx Corp., a fledgling biotech outfit he's reinvented as a developer of drugs based on ribonucleic acid interference, or "gene silencing." He then persuaded such notables as 1998 Nobel Prize for Medicine winner Louis Ignarro and Craig Mello, a pioneering RNA interference researcher at the University of Massachusetts Medical School, to join the company's scientific advisory board. Says Kriegsman, "Money is not really the objective." [When you hear an executive say this, run the other way!]

So far, he's been true to his mission. Cytrx has bled $81 million in losses over its life, with no prospect of products in the near future, much less profits. Shares peaked at $47 in January 1992, when Wall Street still believed in gene silencing and related technologies; they hit bottom last year at 21 cents and recently traded at $1.60 on Nasdaq. The company's stock now faces possible delisting due to its delayed annual 10-K report filing.

If curing suffering is Kriegsman's real objective, he still has a long way to go. Gene silencing works by seizing on the RNA messengers sent out by DNA, the gene coder. RNA usually results in the creation of healthy proteins, but sometimes it goes awry and the result is diseases such as hepatitis C, AIDS, amyotrophic lateral sclerosis (Lou Gehrig's disease) and so on. The concept behind Cytrx is to shut down these messengers before they can create mischief. It's still a concept. No one has solved the challenge of delivering a strand of RNA blocker to the target cells before it breaks down or is rejected by the body.

Cytrx has disappointed before. Formed in 1985 by an Atlanta venture capitalist and an Emory University pathologist, Cytrx developed a promising treatment for heart attacks that used a combination of enzymes and synthetic chemicals to dissolve large blood clots. But after Cytrx licensed the drug in a development deal to Burroughs Wellcome (now GlaxoSmithKline), a 1995 clinical study funded by Burroughs concluded the drug was all but ineffective except at toxically high doses. Renaming it Flocor, Cytrx tried to reposition the drug as a treatment for sickle-cell anemia. That strategy flopped, too, after a 1999 Phase III clinical trial concluded it had little effect on adults afflicted with the disease, though it was more helpful on children.

Kriegsman did some bouncing around himself. After graduating from New York University with an accounting degree in 1964, he toiled in a series of financial jobs until setting up a smallish, Los Angeles-based deal shop in 1992. After drifting into health care and biotech, with occasional diversions into curiosities such as a gourmet peanut butter outfit, Kriegsman in 1999 pooled $1 million of his own and outside money to set up an investing vehicle called Global Genomics.

It didn't get far. Global Genomics eventually had to write off almost $6 million for its only investments in two small biotech companies. But by the time the investments were underwater, Kriegsman had already sold Global to Cytrx for $5.8 million in Cytrx stock. As part of the deal he became chief executive, a troubling assignment. "This company was going down the tubes," he says.

Then Kriegsman cold-called Louis Ignarro. By day a professor of pharmacology at UCLA's school of medicine, Ignarro is better known as one of the fathers of Viagra. His discoveries of the effects of nitric oxide on the body led to the development of Pfizer's blockbuster. In case anyone hasn't heard of his 1998 award, he sports a license plate on his beloved yellow Corvette that reads, "Nobel." By his own admission he is a lousy businessman. Ignarro was never entitled to any of the loot from Viagra--never mind that Pfizer sells $1.9 billion a year worth of the little blue pills. "If you want to learn how to lose money, come to me," he deadpans.

Still, it was Ignarro who steered Cytrx to the emerging field of RNA interference. "How many times have you heard of drug companies talk about a cure?" he asks. This approach may someday cure "by turning off and eliminating defective genes that cause disease," he says.

There was a time when RNA blocking had considerable appeal. Not long ago the visionaries were preaching something called "antisense," notably at the Foster City, Calif. biotech company Gilead Sciences. Named after one of DNA's two strands in its double-helix structure, the antisense drugs were supposed to latch onto the sense strand of RNA, thereby blocking it from producing diseased proteins. RNA interference is more or less the same idea, except (for what it's worth) that antisense is a much longer RNA strand that is more likely to be rejected by the body. Gilead sold its antisense patents to Isis Pharmaceuticals in Carlsbad, Calif.

Gene silencing has its boosters, many of them clustered around the UMass medical school, where Kriegsman has arranged licensing deals in exchange for 1.8 million shares, or 6.4% of Cytrx, and milestone payments that could amount to $12 million, depending on what products are developed, if any. Other firms have also licensed UMass' gene silencing science. So, even if the concept amounts to something, there's no assurance that Cytrx will be first to the finish line.
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