CYCC And ONTX: Intertwined By Destiny

I/we are long CYCC and ONTX.

The spirit of wickedness in high places is now so powerful and so many headed in its incarnations there seems nothing more to do personally than to refuse to worship any of the hydras heads. The world seems little better than a new Tower of Babel – all noise and confusion.

1969 J. R. R. Tolkien

It’s been very difficult for me over the past several years to have steered close friends toward investment in German biotech, Pieris Pharmaceuticals (PIRS) while refraining to mention my clandestine love for the two step-children of developmental oncology – Onconova Therapeutics (ONTX) and Cyclacel Pharmaceuticals (CYCC).  You see, I believed then, as I do now, that Pieris is the safer bet to appreciate over time.  But safety comes at a price.  And since I’ve never been a big fan of turtle racing, preferring faster paced adventures, I’m betting on the two unattractive step-sisters of failed Phase-3 endeavors instead.  That now stated, Onconova and Cyclacel have much more in common than the high-minded reproval of sector elites relative to their Phase-3 flops.

Both Company’s Lead Drug Candidates Still Have Life

You wouldn’t know it by observing Onconova’s paltry market-cap of $26m but rigosertib is in yet another and far more promising Phase-3 study entitled; INSPIRE.  More promising because it is structured upon culled data from 116 of the 299 patients in the ONTIME study that fell nicely into a category labeled “high risk” and responded brilliantly to rigosertib therapy administered intravenously.  Had this population of patients been the focus of a large Phase-2 trial with an over all survival benefit of 7.9 mos. vs. 4.3 mos. in control (p = 0.0008) the market-cap of ONTX heading into Phase-3 would be in excess of $300m.  Alas, it wasn’t.  And Onconova is teetering on the brink of insolvency or, at least, crippling financial impairment.

Meanwhile, Cyclacel has moved on from the unraveled SEAMLESS pivotal study mentioning sapacitabine only as an aside in their corporate presentations.  Their second generation CDK2/9 Inhibitor now stands atop the pipeline depth chart.

Make no mistake, though, CEO Spiro Rombotis has his eyes pinned on the results of Onconova’s INSPIRE study as it will become a referendum on the future of sapacitabine.  You see, SEAMLESS had one very significant feature – a substantial increase in the amount of Complete Remissions (CR) in targeted elderly AML patients age seventy and above.  Rombotis, to this very day, alludes to submission for regulatory approval in the EU for sapacitabine on the basis of this one secondary endpoint in conjunction with Dacogen approval given on a failed, Phase-3 registration effort.  And while on its face that seems laughable, his case could be bolstered by INSPIRE success because Onconova CEO Ramesh Kumar will then take to plugging the frontline trial of oral rigosertib in combination with azacitidine which will highlight a primary endpoint of…wait for it…Complete Remissions.  How long will it take Spiro Rombotis to begin referencing rigsertib’s pathway as a model for sapacitabine regulatory approval?  And whether the comparison is valid or not, the market of easily influenced retail investors will lap it up driving CYCC’s stock price higher and higher.

Concluding Remarks

While rigosertib is pulsating with life in a promising pivotal fight, sapacitabine rests on the sideline ready to awaken if rigosertib rises from the dead.  Cyclacel, with its bloated $40m market-cap, sea of warrants and preferred shares, at a glance, seems less attractive than Onconova.  But its financial position, by comparison, is enviable.  Both companies have late generation CDK Inhibitors to develop if the door closes on those earlier assets.  But the play here is to bet that there’s more than a crack in the opening to relevance for both rigosertib and sapacitabine forming a widening wedge of investment light.

Always be well…

Thaumaturgical Disclaimer: As a practicing person of magic and aspiring warm-hearted wizard, I’ve utilized tarot cards as a basis for sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades.

Mental Illness Disclaimer: I’ve been diagnosed as suffering from manic depression. Therefore, my reactions to events can sometimes be more pronounced than the facts warrant.  I owe investors complete transparency and am the only ideator in biotech to provide that.  Please focus on the ideas presented and don’t hesitate to contact me with any factual errors found in the article text.

General Disclaimer: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute a 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 an opinion and information the accuracy of which is as good as the public sources it was derived from. For example, KOL’s often utilize exaggerative terminolgy to describe a product or asset they are promoting on behalf of a biotechnology company they’re associated with. Do not act on anything I have written, a CEO has spoken of, or a sell side analyst has stated. Rather, do your own due diligence and consult a professional investment advisor before making any investment decision. Acting on what any one writer has imparted to you is foolish at best. I have no better access to resources than you do. I sometimes make mistakes. And 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 both higher and lower. These events can be of a wide variety – news related; 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 and invest at your own considerable risk attaining the just reward your efforts have wrought. Additionally, if you are aware of any misstatements of fact contained in this or any article I have written, you are encouraged to email me immediately at the link given in the header above or address them in the comments section.

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.

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.