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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
CYTR announced yesterday that its independent Data and Safety Monitoring Board (DSMB) had examined the efficacy and safety results from the first 112 patients enrolled in the Pivotal Phase III clinical trial of FLOCOR for the treatment of acute sickle cell crisis. As we anticipated, the DSMB recommended that CYTR continue with enrolling the remainder of the patients in the trial as planned. The Company also announced that 147 patients, out of a planned 224, had been enrolled as of yesterday, which puts them on track to complete the trial and the statistical analysis by year end 1999.
We view this interim result as very positive from a few perspectives:
- First, enrollment is on schedule, which is particularly important in this clinical trial, as it has been difficult in other sickle cell trials to encourage patients to enroll in trials of new treatments.
- Second, we believe this puts the safety concerns associated with prior trials to rest.
- Third, we continue to believe that FLOCOR is the most promising drug in development for the treatment of sickle cell crisis, and believe that it could be first-to-market based on its current clinical timetable. Investors should note that CYTR applied for fast track approval status at the FDA for FLOCOR, approval for which is expected sometime in the third quarter.
- Fourth, we believe this positive interim analysis will allow CYTR to push into other indications for FLOCOR, including the initiation in the near future of a Phase II clinical trial of FLOCOR in Acute Lung Injury/Acute Respiratory Distress Syndrome (ALI/ARDS).
- Lastly, we believe that this positive development will be beneficial in CYTR's ongoing discussions with potential corporate partners for the commercialization of FLOCOR.
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 other pipeline technologies, which we believe are not currently reflected in the stock valuation. For these reasons, we are reiterating our BUY recommendation on CYTR and raising our 12-month price target of $8 to $10 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 FLOCOR(tm), 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.
FLOCOR(tm) for Sickle Cell Crisis - BackgroundCYTR 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.
FLOCOR(tm) 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 CytRx's corporate website
www.SmallCapsOnline.com SmallCaps Online's site for company information and research
www.FDA.gov US Food and Drug Administration homepage
www.WHO.int World Health Organization homepage
www.curtis1/sickle_cell_anemia.html Sickle Cell Anemia Disease Links
www.sicklecellsociety.org Sickle Cell Society homepage
www.emory.edu/PEDS/SICKLE/ Sickle Cell Disease site
www.SEC.gov 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 has performed investment banking, consulting or other services for and 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.