Adam Feuerstein Foments Fear Pitching CYCC Into Beggars Hell

I am long, Cyclacel Pharmaceuticals (CYCC).

“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”  H. P. Lovecraft – Author

It is no small irony that the Phobos of biotech has demanded that the SEC step in to regulate all other social media voices over the meteoric rise in micro-cap stock prices.  From his dual vantage points on Twitter with over 50 thousand followers, and lofty bully pulpit of The (darkening) Street, it would seem far easier for Adam Feuerstein to see the bigger picture that includes his own disproportionate influence over potential bag holders.  That, however, would require turning his gaze inward a perspective that few urchins of the dark underbelly of Wall Street possess.   It’s not surprising then that uber analyst Feuerstein is equally unwilling to identify the greater and more frequent malady of downside price manipulation that is far easier to accomplish with roughly the same skill set of lies and distortions.

The Hidden Bliss of Willful Ignorance

Now, you can’t foment.  That’s a violation of…  You can’t foment.  You can’t create, yourself, an impression that a stock’s down.  But, you do it anyway because the SEC doesn’t understand it.  So, I mean, that’s the only sense that I would say it’s illegal.  But a hedge fund that’s not up a lot really has to do a lot now to save itself.

Jim Cramer – Executive Editor of The Street

When Feuerstein labelled Cyclacel Pharmaceuticals “a zero” and it’s position holders as “trading worthless pieces of paper” he knew the devastating effects his derogatory commentary would have on the stock price because he’d done the same thing seven months prior, albeit, with several strands of justification and far less fear mongering.  And while these threads hadn’t become fibrous wisps over the course of two changing seasons Feuerstein had to willfully ignore the avalanche of mounting preclinical evidence that was piling up regarding Cyclacel’s Phase-1 CDK2/9 Inhibitor, CYC065, if only because investors weren’t.  Consequently, Feuerstein rummaged through his old articles to solicit a tired narrative about a company that, seemingly, unbeknownst to him was in transformation.  This absence of a fresh perspective frequently substitutes due diligence with a cocky, careless disregard of the present day facts.

Let me state from the outset that I agree with Mr. Feuerstein’s historical assessment of the company and while I would phrase it a bit differently, Cyclacel has been both adept at conducting equity raises and deceptive about the timing of those events.  And their lead drug candidate, sapacitabine, an underpowered nucleotide analog, failed miserably in a late stage trial, the reported outcome of which was delayed whilst the company tapped their ATM agreement for roughly $6.5m in badly needed cash.  It then goes without saying that I’m no fan of Cyclacel’s executive leadership though I have, and do now, own shares.  Fixing one’s sight on past performance alone, however, is no way to navigate the ever changing landscape of a biotechnology equity.

“The ‘Dumb & Dumber’ Cyclacel Investor”

It was in August of 2016 that Feuerstein penned his last article on Cyclacel the title of which referred to equity holders as dumb and dumber.  In my own article entitled: Cyclacel Pharmaceuticals – What You Don’t Know, I didn’t disagree with most of his assessments at least as they pertained to past performance.  And any shareholder that thought sapacitabine’s SEAMLESS trial had more that a lottery ticket chance of success hadn’t read my extensive coverage on Seeking Alpha which included numerous misgivings about apples to oranges comparisons of past trials and the almost ridiculous SPA requirement of a 27.5% beat of decitabine in the active arm.  That noted, I had two strong disagreements with Feuerstein’s presentation.

Firstly, his use of pejoratives to describe corporate executives who lie, cheat and distort information germane to shareholder concerns is forgivable.  I’ve rightfully referred to many of them as psychopaths for shedding one’s conscience seems to be requisite for ascension to the role of CEO.  But calling shareholders “Dumb and Dumber” is another thing altogether.  It’s designed to suspend critical thinking by shaming someone into selling their shares.  When you read a Feuerstein missive on his home base of The Street, you’ll rarely find links to trial studies, SEC documentations or press releases.  He’s long on bloviating and short on information.  And this article was no exception.

Secondly, Feuerstein went only half way down the clinical pipeline and did a poor job of even that.  He continues to ignore the fact that CYC065, Cyclacel’s second generation CDK2/9 Inhibitor has been in a Phase-1 dose escalation study since September of 2015.  In fact, he didn’t mention it at all!  It has now reached the sixth level of dosing without incident and is, according to the company, 40 times more powerful that seliciclib which Feuerstein did deride as “not worth anything”.  Interestingly, it too has been in a Phase-1 study that reported promising results in June of 2016 shortly before Feuerstein wrote his disparaging remarks.  In that trial, seliciclib is combined with sapacitabine to treat patients with advanced solid tumors.  It has since been expanded to treat a specific subgroup of patients that were more amenable to treatment.

Developmental Biotechnology Companies Are Valued By Promise Alone

Immature and struggling enterprises that fail one day often succeed the next after a late stage candidate steps front and center or an altogether new compound is bought and developed.  Regado Biosciences (RGDO) which later became Tobira (TBRA) would be a perfect example of the latter while Cyclacel, with time, might prove itself to be a stunning example of the former.  This is not to say that Tobira ever had a commercial therapeutic.  It didn’t!  That’s the very definition of the word “developmental” – non-commercial.  In fact, its acquired candidate failed a phase-2 study.  But the therapeutic market size was large enough to warrant an approximate $150m market-cap (7x the size of CYCC’s today) and Allergan paid a 500% premium to buy the company on a gamble that it might succeed.  In developmental biotech the word “might” can and often does carry a lofty price tag.

There is a middle ground between possible and probable, between might and maybe, which is occupied by the word plausible and investors appreciate that.  So, when study group after study group added to a mounting pile of evidence suggesting efficacy in one of oncology’s prized MOAs investors logically acknowledged that Cyclacel’s $16m market-cap was woefully low.  A company with a promising CDK2/9-Inhibitor in the top therapeutic landscape of oncology warrants a market-cap far in excess of the one Cyclacel sports today.  After all, Pfizer’s (PFE) CDK-Inhibitor, Ibrance, approved as recently as 2015, is expected to bring in $3.5bn in 2017 revenues.  And once investors made those logical connections, Feuerstein stepped in to quash that awakening.  And he did so in willful violation of SEC rules regarding making false statement to promulgate false impressions.  But why?

Qui Bono?  Who Benefits?

Allow me to state with confidence that Adam Feuerstein holds no positions himself in any of the stocks he writes about.  This provides a veil of objectivity that reinforces the idea of his independence from subjective influence.  It does not, however, mitigate the possibility of external bias.  And this is what people need to consider when Feuerstein renders his harsh verdicts on the equities he covers.  What other people perceive of as courage in his cutting remarks is nothing more from my vantage point than complete indemnification from libel lawsuits afforded to him by his employer.  I’m running a great risk writing this article of ruffling Feuerstein’s plumage and incurring his renowned wrath.  That, however, is a risk that someone, somewhere, and at some time needs to take to stop this manipulation of micro-cap equities from taking place.  I am now ready to take that stand!

To determine a person’s motives we have to ask the question: who benefits from their actions?  I found the appearance of Feuerstein on Benzinga’s Premarket Prep to be extremely enlightening.  The link I posted also contains an audio file in which two Benzinga analysts on BZ TV talk about AF’s earlier remarks.  Here’s a quote from Brent Slava.

So, Adam is probably the top biotech reporter out there. He’s at The Street right now. He has a ton of connections. He’s probably the most connected biotech reporter out there right now. So, he’s a source you absolutely need to listen to if you’re in the biotech space.

So whom, you might ask, is Adam connected to?  Well, for one, hedge fund operators.  His mentor at The Street, Jim Cramer is one of those larger than life personalities that populate the airwaves of the main stream media and got his start in that capacity.  And since many of the editors at Seeking Alpha have come over from The Street and have an array of friendships with prominent hedge fund managers contributing on that platform, you can bet Feuerstein is connected in that way as well.  Feuerstein has hinted at connections with the FDA.  But in the Premarket Prep show, Feuerstein also revealed his connections to investment bankers.  He cautioned that a lot of the micro-cap run-ups in value that we see today are followed by add-on offerings at huge discounts to the going price.  What he didn’t tell you is that a lot of these micro-caps like Cyclacel are deserving of larger market-caps that will give them the more favorable financing terms that they need to remain viable.  Deserving because their pipeline candidates are succeeding and generating a logical response from the investment community.  By capitulating the stock price with falsehoods that foment fear, Feuerstein holds them in bondage to stock purchase and sale agreements that are highly dilutive to shareholder value but do feed the lower end of the investment bank food chain.

What happens when you get caught buying this thing and then the company announces an offering?  You know, you’re caught and then the offering comes in at a discount and you’re caught owning this thing much higher.  So, I think, what I worry about, what I do see is that a lot of people sort of just start making a lot of fundamental justifications for why these stocks deserve to be trading higher.

Adam Feuerstein – Benzinga Premarket Prep – April 5th 2017

Those investors that Feuerstein professes concern for are now caught.  But not because of an offering announced at a discount but because the narrative he created – that the company and stock have no value created a fearful sell-off that has many of them stranded at $8, $9, or even $10 a share.  It could very well be that Feuerstein’s connectedness to biotech companies, investment banks and hedge funds had nothing at all to do with his commentary.  And truthfully, it doesn’t have to!  The commentary itself is what is wrong and stands on its own as the single force driving the downward trajectory of the equity.

Feuerstein is Right!  But for the Wrong Reason

The question also has to be asked: why would Adam use his social media platform on Twitter to tank Cyclacel’s stock rather than allow for a gradual slowing of the upward trend that would have provided access to logical and profitable exit points?  What Feuerstein did was to yell fire in a crowded theater when there wasn’t any.  News, validated by research professionals and presented at respected oncology conferences drove the upward excitement.  And the very investors he claims to be “worried about” are indeed now caught and stranded at those higher price points.  And while Feuerstein seemed to dial back his charges of social media manipulation of Cyclacel’s price on Benzinga’s premarket show, none of the hosts had the courage to ask him why his own remarks, being the most feared voice in biotech, should have fallen out of the reach of his own regulatory concerns.

The SEC should step in and investigate whether or not Feuerstein’s claims that CYCC is “a zero” having no value is anything other than a blatant lie given that Cyclacel in its entire history as a developmental biotech has never been valued at zero.  In fact, over the past 52 weeks, CYCC has been valued at between $3.05 and $10.50 a share.  And while I’ve retained my holdings acquired prior to Feuerstein’s calculated tirade that included those follow on discussions on Benzinga, my position has been damaged as the company’s quest for relevance has been significantly compromised by Feuerstein’s false claim that we “are trading worthless pieces of paper.”

This week will mark the first time in my four year biotech investment career that I will have completed the filing of a SEC complaint against Mr. Feuerstein for blatant stock price manipulation.  It won’t be the first time I’ve seen it.  But, rather, the first time I’ve been directly effected by it.  On Seeking Alpha, for instance, I witnessed two hedge fund managers manipulate the price of a nano-cap biotech equity all while investing millions of dollars in the company.  My investment of $10k in Cyclacel may seem laughable to many of you who read this article.  But I worked 10 to 14 hours a day, 5 to 7 days a week as a bus driver to make that happen.  And each dollar means many times more to me than it will to any hedge fund manager anywhere.

Will it do Any Good?

I doubt it!  You see after hearing Jim Cramer’s very public confession of stock manipulation in the video linked to above, I have resolved that the SEC fully approves of Cramer’s tactics and those of his counterpart on The Street.  The system works for those who belong in jail.  It does not work for hard working, circumspect investors like you and me.

Always be well…

 

Tap, Tap, Tap Cyclacel Does It Again

In an August 22nd article entitled: Cyclacel Pharmaceuticals: What You Don’t Know, I mused upon the motivations behind Andrew Fein’s $173 price target on an equity that was trading for a scant $4.48 on the day prior to publication.  Was this based upon the notion conveyed by Cyclacel’s controversial CEO Spiro Rombotis in a promotional video found here that indicated a slower than expected evolution of the trial since enrollment had closed in December of 2014?  Or was this the precursor to tapping an ATM agreement with FBR Capital Markets & Co struck in June?  The answer came within the Q3 2016 Report, issued on November 14th, which showed that Cyclacel had tapped that agreement for $5m.  That’s right!  $5M.  And then again in October for an additional $1.5m bringing their cash on hand to $19.5m at the time of publication.  This for a company sporting a market-cap today of roughly $17M according to Seeking Alpha and $12m according to Yahoo.  I suspect that the former is more accurate as they’re likely taking into account the added and highly dilutive shares.

I don’t know why I’m susceptible to falling into the retail investor trap that is Cyclacel Pharmaceuticals time and again but I am.  And it’s becoming a very expensive habit.  It’s undoubtedly one of the more difficult stocks to read.  And August 22nd was no exception.  We had Andrew Fein valuing the equity at $60 per share without (SEAMLESS) success.  I too found Cyclacel’s developmental pipeline to be underrated.  And the possibility remains that sapacitabine’s historically long tail at the end of the KM curve could still allow for an epic Hail Mary result but management’s greedy sale of shares tells a different story.  As disappointing as the fire sale has been to the value of our holdings, even more frustrating for me was viewing that video now posted on the Cyclacel website.  Nowhere within the 6m:52s conversation is any mention of the DSMB assessment that the study’s futility boundary had already been crossed indicating a likely failure to meet the 27.5% improvement in overall survival.  That makes the video not only promotional but highly deceptive as well.

At one point in the conversation, the staggeringly uninformed host recaps sapacitabine’s strengths by stating: “So, no more infusion therapy, caregivers are freed up, patients are in-home, um, fantastic technology.”  To which Spiro Rombotis responds: “Well, we think so.”  But there’s a problem.  The sapacitabine only arm was dropped in this trial due to, most likely, lack of efficacy.  The active arm is composed of alternating infusions with decitabine.  Consequently, there would be infusions upon approval and patients would be in home half of the time over the course of their treatment.  The drug could be given on its own but that would be done without proof of efficacy as a standalone therapy.  What bothers me is that Rombotis makes no effort to be forthcoming by correcting the mistaken perception.

If you want a good look at what the hidden hand of ATM dilutions looks like, feast your eyes on this screen grab featuring a typical day’s trading of CYCC.

Note the two large volume spikes just prior to noon and just after 3 PM.  They are most likely the handiwork of a value diluting investment banker and his desperate partner.  And just below is what the Cyclacel chart looked like on the day of Fein’s enthusiastic appraisal and after the ensuing punishment inflicted on us all by way of the ATM agreement.  If you’re wondering why Cyclacel resorted to this retail investor unfriendly method of financing its operations you need only ask yourself who would subscribe to a public offering of a company with a pivotal study that was sure to read out poorly.

Wrapping it up, I’m underwater (again) on CYCC and have no choice but to hold.  The chance of SEAMLESS success is about 100k -1 given the amount of money the company has raised.  I have a small amount of dry powdered that I’d be tempted to wager on the day of published failure but the ATM facility would, no doubt, leap into action were the equity to jump off the floor thereby mitigating any chance I’d have to recover my losses.  And since CYCC’s market-cap has swollen by nearly 50% since before this all began, Fein’s price target would of necessity be cut by at least a third or more.  Therefore, the upside is downsized, though it remains significant.  But only, however, if the company starts to think of its shareholders well being.

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.

Madness

ava-in-the-black-and-white-room

I have no position in any of the stocks mentioned but may initiate a position in Sarepta (SRPT) in the next 72 hours.

Love

I wish I could help you to understand what it is I’m experiencing.  Or, perhaps, that would be to burden you unnecessarily.  Who wants to be the one to awaken someone from their slumber?  To intrude upon their self-imposed sleep.

I’ve failed miserably as an analyst.  But I was meant to fail.  For it is through the exertion of our futile efforts that we at last abandon all sense of self direction.  Amidst the cacophony of greed that is the biotechnology sector of the stock market one’s voice cannot possibly be heard.  If there’s one thing that trumps Love it is agenda.  It appears that the carefully laid plans of men are no match for the consciousness of Christ Jesus.  But appearances are, as they say, deceiving.

After recoiling in disgust from the hedge fund dominated platform of Seeking Alpha, I sought refuge in the salt mines of the Yahoo Message boards.  The very same venue that had caused me so much pain in the past.  The pain of betrayal.  The pain of realizing the weakness of men.  Only my naiveté could possibly lead me back to such misery.  But I retraced these steps of innocence time and time again.  I had to.  If only to learn that the same vested interests control the flow of communication there too.  It seems that the vested agents of finance are everywhere to be found.

It would be nothing more than folly to recite what it is that I said on the Sarepta (SRPT) message board.  But a wounded ego and loss of memory where the log in my own eye is lodged compels me to do so.

My Original Thesis

On Seeking Alpha I told you that Biomarin’s Kydrisa, or drisapersen, would be rejected at adcom.  This formed the basis of my investment thesis.  Namely, that one of these two drugs – eteplirsen or drisapersen would have to be approved.  And since drisapersen was not, eteplirsen would be.  Parenthetically it’s worth noting that the much reviled Ronald Farkas chaired the drisapersen adcom just as he did the eteplirsen debacle but with no complaints from the YMB crowd.

After Adcom

I stopped authoring content on Seeking Alpha following the publication of that article.  Amidst the ripples of negativity infusing that bureaucratic fiasco, I changed my investment thesis to: the FDA would have to approve the eteplirsen application due to the enormous political pressures exerted by DMD professionals; U.S. Congressmen (most notably Senator Marco Rubio of Florida); patient advocates (especially their parents); and because the performance of FDA representatives at adcom was so deplorable as to dissuade opening the door to public censure.  Board participants clung to the scientific precepts contained in the company NDA documentation.

A Warning

Although I repeatedly wrote of “disappointment” attending to Accelerated Approval which arrived in the most decelerated of fashions, I did so with the unpopular caveat that the FDA would include something in the wording of approval to discourage a rampant rise in the stock price.  This cautionary proviso of a poison pill, if you will,  brought upon me the universal disdain of board participants who sought to marginalize my effect on the platform viewership.  Sadly, it worked.  Several contributors to the conversation asserted that formal approval wasn’t typically accompanied by agency appraisals on the application but was, rather, a straightforward yes or no.

What I Stated

I repeated the following points based upon my Thaumaturgical analysis.

  • Approval would be disappointing to those with high expectations.
  • The share price upon approval would be between $45 and $60.
  • There would be something discouraging in the FDA official press release.

What Happened

The application was approved.  In that press release, the FDA unexpectedly required a confirmatory study in exon-51 that was not named (PROMOVI) or (ESSENCE).  It was these latter two trials that board participants focused upon.  The former, was believed to be sufficient by some as it was already designated conformational, and the latter, was thought to be the outgrowth of a cooperative effort between the agency and the applicant.  Neither proved to be true.  And it was this added burden assigned that kept the stock price from a sharp ascension that many believed to be inevitable.

If that wasn’t bad enough, the agency also formally requested that the study which had formed the bedrock of justification for scientific consideration of approval be invalidated.  For the most part, this latest jab at the company’s integrity has been ignored by the investment community.

What’s Next

On the conscious plane of thought, I’m writing this to alert you to an opportunity.  I’ve already made a good deal of money on this equity, albeit, while diminishing my holdings so as to reduce my risk exposure.  That said, I’ll be looking to reinitiate a position in light of my new findings.  Yes, the company is now at a hefty $3bn market capitalization.  But the recent equity raise participants, in at just below $60 per share, are due a boost up for their display of loyalty.  And I believe they’ll get it.  The source of this catalyst, or these catalysts, could come from the following quarters.

  • A positive readout from the Phase-1 flu study.
  • A European approval or talk of interest from the EU.
  • An ex-U.S. marketing partnership.  Yes, they’ve played this down but that’s a sure sign of interest in consummation.
  • A sale of the Priority Review Voucher, or PRV.  This was granted shortly after approval was given.  A PRV voucher is a highly prized asset that grants a reduced time frame of consideration relative to a commercial application.  Many are bought by big pharma companies not to take advantage of their intrinsic worth but to keep them from falling into the hands of companies with competing products to their own marketed drugs.
  • And finally, a big pharma buyout.  Yes, every desperate retail investor dreams of an acquisition that will double or triple their stake in an equity despite the fact that most of these occur at a modest premium to the previous days closing price (Allegan’s recent purchase of Tobira (TBRA) being a notable exception).  But in the case of Sarepta, the likelihood is greater if only because their product, Exondy51, will bring in an immediate flow of uncontested cash revenue.  That PRV voucher becomes an added bonus.

pents01rx

In Conclusion

I honestly believe that Sarepta will release stock tickling news this very morning.  It’s only fitting given the fact that I cashed out for a sizeable gain while other loyalist hung in there in my absence.  If that proves not to be the case, I’ll reinitiate a large position at the earliest opportunity.  Hopefully, fear of an assault on the outrageous price of therapeutics in the U.S. by our two presidential debate participants will cause the sector to stumble today and Sarepta right along with it.

Staking out a position in the equity at this point in time is an easy call for me.

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.

 

 

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.