Cyclacel's SEAMLESS trials may yield positive surprise for investors Print E-mail
By Brian Wilson, Contributor   
Thursday, 14 June 2012 06:02
icon_closerlookCyclacel (CYCC) is a 30 million dollar company that has seen violent percentage-based movements in its stock due to its low valuation and penny-stock status.

Thus far in 2012, Cyclacel has traded as high as $.78/share while going as low as $.43/share. Cyclacel trades primarily on news of the drug sapacitabine, which is their flagship product. Sapacitabine acts through a dual-mechanism that interferes with DNA synthesis, causes DNA damage, and induces cell cycle arrest in the G2 phase (when mitosis occurs). This will theoretically lead the targeted cell towards apoptosis (programmed self-destruction). Sapacitabine has potential in a large number of cancer types, since distortion of the cell cycle is a universal activity of cancer cells.

Sapacitabine is currently under crucial clinical trials that will determine the fate of the company due to its fragile financial situation (more on that later). Shares rose especially high in February 2012 after the firm released strong results for the drug’s phase II trial on Myelodysplastic syndromes (MDS), but shed the gains in the following months. Cyclacel is trading relatively close to book value, which represents very pessimistic investor sentiment on the company’s pipeline.

In addition to its trials on MDS, sapacitabine is being tested for the treatment of acute myeloid leukemia (AML) in phase III clinical trials that began earlier in 2012 (the SEAMLESS trials). The primary outcome measure for these trials is the overall survival rate of the 485 patients enrolled in the study for up to 43 months. We won’t see these results for quite some time (the conclusion of the study is estimated to be in October of 2014) but interim results may prove useful in escalating the drug’s intrinsic worth.

 One interesting aspect about the SEAMLESS trials is that they are under FDA SPA (special protocol assessment). This means that the company can potentially receive FDA approval for sapacitabine without complete data or statistical analysis of data from the SEAMLESS trials, which could lead to a positive surprise for investors down the road.

More data from other trials should be arriving before 2013 – for instance survival on the phase 2/3 multicenter randomized trial which compared sapacitabine to low dose cytarabine (known as the “Pick A Winner Programme / LI-1 Trial”) for both AML and MDS patients. The company also expects to release updated phase II sapacitabine data for its 2nd line MDS trials, updated phase 1 sapacitabine and seliciclib clinical data on the treatment of solid tumors, updated phase II sapacitabine data in NSCLC (non-small cell lung cancer) treatment, and to continue enrollment in the SEAMLESS trial.

Despite the large amount of clinical trial activity, Cyclacel has maintained a modest budget. In the last quarter (Q1 2012) the company totaled approximately $3.44 million in operating expenses, implying a burn rate of about $14 million every year. Since the company holds about $24 million in cash and cash equivalents, Cyclacel can continue to operate for over a year without raising any additional capital. This is not a very comfortable position for the company though, especially since the one other drug in its portfolio (seliciclib) will have to enter phase III trials for NSCLC relatively soon. There is the potential for sapacitabine partnerships which can alleviate the company’s shaky financing situation.

Apparently, investors have been especially nervous in the last month. A large rally brought shares to about $.65/share before ASCO 2012 (where the company held a presentation detailing results from a phase I trial for sapacitabine/seliciclib treating solid tumors), but it was quickly faded. Cyclacel will probably have great difficulty breaking $1/share in the near future.

I think the real catalyst that would bring the shares out of penny-stock status would be a secured partnership for sapacitabine with a major pharmaceutical company (which would relieve the significant financial stress on the company). This seems much more likely with interim results on the SEAMLESS trial, although Cyclacel may be able to snag a contract earlier.

Ultimately, just know that CYCC is a very risky bet that will have trouble sustaining a rally in its current condition. There are very few people shorting the stock (.21% of float), which allows a lot of breathing room for the bears to shut down any rallies in the stock. The company remains quite cheap, but the aforementioned financial stress could keep a lid on this stock for some time to come. A surprise buyout of the company is also within the realm of possibility, which is why I wouldn’t advocate shorting this stock either. Range-bound trading is likely without any significant news, so technical traders may be able to gain off of the sheer volatility of Cyclacel shares.

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