Cyclacel and Neovacs enter the graveyard shift

Analysis

Nobody wants to find a zombie lurking under their Christmas tree, but this is what investors in Cyclacel Pharmaceuticals, Neovacs and Sophiris Bio are almost certainly getting from Santa this year.

Both Cyclacel and Neovacs followed Sophiris’s lead to become undead last week. The three companies suffered one-day share price crashes of 76%, 57% and 82% respectively, and with few candidates in their pipelines and little hope of raising money, they are doomed to wander the earth aimlessly for the foreseeable future.

Like most companies in such an unenviable predicament, Sophiris’s, Cyclacel’s and Neovacs’ undoing did not involve being bitten by another zombie, but rather concerned the clinical failure of the one real hope in their pipelines.

Empty locker syndrome

In the case of Cyclacel, an interim analysis of a phase III study determined that sapacitabine, an oral project for acute myeloid leukaemia in elderly patients, was unlikely to show a statistical survival improvement.

The futility decision appears to be based on the fact that 70% of the 257 deaths in the 470-patient Seamless study had occurred in the first six months, indicating that there was little benefit in using sapacitabine over intravenous Dacogen.

While Cyclacel has another asset, seliciclib, in phase II for head and neck cancers, this relies on the same cyclin-dependent kinase inhibitor technology as sapacitabine.

Neovacs’ lead project, an immunotherapy for rheumatoid arthritis, also bombed in the lab. TNF-Kinoid failed to show any significant benefit in a phase IIb study, which the group has put down to patients not producing neutralising antibodies after producing anti-TNF binding antibodies.

Both companies are now set to do what all new zombie companies do to sustain themselves: not snacking on human brains, but mining data. Leading the charge for sustenance is Cyclacel, whose chief executive, Spiro Rombotis, said of the Seamless trial: “The chance for superiority is small, but it is not zero.” Cyclacel even cited the case of Johnson & Johnson’s decitabine, which received European approval in AML based on a phase III study that did not reach statistical significance over IV chemotherapy.

Neovacs is also “analysing the data in depth” to determine the next steps, and now plans to shift focus to IFNα-Kinoid, a phase II treatment for the notoriously tricky indication of lupus.

Cyclacel faces an unenviable task in that even if it wanted to cut its losses and scrap sepacitabine, it cannot. Having started the Seamless study it would be unethical to halt it prematurely, and thus Cyclacel’s $26.7m of third-quarter cash will now be whittled away funding a doomed trial until 2015/16, with its chances of raising more money near zero.

For precisely the same reason Sophiris will have to string out its $29m cash pile until the end of next year, likely witnessing its market valuation spiral towards zero in the process (Sophiris proves its doubters correct, December 16, 2014).

Cutting off the head

Thus Cyclacel and Sophiris have joined the ranks of zombie companies whose heads it might be kindest to cut off, but this simple remedy is sadly not available. Amarin, too, is ethically burdened with financing the large Reduce-It trial – something it probably wishes it did not have to do.

The plight of zombie companies is perfectly illustrated by Nymox Pharmaceutical, a group that like Sophiris was struck down by a benign prostatic hyperplasia failure, which erased 82% of its market cap. Nymox is now worth $15m; it had under $1m in cash in September, and in a desperate bid for survival has resorted to a standby equity agreement that will see remaining equity investors punished further.

This unpleasant race to the bottom occurs because a share price decline is accentuated by the need to raise cash, and the more desperate the funding need becomes the lower the stock falls. There are several other zombie stocks out there tempting investors eager to profit from a short-term bounce.

Regado Biosciences, for instance, saw a phase III trial of its blood-thinner Revolixys bomb this year, and at least in this case the result was so bad that the huge trial has been scrapped. With a $29m market cap the group now trades well below its $61m of third-quarter cash (Regado pays steep price to avert full phase III cost, August 26, 2014).

Other zombies whose enterprise values indicate zero market confidence include OncoGenex Pharmaceuticals, crushed by this year’s failure of custirsen, and KaloBios Pharmaceuticals, a recent IPO entrant whose lead asthma project was scrapped, while Teva canned a separate alliance.

OncoGenex’s $46m market cap is 15% below its third-quarter cash, while KaloBios, capitalised at $55m, has $49m of cash as well as $12m of debt. Neovacs is in an even worse position, with only €2.9m ($3.5m) on its balance sheet as of June 30.

The week’s three entries to zombie territory are thus in good company, though this is unlikely to provide solace to their long-suffering investors.

To contact the writers of this story email Lisa Urquhart or Jacob Plieth in London at news@epvantage.com or follow @LisaEPVantage or @JacobEPVantage on Twitter

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