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CytRx Is Poised For Growth

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Grant Zeng, CFA

CytRx Reports Second Quarter 2011 Financial Results

On August 9, CytRx reported second quarter 2011 financial results.

Licensing revenue was $150,000 for the second quarter of 2011 and the Company did not report revenue for the second quarter of 2010.

Research and development (R&D) expenses were $1.9 million for the second quarter of 2011 and included development expenses for the Company’s programs of $0.9 million for INNO-206, $0.1 million for bafetinib and $0.3 million for tamibarotene. R&D expenses were $3.1 million for second quarter of 2010.

General and administrative (G&A) expenses were $2.0 million for the second quarter of 2011, down slightly from $2.1 million for the comparable period in 2010. G&A expenses included $0.3 million of employee stock option expense in both quarters.

Reported net loss was $3.1 million, or $0.03 per share, for the second quarter of 2011, which is better than our estimate of net loss per share of $0.06.

We think earnings report is a non-event for CytRx as investors are focused on the progress of the company’s clinical programs as well as its balance sheet. In this regard, the company is moving in the right direction.

Balance Sheet Has Been Boosted

As of June 30, 2011, cash, cash equivalents and marketable securities were $26.1 million.

In July 2011, the Company raised net proceeds of approximately $19.1 million by issuing 39.2 million shares of common stocks and warrants to purchase up to 39,200,000 shares of common stock at a combined public offering price of $0.52 per share. The warrants are exercisable immediately upon issuance at an exercise price of $0.64 per share and, unless exercised, will expire on the fifth anniversary of the date of issuance.

We noticed that following the share offering, the company’s share price declined dramatically at about 38%. We think investors are over reacted to the event. We admit that equity offering always dilute existing shareholder base, but for a small cap biotech company like CytRx, it’s necessary to raise money for its operations, especially for advancing its clinical programs.

On the other hand, the funds raised from the common stock offering have greatly boosted the company’s balance sheet. Although share price suffered in the short run, we think this offering is positive for the company in the long term.

IINNO-206 is 4 Times Safer Than Doxorubicin

On July 6, 2011, CytRx announced positive interim Phase Ib clinical trial results of INNO-206 in soft tissue sarcoma patients. INNO-206, the Company’s tumor-targeted doxorubicin conjugate, is delivering doxorubicin safely at doses over 4 times higher than the standard doxorubicin dose in the Company’s open-label Phase Ib safety and dose escalation clinical trial. The clinical trial is being conducted in up to 24 patients with advanced solid tumors who have failed standard therapies.

All eight patients treated in the Phase Ib trial to date were diagnosed with advanced soft tissue sarcomas.
Patients in the Phase Ib trial are being administered with INNO-206 at two dose levels: 165 mg/m2 and 260 mg/m2 doxorubicin equivalents. These doses are 2.75 and 4.33 times higher than the standard dose of doxorubicin (60 mg/m2) administered to patients with soft tissue sarcomas. Side effects have been generally mild, with only one patient experiencing grade 3 or 4 neutropenia and thrombocytopenia that resolved without therapy. One patient discontinued INNO-206 due to disease progression after one month, but no patient has discontinued treatment due to toxicity.

As a reminder, the Phase Ib trial is being conducted at the Sarcoma Oncology Center in Santa Monica, California, under the direction of Sant P. Chawla, M.D., F.R.A.C.P, a leading expert in sarcomas and sarcoma therapies. Doxorubicin is currently the only FDA-approved drug on the market as a treatment for soft tissue sarcoma and is a standard chemotherapy for a variety of other cancers. It is used either alone or in combination with other chemotherapy agents. Dose levels of doxorubicin are limited due to its toxicity. INNO-206 is a novel conjugate of doxorubicin that binds covalently to albumin, and is circulated throughout the body. INNO-206 is designed with a linker that releases doxorubicin in the low pH environment of tumors, concentrating the chemotherapeutic agent where it preferentially damages the tumor while minimizing the effect on healthy tissues.

The safety profile of INNO-206 is impressive as demonstrated in the Phase Ib trial. It has never been possible to safely raise the dose of a chemotherapy agent this much. The ability to administer dramatically higher doses of doxorubicin with INNO-206 could represent a major breakthrough in the treatment of various cancers in which doxorubicin is an important component of chemotherapy regimens. CytRx plans to rapidly enter a Phase IIb clinical trial with INNO-206 in patients with soft tissue sarcomas in the second half of 2011 after completing this dose escalation safety study.

On July 05, 2011, INNO-206 has been granted an orphan drug designation for the treatment of patients with soft tissue sarcomas.

Positive Phase II Preliminary Results For Bafetinib

On June 13, 2011, CytRx announced preliminary positive results from its ENABLE Phase II proof-of-concept trial of bafetinib for the treatment of B-cell chronic lymphocytic leukemia (B-CLL).

As a reminder, in May 2010, CytRx initiated a Phase II proof-of-concept clinical trial (ENABLE) with bafetinib as a second line treatment for B-CLL due to the potent and specific inhibitory properties of bafetinib against Lyn and Fyn kinases, which are overexpressed in B-CLL cancers.

In this clinical trial, high-risk B-CLL patients who have failed treatment with first-line agents will self-administer oral doses of bafetinib twice daily. The bafetinib dose used in this trial is based on the highest dose that was best tolerated in the Phase I study. Patients will be monitored for clinical response, time to disease progression and cancer progression-free survival. Total of 30 patients will be enrolled. The dose of bafetinib may be escalated to 360 mg twice daily if relatively few side effects are observed at the 240 mg twice daily dose. The endpoint of this Phase II trial is objective response rate (30% ORR is target). MD Anderson is the primary US site.

Of the 16 patients enrolled in the ENABLE Phase II clinical trial, 11 patients were evaluable for tumor response (patients who have received both baseline and follow-up tumor assessments). At the time of evaluation, the median duration of treatment for all patients was two months, and five of these 11 patients had received three to five months of bafetinib therapy; five patients either did not receive baseline or follow-up assessments. The median number of prior therapies for the full group is three, with a range between one and five prior therapies, and nine of 12 patients demonstrated unfavorable cytogenetics (del 17p; 13). This subgroup of patients typically has fast disease progression and shorter median overall survival.

All 11 evaluable patients demonstrated ≥50% elevation in their lymphocyte counts during the first two months of treatment, similar to other kinase inhibitors being tested in B-CLL patients. Six demonstrated >50% shrinkage in their lymph nodes and/or spleen, two patients had stable disease and three patients had progressive disease at their initial assessments. Lymph node softening also was noted in these patients. Only one grade 3 or 4 adverse event (grade 3 elevated liver enzymes) was noted, which resolved when bafetinib administration was ceased. Grade 1 and 2 adverse events included elevated liver enzymes with normal bilirubin, fatigue and gastrointestinal symptoms.

The initial results are encouraging. The Phase II study demonstrated that bafetinib is clinically active in a group of patients with relapsed B-CLL who have failed several other treatments for their cancer. Based on this indication of clinical activity and the low incidence of adverse events, additional patients enrolled in the ENABLE Phase II clinical trial will receive bafetinib as a single agent at a higher dose. This increased dosage could increase the potential for greater efficacy.

B-CLL is the most common form of leukemia in adults in Western countries. More than 17,000 new cases of B-CLL are reported in the United States alone each year; however up to an estimated 40% of cases may not be reported due to under-diagnosis and lack of placement in cancer registries. Virtually all patients are older than 55 years at presentation, with an average age of 70 years. Patients in the high-risk B-CLL classification have a median overall survival period of one to five years.

What Are The Implications For CytRx?

CytRx is a biopharmaceutical company focused on the development and commercialization of human therapeutics for the treatment of cancers. CytRx is focused on advancing its oncology portfolio and currently has seven clinical trials underway and one additional clinical trial planned with its oncology drug candidates, bafetinib, tamibarotene and INNO-206.

We think the Company is moving in the right direction. With positive data for its lead candidates Bafetinib and INNO-206, the Company plans to expedite the development of these therapeutic programs.

We believe CytRx is well capitalized with a strong balance sheet which sets it apart from most small cap biotech companies in the industry. As of August 10, 2011, we estimate CytRx had about $45 million in cash/cash equivalents and marketable securities. There was no debt on the balance sheet. Current liquidity source will be sufficient to fund operations for the foreseeable future, probably to the end of 2012 according to our financial model.  

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