Worth reading. http://bit.ly/MxAfUV
RS: You may have seen that Stemline Therapeutics Inc. (STML:NASDAQ) stock has appreciated substantially during January. This represents a reawakening to the fact that this company is the only cancer stem cell-focused company that actually has an abbreviated path to market approval with its lead drug SL-401 (recombinant human interleukin-3 coupled to a truncated diphtheria toxin payload that inhibits protein synthesis). You and I talked about this last July.
"The IPO window is going to remain open for biotech companies."
This drug is focused on a niche hematological malignancy called blastic plasmacytoid dendritic cell neoplasm (BPDCN), which affects a very small number of people and, as such, essentially qualifies as an ultraorphan disease. Therefore, SL-401 potentially qualifies for breakthrough therapy designation. An abbreviated pathway to approval could position the drug to be priced at a very premium level, meaning hundreds of thousands of dollars per year, just like other drugs currently available for other ultraorphan diseases.
In addition, Stemline Therapeutics, in late September of last year, disclosed that it had demonstrated the activity of SL-401 preclinically in chronic myelogenous leukemia (CML). This is the disease that Novartis AG's (NVS:NYSE) Gleevec (imatinib mesylate), a receptor tyrosine kinase inhibitor, was originally developed to treat. Gleevec is currently a $4 billion ($4B)/year franchise scheduled to go off patent in 2015, but its substantial size as a commercial franchise clearly demonstrates what an important market opportunity CML is.
Because Stemline appears to have a drug that is active in CML and, more important, works as a single agent as well as synergistically with Gleevec—and a drug that demonstrates activity against CML cells that are resistant to currently available tyrosine kinase inhibitors—we think there's substantially greater upside to the stock than investors imagine. The stock's recent rebound is primarily due to investors reawakening to the fact that the company is well financed for the next two years and could, in fact, have a drug on the market next year for the niche ultraorphan BPDCN market.
We have a $70 price target on Stemline, which is the highest on the Street. We believe investors are undervaluing the company's unique positioning and not giving it sufficient credit for what could potentially be a game-changing therapy in CML.
TLSR: You believe investors are undervaluing this stock because they are focused on the BPDCN indication, which only represents 2,000 patients each year, and don't understand the potential for CML?
RS: I don't believe any value is being ascribed to Stemline's SL-401 in CML. Stemline doesn't have an active clinical development program in CML as of yet, but we expect it to start one before the end of this year. The preclinical CML data were presented by a researcher from the MD Anderson Cancer Center at a very small conference in Portugal last year. No buysider (money manager or money manager analyst) that I know of attended that conference. The company did not get the attention it would have at the American Society of Clinical Oncology (ASCO) meeting, where everybody shows up and potential therapies become common knowledge in the biotech investment community.
TLSR: Even with its 56% increase in share value during January, I'm noting Stemline still only has a market cap of $400 million ($400M).
RS: Yes. But prior to this recent run-up, Stemline was the cheapest publicly traded cancer stem cell company in the market. We believe it ought to be the most highly valued of this group. Comparing OncoMed Pharmaceuticals Inc. (OMED:NASDAQ), Verastem Inc. (VSTM:NASDAQ) and Stemline Therapeutics, we think Stemline should have the highest valuation because it's the closest to commercialization, and could come to market first with a drug commanding ultraorphan-level premium pricing.
TLSR: Ram, I find it interesting that SL-401 is thought to increase in efficacy with subsequent administrations. This is quite the opposite of what we see in most oncology therapeutics.
RS: That is absolutely correct. We've seen this before, in a related drug called Ontak (denileukin diftitox; Eisai Inc. [ESALF:OTCPK]), which was originally brought to market by Ligand Pharmaceuticals Inc. (LGND:NASDAQ). Ontak, like SL-401, demonstrated the ability to increase in efficacy as more cycles were administered. In addition the safety profile—its tolerability—improved as more cycles were administered. Because it's an immunotherapy, the immune system of the cancer patient was essentially becoming more acute, more trained.
TLSR: Ram, in your notes you've made a point of describing SL-401 as a targeted therapy. Tell me about that.
RS: SL-401 is effectively delivering a toxic payload, in this case diphtheria toxin, specifically to the cancer cells. SL-401 contains the receptor-binding domain of interleukin-3 (IL-3), which homes to tumor cells and cancer stem cells that specifically express the interleukin-3 receptor (IL-3R) at high density on their cell surfaces. The cells internalize the diphtheria toxin, which kills the cells off.
"Investors must question the nature of the opportunity. They not only have to look at the competitive landscape, but they also have to look at the company's drugs and understand what they are."
SL-401 also activates the immune system against the cancer cells. In particular, if you administer this therapy in multiple cycles, it tolerizes the immune system to its presence just as Ontak did. The more cycles you administer, the lower the frequency of adverse events, including injection site reactions, as well as the higher the likelihood of getting a positive response on the cancer front. This is the best of both worlds.