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RECOMMENDATION: BUY
CytRx Corporation (NASDAQ: CYTR)
Market Data:
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CytRx Corporate Information:
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Recent Developments
We are reiterating our BUY recommendation on CYTR following several recent positive announcements by the Company. CYTR's lead product is FLOCORTM , which is in pivotal Phase III clinical trials for the treatment of acute sickle cell vaso-occlusive crisis ("VOC"). We continue to believe that CYTR is trading at a significant discount to biotechnology companies with promising products in Phase III clinical trials and recommend purchase of CYTR for investors tolerant of the risks associated with small-cap equity investments.
Strong Cash Position: Recently, CYTR reported fourth-quarter and full-year 1998 results. On a continuing operations basis, CYTR lost $7.5 million and reported that the Company had $15.3 million in cash and investments. While we are expecting expenses to rise throughout 1999, it would appear that CYTR has sufficient cash to reach the completion of its Phase III trial of FLOCOR to treat acute sickle cell crisis and to begin preparing marketing efforts.
Halfway Point in Pivotal Phase III Trial on FLOCOR Reached: CYTR recently announced that it had reached the halfway point in the enrollment of patients in its Phase III FLOCOR trial for sickle cell disease. As of February 23rd, CYTR had enrolled 112 of the 224 total patients expected to complete the trial. After a 30-day follow-up and receipt of all data from the first 112 patients, CYTR's independent Safety and Data Monitoring Board is expected to meet on or before May 1 to review the safety and efficacy of FLOCOR. We are expecting the Company to release the board's findings shortly thereafter. At this pace, the trial appears to be on track to finish by year's end, as expected.
Positive Phase I Results for FLOCOR in ACS: On March 7th, results from a Phase I safety study were presented at the National Sickle Cell Disease Program in San Francisco, on FLOCOR for the treatment of Acute Chest Syndrome (ACS). ACS is an acute respiratory distress syndrome (ARDS)-like complication in sickle cell patients that is the second most common reason for hospitalization of sickle cell patients and responsible for 25% of the associated deaths. The 19-patient study demonstrated FLOCOR to be safe at multiple doses in patients 4 to 38 years old. Additional dosing studies are now being performed. We are pleased by positive results from yet another safety study on FLOCOR, which we believe had been a concern early on in the development of the drug.
Conclusion: We continue to believe that CYTR trades at a significant discount to valuation levels typical for biotechnology companies with promising products in pivotal Phase III clinical trials. We also believe the investment case for CYTR, and the opportunity for FLOCOR, is not widely understood or appreciated by the investment community. In addition, CYTR is actively pursuing partnerships with large pharmaceutical companies on additional indications for FLOCOR and on other of its pipeline technologies, facts that we believe are not currently reflected in the stock valuation. For these reasons, we are reiterating our BUY recommendation on CYTR and reaffirming our 12-month price target of $5 to $7 per share.
Company Overview
CYTR is a biotechnology company focused on the development and commercialization of innovative therapeutic products. The Company was founded in 1985 and is headquartered outside Atlanta, Georgia. CYTR's current primary focus is on FLOCORTM, a synthetic block copolymer, that is being developed to treat vaso-occlusive disorders, including crisis of sickle cell disease, acute lung injury (ALI)/ acute respiratory distress syndrome (ARDS), stroke and shock. FLOCOR is currently in a pivotal Phase III trial in the US to treat sickle cell crisis.
CYTR has, in the past, created operating subsidiaries to develop technologies that were considered non-core. In 1998, CYTR divested of two of these subsidiaries (Vetlife and Proceutics), and is currently looking for partners or buyers of its remaining subsidiary called Vaxcel, Inc. These corporate divestiture activities provided cash to CYTR in 1998. See CYTR's SEC filings for a complete description of these activities.
FLOCORTM - Background Information
CytRx's most advanced clinical drug candidate is FLOCORTM. FLOCOR is a highly purified form of the surfactant poloxamer 188, a synthetic block copolymer, and is being developed as an intravenous (IV) formulation to treat vaso-occlusive disorders, including crisis of sickle cell disease, acute lung injury (ALI)/ acute respiratory distress syndrome (ARDS), stroke and shock.
Normally, blood cells flows very smoothly through the circulatory system, passing each other and blood vessel walls without incident, due to non-adhesive surfaces. When cells are damaged or certain disease is present, exposed areas cause cells to become sticky and can impede blood flow and delivery of oxygen, creating vaso-occlusive crises. As discussed above, sickle cell crisis is one example of this.
Poloxamer 188 has been commercially available since the 1950s and has been used as a surfactant/emulsifying agent and as a food additive and excipient in pharmaceutical products. In the mid-1980s, CytRx discovered and patented a formulation of commercial grade poloxamer 188, which it called RheothRx, for use as an intravenous therapeutic for obstructive vascular disorders. Following successful Phase I studies, CytRx licensed worldwide rights to Burroughs Wellcome (BW) in 1990. BW, now Glaxo Wellcome, conducted Phase II trials in both sickle cell crisis and acute myocardial infarction (AMI), and found the RheothRx formulation to be well tolerated and efficacious. However, in a larger AMI study, at the effective dose, a small percentage of patients began experiencing transient elevations in creatinine, indicating decreased kidney function. In 1996, Glaxo Wellcome returned RheothRx to CytRx.
Upon further examination of poloxamer 188, certain impurities were found that were shown to be responsible for the elevated creatinine levels. At that time, CytRx developed a process for removing the impurities associated with kidney dysfunction, without altering the beneficial properties of the compound. The purified compound, FLOCOR, demonstrated no elevation of creatinine following 48 hours of continuous infusion at doses up to 33% higher than those previously discontinued.
FLOCOR has been shown to improve blood flow by binding to any exposed area of a cell or molecule that is even slightly more adhesive than the surrounding materials thus allowing cells to slip by each other and by blood vessel walls. FLOCOR may also reduce secondary clotting, reduce inflammation and bind to harmful molecules that could injure the respiratory system.
CytRx was issued a composition of matter patent on FLOCOR in the US in June 1997, has received a notice of issue for Europe, and has a substantial portfolio of issued US (and corresponding foreign) patents on various therapeutic uses of poloxamer 188. More importantly, in meetings with the FDA, CytRx has been notified that the existing pharmacology, toxicology and human safety data for commercial grade poloxamer 188 could be used to support an NDA submission for FLOCOR. In April 1998, CytRx announced an agreement with Abbott Laboratories for commercial scale manufacturing of FLOCOR. Under the agreement, Abbott will sterile fill FLOCOR for CytRx as well as manage their portion of the chemistry manufacturing and controls (CMC) section of the planned NDA filing.
FLOCORTM for Sickle Cell
Crisis
CytRx is currently involved in a pivotal Phase III study of FLOCOR for the treatment of painful vascular occlusive crisis of sickle cell disease. The 45 to 50-center trial will involve 224 patients, ages 10 to 65, and, we estimate, should be completed by the end of 1999. FLOCOR is being delivered by IV infusion over a 48-hour period.
In a Phase II trial, FLOCOR demonstrated positive results, reducing the duration of crisis by 16 to 45%, reducing the need for pain medication by 2.8- to 4.3-fold, reducing pain intensity by 40 to 45% and reducing hospital stay by 1 to 2 days. For the ongoing Phase III studies, the primary endpoints are reductions in the duration of crisis, the duration and intensity of pain, total analgesic use and duration of hospitalization. CytRx recently announced a favorable review from an independent Safety and Data Monitoring Board following examination of data from the first 50 enrolled patients in the trial (as of January 12, CytRx had enrolled 86 patients).
If all goes well, we are anticipating an NDA filing on FLOCOR for sickle cell crisis in mid-2000. Based on the fact that FLOCOR has been designated as an Orphan Drug, and is being proposed to treat a severely debilitating disorder, we feel it is likely to receive an expedited review at the FDA. The Orphan Drug Products Division of the FDA has already granted CYTR an unusual $400,000 grant to help complete the Phase III trial. We are therefore anticipating final approval of FLOCOR by the end of 2000, with an early 2001 launch.
CYTR has already planned follow-on studies on the recurrent use of FLOCOR in sickle cell patients.
FLOCORTM for Other Indications
CytRx is also developing FLOCOR for other vaso-occlusive disorders, the most advanced of which is a Phase I program to treat acute chest syndrome (ACS), an acute respiratory distress syndrome (ARDS) —like complication occurring in sickle cell patients. ACS occurs in approximately 10-20% of hospitalized sickle cell patients.
The Company is also investigating FLOCOR's use in a general population of Acute Lung Injury (ALI)/ARDS patients in a small pilot trial. ARDS is characterized by the inability to deliver oxygen to the circulatory system and is usually brought on by severe chest trauma such as smoke inhalation, accidents, chemical damage or infection. ALI/ARDS has a high mortality rate and high related healthcare costs. CYTR is expecting to begin a pilot Phase II study in ALI/ARDS in the second quarter of 1999.
Due to FLOCOR's inherent properties, it would appear that the compound could be of use in stroke, where blood flow is restricted to the brain, in circulatory shock, where low blood pressure can result in organs receiving inadequate oxygen, and in heart attack, where partial or complete blockage of arteries causes severe pain and damage to the heart muscles. For these larger indications, CYTR plans to license these indications to FLOCOR and we have included licensing revenues over the next several years in our earnings model.
Risk Considerations
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of CytRx Corporation. For a complete description of risks and uncertainties to CYTR's business, see the "Risk Factors" section in CYTR's SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the internet. Other potential risks include:
- Market risk: Like many small-cap and micro-cap stocks, CYTR share price is trading near its 52-week low. Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Business risk: CYTR has limited experience in the manufacturing, marketing, and the distribution of pharmaceutical products. Many of its products are in the early stages of development. Additionally, CYTR intends to license rights to its products to other companies. There can be no assurance that these licensing agreements will be completed, or that the market will accept any products under development.
- Regulatory risk: There is no guarantee that CYTR's products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.
- Competitive risk: The pharmaceutical industry is extremely competitive, in particular because of its large market potential. Many companies are developing products for sickle cell anemia and other therapeutic indications targeted by CYTR.
Sources for Additional Information
The following are website addresses offering related information, and
links to other sources of information.
| www.cytrx.com www.SmallCapsOnline.com www.FDA.gov www.WHO.int www.curtis1/sickle_cell_anemia.html www.sicklecellsociety.org www.emory.edu/PEDS/SICKLE/ www.SEC.gov |
CytRx's corporate website SmallCaps Online's site for company information and research US Food and Drug Administration homepage World Health Organization homepage Sickle Cell Anemia Disease Links Sickle Cell Society homepage Sickle Cell Disease site US Securities and Exchange Commission, with links to EDGAR filings |
The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC may have performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.