Celator Pharmaceuticals CPXX
April 13, 2016 - 3:13am EST by
sabordesoledad
2016 2017
Price: 13.21 EPS NM NM
Shares Out. (in M): 49 P/E NM NM
Market Cap (in $M): 644 P/FCF NM NM
Net Debt (in $M): -54 EBIT -25 -40
TEV ($): 590 TEV/EBIT NM NM

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Description

Celator Pharmaceuticals (CPXX) is a compelling investment as an undervalued biotechnology company with a wholly-owned, clinically de-risked asset offering 50-100% upside.  With a positive Phase III study showing overall survival benefit in AML (a drug development wasteland), we believe CPXX is a likely takeout candidate and management compensation was recently reflected to ensure that they are open to such an outcome.  

 

Phase 3 Results

 

CPXX's lead asset, Vyxeos, is a non-scale liposomal formulation of cytarabine and daunorubicin.  Cytarabine and daunorubicin are chemotherapy agents, and Vyxeos is effectively a fixed dose combination of the two agents that allows for a better therapeutic window.  

 

CPXX recently announced positive results from their Phase 3 study of Vyxeos in patients with high-risk (secondary) acute myeloid leukemia (AML) which compared Vyxeos with the standard of care regimen of cytarabine and daunorubicin known as 7+3.  The results were high statistically significant with median overall survival (OS) of 9.56 months compared with 5.95 months for patients receiving 7+3.  The OS hazard ratio (HR) was 0.69 (p=0.005) which represents a 31% reduction in the risk of death compared with 7+3.  Lower is better for HR and typically you want at least a HR of 0.80, thus the HR here is very impressive.   

 

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image001.png

 

 

Landmark OS analysis (which looks at the percentage of patients alive at a given point following randomization into the trial) showed that at 12 months 41.5% of the patients on VYXEOS were alive compared with 27.6% for the 7+3 arm.  At 24 months after randomization it was 31.1% for VYXEOS compared with 12.3% for the 7+3 arm.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image002.png

 

 

VYXEOS also showed benefit in induction response rate with a CR + Cri of 47.7 vs. 33.3 with 7+3 (p-value of 0.016).  Response rate is an interim marker of benefit for the drug, supportive with the OS benefit seen and helps reassure patients and doctors that the drug is working.  The safety profile of VYXEOS was acceptable and generally similar to that of 7+3 in this patient population.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image003.png

Approval Timeline

 

With this positive data in hand, CPXX is on track to file by the 3Q of this year and expects approval in mid-2017.  More details on the timeline are shown below.  Since the asset is currently wholly owned, they are looking for a partner for the asset outside the US.  We would note that this is of course a natural opportunity to meet with potential acquirers for the overall company.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image004.png

 

Market Opportunity and Valuation

 

According to SEER (http://seer.cancer.gov/statfacts/html/amyl.html) there were 20,800 new cases of AML in the US in 2015.  The incidence rate is estimated to be ~18,000 in Europe and 5,500 in Japan.  With treatment the median OS of newly diagnosed AML is ~12 months, and those with secondary AML having even shorter life expectancy.  

 

 

In indication of the Phase III study which looked at patients with secondary AML the market opportunity is ~$200M in the US.  The opportunity in the Europe and Japan is smaller at ~$100M and ~$25 respectively due to smaller patient populations and lower pricing.   

 

The current Phase 3 study was in a specific subset of AML.  However given the robust data generated in this population it is likely that it will work in the broader population as well.  Physicians believe that this coverage and indication can be generated with Phase 2 trials (significantly smaller and cheaper studies).   

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image005.png

 

Biotech companies typically trade at 4-6x EV/Peak Sales.  For EV/Revenue multiples for current large and mid-cap biotechs we are at 4-6x as well for out years.

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image006.png

 

Looking at these multiples for CPXX would imply at $19/share valuation for the current indication, and $42/share for a broader AML opportunity.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image007.png

 

 

Patents for the drug are strong and extend well into late 2020's.  In addition they will receive orphan drug exclusivity (additional protection from generics) for 7 years after launch.  

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image008.png

 

Management recently had their employment agreements amended to provide them with an incentive to sell the company.  They will now receive golden parachutes in the event of a takeover.  

https://www.sec.gov/Archives/edgar/data/1327467/000114420416092795/v436203_8k.htm

 

Capital Structure

 

They recently completed a secondary bringing their share count up to 40M.  They also have a substantial amount of options and warrants that are deeply in the money.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image009.png

 

They ended 2015 with $23M in cash and $15M in debt.  Their quarterly burn is approximately $5M.  Estimated cash at the end of the 1Q is $54M.  

 

C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image010.png

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Full data presentation at ASCO

Partnership discussions

NDA filing

FDA approval  

    sort by    

    Description

    Celator Pharmaceuticals (CPXX) is a compelling investment as an undervalued biotechnology company with a wholly-owned, clinically de-risked asset offering 50-100% upside.  With a positive Phase III study showing overall survival benefit in AML (a drug development wasteland), we believe CPXX is a likely takeout candidate and management compensation was recently reflected to ensure that they are open to such an outcome.  

     

    Phase 3 Results

     

    CPXX's lead asset, Vyxeos, is a non-scale liposomal formulation of cytarabine and daunorubicin.  Cytarabine and daunorubicin are chemotherapy agents, and Vyxeos is effectively a fixed dose combination of the two agents that allows for a better therapeutic window.  

     

    CPXX recently announced positive results from their Phase 3 study of Vyxeos in patients with high-risk (secondary) acute myeloid leukemia (AML) which compared Vyxeos with the standard of care regimen of cytarabine and daunorubicin known as 7+3.  The results were high statistically significant with median overall survival (OS) of 9.56 months compared with 5.95 months for patients receiving 7+3.  The OS hazard ratio (HR) was 0.69 (p=0.005) which represents a 31% reduction in the risk of death compared with 7+3.  Lower is better for HR and typically you want at least a HR of 0.80, thus the HR here is very impressive.   

     

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image001.png

     

     

    Landmark OS analysis (which looks at the percentage of patients alive at a given point following randomization into the trial) showed that at 12 months 41.5% of the patients on VYXEOS were alive compared with 27.6% for the 7+3 arm.  At 24 months after randomization it was 31.1% for VYXEOS compared with 12.3% for the 7+3 arm.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image002.png

     

     

    VYXEOS also showed benefit in induction response rate with a CR + Cri of 47.7 vs. 33.3 with 7+3 (p-value of 0.016).  Response rate is an interim marker of benefit for the drug, supportive with the OS benefit seen and helps reassure patients and doctors that the drug is working.  The safety profile of VYXEOS was acceptable and generally similar to that of 7+3 in this patient population.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image003.png

    Approval Timeline

     

    With this positive data in hand, CPXX is on track to file by the 3Q of this year and expects approval in mid-2017.  More details on the timeline are shown below.  Since the asset is currently wholly owned, they are looking for a partner for the asset outside the US.  We would note that this is of course a natural opportunity to meet with potential acquirers for the overall company.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image004.png

     

    Market Opportunity and Valuation

     

    According to SEER (http://seer.cancer.gov/statfacts/html/amyl.html) there were 20,800 new cases of AML in the US in 2015.  The incidence rate is estimated to be ~18,000 in Europe and 5,500 in Japan.  With treatment the median OS of newly diagnosed AML is ~12 months, and those with secondary AML having even shorter life expectancy.  

     

     

    In indication of the Phase III study which looked at patients with secondary AML the market opportunity is ~$200M in the US.  The opportunity in the Europe and Japan is smaller at ~$100M and ~$25 respectively due to smaller patient populations and lower pricing.   

     

    The current Phase 3 study was in a specific subset of AML.  However given the robust data generated in this population it is likely that it will work in the broader population as well.  Physicians believe that this coverage and indication can be generated with Phase 2 trials (significantly smaller and cheaper studies).   

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image005.png

     

    Biotech companies typically trade at 4-6x EV/Peak Sales.  For EV/Revenue multiples for current large and mid-cap biotechs we are at 4-6x as well for out years.

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image006.png

     

    Looking at these multiples for CPXX would imply at $19/share valuation for the current indication, and $42/share for a broader AML opportunity.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image007.png

     

     

    Patents for the drug are strong and extend well into late 2020's.  In addition they will receive orphan drug exclusivity (additional protection from generics) for 7 years after launch.  

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image008.png

     

    Management recently had their employment agreements amended to provide them with an incentive to sell the company.  They will now receive golden parachutes in the event of a takeover.  

    https://www.sec.gov/Archives/edgar/data/1327467/000114420416092795/v436203_8k.htm

     

    Capital Structure

     

    They recently completed a secondary bringing their share count up to 40M.  They also have a substantial amount of options and warrants that are deeply in the money.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image009.png

     

    They ended 2015 with $23M in cash and $15M in debt.  Their quarterly burn is approximately $5M.  Estimated cash at the end of the 1Q is $54M.  

     

    C:\Users\RS\AppData\Local\Temp\msohtmlclip1\02\clip_image010.png

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Full data presentation at ASCO

    Partnership discussions

    NDA filing

    FDA approval  

    Messages


    SubjectRe: Press Release, Trading Halt...Drama
    Entry04/18/2016 04:53 PM
    Membersabordesoledad

    Sorry for the delay here.  By the time we were going to post stock had mostly recovered.  

    This hit the wires midway through the morning - a random Phase II study was suspended for:

    (IRB placed protocol On Accrual Hold; IRB review pending)

    https://clinicaltrials.gov/ct2/show/NCT02019069?term=cpx-351&rank=3

     

    (IRB is institutional review board - its just a group of people involved to make sure clinical trials are ethical.)  Obviously if this was due to a safety issue or something then that would be bad for the drug/stock.  

    However, you can see that other studies (of other drugs) involving the same investigator were also suspended on the same date.  So clearly it is an investigator/site issue, not a drug issue.  

    https://clinicaltrials.gov/ct2/results?term=Bruno+C.+Medeiros&Search=Search

    The press relase just clarified this point.  Basically this is unlikely to be related to drug.  

     

     

     


    SubjectWSJ reporting JAZZ near $1.5B deal for CPXX
    Entry05/30/2016 11:21 PM
    Membersabordesoledad

    http://www.wsj.com/articles/jazz-pharmaceuticals-nears-deal-to-buy-celator-for-about-1-5-billion-1464660528


    SubjectRe: Jazz
    Entry05/31/2016 02:02 PM
    Membersabordesoledad

    Hi, 

    I don't expect anyone else to emerge.  Given the premium it was likely a competitive process, and signed off by both boards and 18% of the shareholders have already agreed.

    Also JAZZ is a buyer who was likely able and willing to win the bid - they have a hematology franchise already, they have a low tax rate and they were actively looking to diversify their revenue base, and this transaction can move the needle for them.  


    SubjectRe: Acquired at 14x book w/ no revenue!
    Entry05/31/2016 03:28 PM
    Membermajic06

    To the 7 people who thumbed me down, it was a JOKE.  Go read the XBI short thread where the author uses price/book and price/trailing revenue to pick what biotechs to short...


    SubjectRe: Re: Acquired at 14x book w/ no revenue!
    Entry05/31/2016 04:03 PM
    Memberangus309

    didn't take long to reverse those pesky thumbs down! 

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