Cyclacel Pharmaceuticals: What You Don’t Know

I am long (CYCC).  I wrote this article myself and have not be compensated for it by any party mentioned or unknown.

Spiro Rombotis

We are pleased to report that subsequent to the end of quarter the required number of events have been observed in the study approximately 1.7 years after the last patient was enrolled.

Spiro Rombotis – August 10, 2016 – 4:30 PM ET – On the Phase 3 (SEAMLESS) Trial

Investing in nano to small-cap biotechnology stocks is hit or miss gambling at its finest.  At its finest because unlike a roulette wheel the gambler has an informed, albeit, clouded idea of where the ball will land.  The better the idea, or investment thesis if you will, the better your chances are at winning.  And should you come across a piece of information that advantages your chances, such as the quote above, you will do better than those who don’t.  And while we all might read the same report, or listen to the same conference call, what we comprehend there will be different.  And those differences are what separate the winners from the losers in biotech investment.

As previously mentioned in my introductory video, I left Cyclacel Pharmaceuticals (CYCC) for dead back in December of 2014 after having been notified by the company that the Phase 3 (SEAMLESS) trial had crossed the futility boundary and would be unlikely to readout in a statistically significant way.  The stock, which had been in steady decline dropped nearly 50% on that day and has not since recovered.

To say that I was surprised when on August 12th, H.C. Wainwright’s analyst Andrew Fein put a price target on CYCC of $173 a share is to understate that by quite a lot.  It did, however, get me to thinking about his possible motivations for doing so.  Before I address these issues, it should be noted that Fein’s price target is based upon a (SEAMLESS) surprise.  His estimate, sans (SEAMLESS) success, is, nonetheless, a lofty $60 per share.

In An Asymmetrical Investment Opportunity The Downside Risk Must Be Limited

And the best way to achieve that buffering is to find an equity which is already significantly undervalued.  So, why then is Cyclacel, a biotechnology company in this most lucrative sector of oncology, so steeply undervalued?  The answer to this question can be sourced in two ways.

First, if we go to the most recent quarterly report, we find that Cyclacel has lost investors over $329m since its United Kingdom inception in 1996.  This birthplace of Cyclacel will be important to our operating thesis and referred to as this article unwinds.  In 2007, shares reached a relative value of $600 each.  Since then, the company has executed numerous and unexpected equity raises and several reverse stock splits which have undermined investor confidence.

Second, with the cloud of a negative report on the (SEAMLESS) pivotal trial in elderly Acute Myeloid Leukemia hanging overhead, investors are rightfully loath to jump in ahead of that storm.  If one already knows that bad news is on the other end of the ringing phone, why pick it up in the first place?  That’s logical.  But sometimes it’s best to abandon logic in favor of a deeper understanding of what the issues are.  Because, in some peculiar instances, the bad news is that you’re just not getting everything you’d hoped for.  Only half.  I’ll explain that later.

To give you an idea of just how undervalued Cyclacel is relative to other oncology focused developmental biotech stocks, I’ve constructed a comparative graphic for your consideration.  Cerulean Pharma (CERU), a company applying its nanoparticle drug conjugate technology to cancer therapy recently suffered a setback in the development of its lead compound CRLX101.  In a Phase 2 trial targeting Renal Cell Carcinoma, CRLX101 in combination with Avastin or standard of care (SOC) failed to demonstrate statistically significant benefit against SOC alone.  In fact, the control arm outperformed the active arm.  Shares of Cerulean were cut by more than half on this day and, yet, Cerulean is still valued 50% higher than Cyclacel.

Ceurlean Comp

As you will note in this graphic, Cerulean is nearly 85% dependent on the positive perception of CRLX101 as a measure of its importance to the developmental pipeline.  Yes, there are other opportunities when pairing this compound with existing therapies but that is cause for concern when assessing the potential commercial value of the asset moving forward.  Contrast this with Cyclacel’s pipe which features a good mix of attractive candidates including a CDK inhibitor; a variety of MOA’s; and addresses a good mix of therapeutic populations and you are left to the inevitable conclusion that Cyclacel’s real worth has yet to be unearthed.  In fact, it is my considered opinion, that were you take sapacitabine out of the mix entirely; rename Cyclacel as, for instance, AdromedaBio; and launch the company within the framework of a fresh IPO, the resulting market-cap would reach in excess of a quarter billion dollars.  And yet, here we sit at $20m.

Fein’s Price Target On A (SEAMLESS) Homerun Could Be Way Off

In the world of greed that is Wall Street banks and biotech companies, we must always speculate on the motives of sell-side analysts in establishing what to casual observers might be fantastical price targets.  In the already referenced Q2 2016 report, we can clearly see that Cyclacel entered into an At Market Issuance Sales Agreement with FBR Capital Markets & Co. on June 23, 2016 to sell $4m worth of the company’s common stock.  To suggest that Fein’s comments which led to a $3.43 or 64% climb in the share price over 3 market days didn’t open the door to executing on that ATM agreement would be to bury one’s head in the proverbial sand.  While not knowing the specifics of this particular contract, ATM’s are usually structured so that the investment bank (FBR) buys shares at the lowest price within a specified period of time and is thereby able to sell them later for a sizeable profit.  That speculative bit of expedience noted, let’s see if we can’t find some logic in Mr. Fein’s generous assessment.

The Long Tail Of The Sapacitabine Kaplan-Meier Curve

In my last, and most critical, article on Cyclacel published June 10, 2014 I included the following graphic provided by the company depicting a long tail to the Kaplan-Meier curve.

Kaplan-Meier Plot MDS

And here is what the clinical trial leader of the (SEAMLESS) study, Hagop Kantarjian M.D., said at Cyclacel’s presentation regarding the shape of that curve.

You know, we’re noticing this in the long-term follow-ups, because people say there are no cures but when you look at the long-term follow-up of the frontline, and Dr. Manero makes that point, there is a tail to the curve which is in the range of 10 – 20%, even without the transplant. And these are patients who continue therapy. So it is possible. He makes that point consistently and people just dismiss it, but there is a tail of the curve with hypomethylating agents, even in the frontline setting. So it’s possible that maybe in the salvage set that that’s what we’re seeing in that context with sapacitabine. That is, there could be a population of patients that’s more sensitive to a particular drug where they stay longer on it.

So essentially, what is being said is that patients who respond well to sapacitabine tend to respond very well.  They live considerably longer creating a longer tail to the curve.  This is important because, unlike other molecules in other studies that may have crossed the futility boundary early, sapacitabine in the (SEAMLESS) setting may have been late to separate from control.  This study was supposed to have concluded in late 2015.  But the final events (deaths in both arms) didn’t happen until early in Q3 of this year.  Please go back to that first quote from Spiro Rombotis and reread it carefully.

The above graphic examines only 3 doses of drug and does not compare it to a control.  However, we can clearly see that early disappointment in survival by the majority of patients is met with encouraging longevity later.  I’m not saying that this will be enough to overcome an inauspicious start but I am saying that hope is still alive and in biotechnology investing that sentiment is meaningful.

Sapacitabine Remains Desirable If Only Because Oral Administration From Home Is Preferable To Intravenous Delivery In A Hospital

The population of patients in the (SEAMLESS) pivotal trial is age 70 and above.  Their constitutions don’t lend themselves to transplants or chemotherapeutic regimens that often save the lives of younger patients.  Many choose to simply die as peacefully and painlessly as possible in hospice settings.  Consequently, providing a milder treatment option that can be taken from home would be attractive to this sick and needy patient population.

Decitabine, commercially named Dacogen, was first approved by the European Medicine Agency on a failed Phase 3 trial (DACO-016) and is currently standard of care in elderly AML.  In the (SEAMLESS) trial, Dacogen is used alone in the control group.  This will give both the EMA and FDA their first look at the actual performance of decitabine in the clinical setting since 2011.  If sapacitabine, an orally administered alternative to Dacogen improves upon patient outcomes, both primary and secondary, even without being statistically significant, there is still a possibility that Cyclacel, originally a European company, could gain commercial approval there.  A nod in Europe would make access in the United States to sapacitabine almost mandatory on a patient-provider basis.

Additionally, Cyclacel is in ongoing conversations with the EMA to open the door to investigational trials involving sapacitabine in the pediatric population.  Positive trends in (SEAMLESS) will, no doubt, widen possibilities there as well.

Catalysts

Cyclacel is perhaps the least promotional company in biotechnology today.  Among the many that I’ve followed, Cyclacel is the least likely to toot its own horn.  And while, selfishly, I wish this weren’t so, I can appreciate the integrity of that approach.  Regardless, CEO Rombotis mentioned several upcoming catalysts that could drive the price higher.

  • (SEAMLESS) Phase 3 data report in Q4 2016
  • DNA Damage Response Program (Seliciclib + Sapacitabine) Progress Phase 1 Extension Cohort in a breast cancer patient population enriched for BRACA mutations
  • CDK Inhibitor Program (CYC065) Report topline results of the Phase 1 trial in patients with solid tumors
  • Investigator Sponsored Trials in Rheumatoid Arthritis and Cystic Fibrosis Report data when made available

It should be noted that recent and prior data readouts from some of the aforementioned trials were very positive with stock surges in excess of 50%.

In Conclusion

Cyclacel is becoming somewhat of the lovable loser on Wall Street.  Once thought to be underwhelming, the company’s early stage pipeline is showing signs of efficacy and gathering investor interest.  (SEAMLESS) remains an eyebrow raising study that could open the doors to commercial approval in the EU even without demonstrating statistical significance on its primary endpoint of overall survival.  And while Andrew Fein’s outrageous price target of $173 per share on a (SEAMLESS) homerun might be the most eyebrow raising of all, it too could be a lowball estimate should that dream come true.  How much of the AML and off-label MDS market could sapacitabine capture is unknown.  While my estimates are considerably lower than others, I’m no expert on this or any other subject.  Many qualified assessments run as high as $500m.  Should that be the case, Cyclacel would fetch a market capitalization of roughly $2b.

I’ll leave it to you and your calculator to do the math.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. There are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, managerial decisions, trial failures, stock manipulations and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence, invest at your own considerable risk attaining the just reward your efforts have wrought.

 

 

 

The Allergan Option Effect on Trevena

I am long TRVN

While TRV130, now known as Oliceridine, thrust Trevena into the spotlight of the investment community, TRV027 could cement the company’s G-Protein Coupled Receptor Technology as one that is both highly productive in turning out viable late-stage candidates and capable of drawing outside investment interest.  Now the focal point of the Phase 2b BLAST-AHF trial, TRV027 is set to readout prior to Saturday, May 21st.  Whether or not the composite endpoint proves to be clinically significant or not is anyone’s guess.  TRV027 demonstrated in preclinical studies the ability to do what other angiotensin type II receptor molecules could do without decreasing cardiac contractility.  In fact, TRV027 increased the strength of blood flow to and from the heart.  This latter feature is what drove Allergan PLC (AGN), then Forest Labs, to take a flier on TRV027 in 2013 by way of a partnership option with a $30M stake in the company.  It should also be noted that while Trevena has shouldered the cost of the Phase-2b endeavor, Allergan recently chose to pay Trevena $10M to increase the size of the 5 mg trial cohort that was deemed to be the best performing of the three doses on offer.  I viewed this material interest as compelling.

I’ve recently done some research on Trevena’s partnership option with Allergan by digging through some archived SEC forms.  What we all know now is fairly straightforward.  Should this trial succeed, an unlikely proposition in a therapeutic space littered with failure, Trevena will receive a $65m upfront payment; $365m in regulatory and sales milestones; and 10 – 20% of sales royalties – the higher of those 2 percentages coming from within the United States.  Now some things you may not know.

Allergan must negotiate with Trevena in good faith to market TRV027 themselves in the United States.  And this is important because Trevena is now establishing itself as an emergent care therapy enterprise.  Oliceridine would likely be sold to the same emergent care therapy providers as TRV027 when and if it should become commercially available.

Allergan has 2-weeks following a press release by Trevena on the BLAST-AHF trial results to exercise its option.  This time frame was an unknown up until recently when it was addressed in a question and answer session that followed a corporate presentation.  I believe that notice will accompany the press release if the data is good and possibly be delayed if it is less than stellar.  I predicted recently that results would be posted on Friday, May 20th and a conference call and webcast be made available on Monday, May 23rd.  We’ll see if I’m proven correct.

Allergan is wobbling badly since the failed inversion acquisition of Pfizer (PFE).  Allergan is now under the same rigorous scrutiny as other growth oriented pharma companies such as Valeant Pharmaceuticals (VRX).  It has been reported that the sale of its generic division to TEVA (TEVA) is now in jeopardy.  I’m less inclined to believe that rumor but, suffice it to say, Allergan is in the midst of a sector-wide public relations nightmare.  Bloggers are questioning the value of Allergan’s Research and Development pipeline even though the following slide from a recent corporate presentation highlights 70 mid-to-late stage assets.  You’ll note TRV027 in the bottom right-hand corner of the picture.  All red lines and circles are mine.  A quote from CEO Brent Saunders follows.

TRV027 and CNS Portfolio Highlighted in Red
TRV027 and CNS Portfolio Highlighted in Red

“It’s important to look back at what we presented last November that I know many of our investors were impressed by.  We have a very strong pipeline and, I would argue, best in class.  And strength is divided over all our therapeutic areas.  And we are confident that this pipeline – that we will continue to add to through future science acquisitions, will deliver our long-term growth profile.”

Allergan CEO Brent Saunders – Allergan Business Update – April 6, 2016

The pressure on Allergan to persuade the public that asset development is central to its growth aspirations could ensure an early exercise of the TRV027 option.  Trial results will have to be compelling, but Allergan will be incentivized to add TRV027 to its late-stage asset portfolio if only to reinforce its own arguments.  This despite the fact that there are currently 2 Acute Heart Failure compounds in Phase-3 development – Novartis’ (NVS) Serelaxin and privately held CardioRentis’ Ularitide.  Conversely, if the TEVA deal falls through, Allergan might not be in a position to take TRV027 through to commercialization even if BLAST-AHF results are outstanding.  And if they did so, there’s no guarantee that this is the best path forward for Trevena’s acute heart failure therapeutic given Allergan’s tenuous state of affairs.

Trevena could easily be acquired by Allergan instead.  I’ve highlighted the 9 late-stage assets in Allergan’s CNS segment for a reason.  Trevena’s wholly owned CNS portfolio which includes a potential blockbuster in Oliceridine would boost that number to 10 and provide yet another 2 early-stage assets.  And in a recent article quoting Michael Higgins of Roth Capital Partners LLC, the idea of a cash rich Allergan, assuming that the TEVA deal is consummated, purchasing Synergy Pharmaceuticals (SGYP) or, alternatively, Trevena was discussed.  The amounts of $1bn referenced for both companies were woefully low by my estimates – especially where Trevena is concerned on a value basis, and where Synergy is concerned given its bloated financial structure.  My fair value consideration for both companies starts at $1.8bn each.

The After-Effects of BLAST-AHF success are many.  We all recognize what an exercise of the Allergan option will mean to Trevena which will then have 2 GPCR platform candidates in Phase-3 development and an embarrassment of riches on hand to drive future expansion.  Additionally, all forward looking clinical costs of TRV027 will be shifted to Allergan.  What investors fail to realize is the ripple-effect that such events will likely stimulate.  TRV027, like Oliceridine, could be granted Breakthrough Therapy status by the FDA as Novartis’ seralaxin was in 2013.  A partnership of Trevena’s side-effect diminished, moderate-to-severe pain oral therapeutic – TRV734 with terms similar to the Allergan arrangement could be struck.  And any announcement of new compounds entering the clinic would be met with a heretofore unexperienced enthusiasm.

What to do in the event of mixed or failed marks in the BLAST-AHF study?  Obviously, Trevena’s technology platform would take its first public relations hit in that eventuality.  Allergan would likely walk away.  And CEO Maxine Gowen would be placed in the unenviable position of defining a path forward for TRV027 through self-stewardship; the seeking of another partner; or by shelving the compound in perpetuity.  How all of that is handled will be key to how quickly the stock price recovers.  That said, Oliceridine will advance through Phase-3 clinical trials with a haste unknown to other treatment spaces with data expected in 2017.  That should be the only elixir wounded equity holders will need to recover a positive temperament and interim losses.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. There are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, managerial decisions, trial failures, stock manipulations and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence, invest at your own considerable risk attaining the just reward your efforts have wrought.

Important Upcoming Events For Sarepta and Trevena

Calendar of Events

I’m long SRPT and TRVN

Sarepta (SRPT)  Just a few thoughts here.  I’ll begin with Sarepta which has new briefing documents due by no later than Wednesday, April 20th.  While there’s no guarantee that they’ll be revised it seems likely that they will be.  Since the original briefing documents were published, Sarepta has submitted a rebuttal to the thoughts expressed by the agency in those documents and additional 6MWT data was also provided.  The FDA received a letter authored by no less than 36 Duchene Muscular Dystrophy physician experts recommending conditional approval along with letters from both the U.S. House of Representatives and the U.S. Senate.  This is a cumulative expression of political power and will directed at the agency that has not been focused in a similar manner before.  What effect, if any, it has remains to be seen.

On April 24th, the greater DMD community will march on Washington D.C. in an historic rally on behalf of eteplirsen approval.  There will be many speakers of note and several events including DMD patients participating in a 6MWT.  How many of the still ambulatory Sarepta 12 will take part remains to be seen.

Then on Monday, April 25th quite possibly the biggest advisory committee meeting in the history of biotechnology will occur with Adam Feuerstein of The Street conducting his live blog of the event.   Trading in Sarepta shares will be suspended after market close on Friday the 22nd and will likely resume at market open on Tuesday the 26th.

Because all of these calendar events are binary, I won’t be buying more Sarepta shares.  I’m presently underwater on my Sarepta holdings by about 30%.  I will, however, be holding my shares through April 25th whereupon I will reassess the idea of holding through the eteplirsen PDUFA date.

Trevena (TRVN)  I’ve been regularly adding to my shares of Trevena Inc. in anticipation of the BLAST-AHF data which can come anytime in the Month of May.  The company announced that it will be presenting that data set in Florence Italy, on Saturday, May 21st at the annual congress of the World Heart Failure Association of the European Society of Cardiology.  While I’ve seen a biotechnology company make a similar announcement as a head fake to retail investors thereby allowing their near-proximity stakeholders an opportunity to flee, I don’t believe that’s the case here.  Notably, the presentation will be made by G. Michael Felker, M.D., Professor of Medicine at Duke University Medical Center and co-chair of the BLAST-AHF Steering Committee.  Since he’s close to the personal patient experience in this trial, and is travelling on the company dime, I see this as indicating that nothing negative is known at this time and that something positive is much more likely.  That, however, is pure speculation.

It very well might be that if good data were generated especially in the 5 mg arm, then Trevena could wait until the afternoon of Friday, May 20th to make the announcement and follow that up with a conference call to discuss the results before market open on Monday, May 23rd.  Should that be the case, you can look for Trevena shares to rise from between 50 and 100%.  There will then be a waiting period of up to 2-weeks before we are told if Allergan (AGN) will exercise or pass on the TRV027 option.  The implications surrounding this decision are binary as well.  Allow me to explain.

Allergan will have 3 choices.  The 1st, is to exercise the TRV027 option.  This will include payment to Trevena of a $65mm option fee; $365mm in milestones; and 10 – 20% sales royalties.  Obviously, news of this would stabilize Trevena shares well above what they currently trade for.  The 2nd, would be to buy Trevena outright.  While talk of buyouts is ludicrous at best, and harmful at worst, in this particular instance it isn’t all that crazy of a possibility.  Allergan was thwarted in its recent aspiration to purchase Pfizer (PFE) and has money burning a hole in its pocket from the sale of its generic division to Teva (TEVA).  Scanning about for valuable assets will reveal those positioned right beneath its nose.  Trevena’s late stage asset, Oliceridine, is a potential blockbuster intravenous pain therapeutic and would be positioned beautifully with TRV027 as an emergent care product – easily marketed to roughly the same clients.

And finally, Allergan’s 3rd choice would be to walk away from TRV027.  I want to emphasize that this could happen on good data or bad.  There are many variables at play here including, but not limited to, how successful the therapeutic could be marketed if it should be approved.  Make no mistake, news of an Allegan pass could prove to be devastating to Trevena because some degree of BLAST-AHF success is already built into the share price.  How Trevena management handles this issue will determine how quickly the equity rebounds.  I certainly hope that plans B, C, and D are already in place and ready to be implemented.  Those could include partnering TRV734 – long the company’s intention; selling the company outright to another interested party; selling a TRV027 option to another big pharma partner; or simply going it alone with funds from an equity raise at the pinnacle of the share price rise on BLAST-AHF success.

The month of May will be pivotal for both Sarepta and Trevena.  As with all nano-to-small-cap biotech you’re encouraged to recognize that your investment could be lost at a moment’s notice.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. There are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, managerial decisions, trial failures, stock manipulations and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence, invest at your own considerable risk attaining the just reward your efforts have wrought.