ziop from Rodman
FDA's refusal to grant SPA complicates Ziopharm's Phase III plans
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It is unusual for Rodman to issue a negative report, but then again Jefferies and JMP securities did the last raise so they may be upset.
The News: In a surprise announcement (to us and most investors) Ziopharm announced this morning that the FDA did not grant the company an SPA for the proposed Phase III trial of palifosfamide+doxorubicin in metastatic soft tissue sarcoma, (PICASSO III). According to the company, the FDA does not view the current endpoint of PFS “as supportive of an SPA”, and suggested that Overall Survival (O/S) is the more appropriate primary endpoint for the Phase III trial. The company “intends to request a meeting with the FDA” to further discuss the situation, while it is weighing its options, i.e whether A) to go forward with its original plan of keeping PFS as the primary endpoint in its path for accelerated approval, despite the agency’s refusal to view this as an appropriate enpoint to grant an SPA for PICASSO III, and to use Overall Surival as the primary endpoint for full approval, should accelerated approval be granted, or B) go along with the agency’s views and change the trial’s endpoints, and possibly accept Overall Survival as the new primary endpoint, despite the lack of sufficient data from the Phase II setting. In addition, the company has now guided that it is delaying the start of Phase III trial, pushing out its start from 1H 2010 to 3Q2010. Based on the new uncertainty around the company’s lead program introduced by today’s developments, we are placing our rating on ZIOP Under Review without a target price until we have more clarity around the design of the Phase III trial.
Our take on this news: This is definitely not a positive development for ZIOP: first of all, management has appeared very confident, even until very recently, about the company’s chances of securing an SPA, which makes us believe that either management had misread the situation/the agency’s signals, or that there was a last minute change in the direction of the discussions with the FDA about the suitability of PFS as the primary endpoint for the trial. Secondly, and more importantly, this news significantly complicates the situation for ZIOP, in that approval of palifosfamide may now be dependent on an endpoint (Overall Survival) we have seen very little data on. This is not to say that palisfamide now has less chances of succeeding in Phase III; however, the situation has now changed into one where investors may have to gauge how palifosfamide will perform in Phase III in terms of O/S, based on how the compound did in terms of PFS in a small (albeit randomized) Phase II trial.
What’s next for ZIOP? 1) The new meeting with the FDA that the company “intends to request” on the registration path for palifosfamide, 2) and the initiation of the pivotal Phase III trial in STS with palifosfamide are the next most important catalysts for ZIOP, which is now pushed out to 3Q 2010. In addition, we could still see 3) a worldwide or regional partnership for palifosfamide at any point this year (if not an outright acquisition), which could obviously be a very significant event for the stock, depending on the economics and other terms of the deal and on who the partner is. However, we see today’s news as taking at least some of the wind behind palifosfamide sails, given that any potential partner may now be spooked with the FDA’s position and may choose to instead wait until positive results before investing in palifosfamide. Other expected, (much) less impactful, events include the following:
4) initiation of a Phase I trial with the oral formulation of palifosfamide
5) completion of the Phase I trial with the oral formulation of darinaparsin
6) completion of the EOP2 meeting for darinaparsin
7) initiation of a pivotal trial of darinaparsin for the treatment of PTCL
Valuation: We are currently placing our rating on ZIOP Under Review without a target price. We had orginally assigned ZIOP shares a Market Outperform rating and a 12-month target price of $8/share, and had arrived at our target price by applying a 25x P/E multiple to our fully diluted projected 2014 EPS of $1.16 and discounting back using a 40% discount rate. However, given the uncertainty introduced around the company’s lead program, we are placing our rating Under Review until we have more clarity on the future of the Phase III program.
