Ziopharm Awaits Cancer Drug Data as Wall Street Withholds Judgment

8/29/12Follow @arleneweintraub

Jonathan Lewis, the CEO of New York-based Ziopharm (NASDAQ: ZIOP), was stunned earlier this year when he ran across a commercial on YouTube produced by his company’s biggest investor, Fidelity. In the video (see below), a young man makes a bold prediction: “Within 50 years we could have more life forms invented in the lab then we’ve ever identified in nature,” he says. He talks about goats whose milk can be spun into silk, and genetically modified salmon that naturally grow bigger than their non-altered cousins. This “synthetic biology,” he declares, “could become the defining technology of the 21st century.”

Ziopharm, which has a large research and operations facility in the Boston Navy Yard, is betting that synthetic biology will define its future, as well. In January 2011, Ziopharm took a huge step towards realizing that vision by forming a partnership with Germantown, MD-based Intrexon that gave it access to a technology for transforming DNA into human therapeutics. R.J. Kirk, Intrexon’s billionaire CEO, joined Ziopharm’s board as part of the transaction. The first drug to emerge from that partnership could go into mid-stage testing to treat melanoma by the end of this year, Lewis says.

But unlike the folks at Fidelity, most investors tend to focus more on the potential for short-term profits than they do on sci-fi-like visions of manufactured genes serving as human therapeutics. That may explain why Ziopharm’s stock has been rather stagnant this year, trading between $5 and $6 a share, despite Fidelity’s enthusiasm both for synthetic biology and for Ziopharm. (The Boston-based mutual-fund company holds more than 8 million shares of the biotech firm, spread across several of its funds, according to Capital IQ). “This is a lull going into data,” Lewis says.

The data he’s referring to is not related to synthetic biology, but rather to Ziopharm’s flagship project—a drug called palifosfamide that’s in late-stage testing to treat soft-tissue sarcoma. The drug is a new form of chemotherapy, and therefore not quite as sexy as synthetic biology (which we’ll get to in more detail below), but it is Ziopharm’s most immediate shot at a marketable product. So investors are waiting for data from the pivotal human trials of the drug, which should be released by the end of this year, Lewis says.

Palifosfamide is in a class of drugs called “alkylating agents,” which stop tumors from growing by binding to the DNA in cancer cells and interfering with its functioning. The drug seems to interact with cancer stem cells—key tumor-forming cells—and therefore may be effective in patients who have become resistant to existing therapies, Lewis says. “We think with this newer generation of drugs we can break through that resistance, and as we get better at using it, we may be able to prevent resistance,” Lewis says.

J.P. Morgan analyst Cory Kasimov estimates that palifosfamide could be on the market by 2014 and be bringing in $404 million in sales a year by the end of 2017. Ziopharm is also testing the drug in small-cell lung cancer. Kasimov has a price target of $8 on the stock.

With all their hopes resting on palifosfamide, analysts are not really factoring any of Ziopharm’s other programs into their estimates. Nevertheless, Lewis is clearly excited about synthetic biology and the company’s lead contender in that area, a drug it calls Ad-IL-12. The treatment involves … Next Page »

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