Ziopharm and Investors Bet on a New Cancer Strategy

Dr. Jonathan Lewis (pictured), CEO of Ziopharm Oncology (ZIOP), doesn't want to reinvent the wheel -- but he'd love to improve it, delivering effective, low-cost cancer treatment to patients in need.

The small biopharmaceutical company is focused on developing small-molecule cancer drugs. "The rationale is to keep drug costs low, and be able to make oral as well as IV drugs," says Lewis, who joined Ziopharm in 2004 after years of treating patients and leading clinical research at Memorial Sloan-Kettering Cancer Center in New York City. "With the increasing pressure to rein in healthcare costs, keeping drugs at low cost is especially relevant now and is becoming a sweet spot with a lot of pharma."

The recent trend in cancer research has been to move toward highly targeted therapy, which focuses on differences in the cancer cells. But this strategy is unpredictable, Lewis says, combated by expensive drugs with unpleasant side effects.

Ziopharm instead focuses on what Lewis calls validated pathways: improving on proven treatments and targets with novel molecular- and cell-biology tools. "There's no question they work," he says, "and if you can get them to perform better with fewer side effects compared to other drugs, the net effect of this in terms of quality of life is something that is very attractive to patients and doctors" -- with costs lowered by shorter hospital stays and shorter nurses' hours.

Three Drugs in Progress

Ziopharm is developing three drugs, Lewis says, and the program furthest along is for a drug called palifosfamide, which tweaks a standard treatment to enhance its molecular performance. "The drug seems to offset a lot of difficulties of the other drugs, and it seems to work better," he says. "It likely is doing other things well that we have not yet fully captured." As Ziopharm finishes a randomized Phase II trial, he says, results have been encouraging: palifosfamide prolongs progression-free survival by at least 50%, without adding to toxicity.

Experienced biotech investors know that a Phase II success doesn't guarantee results in Phase III, which will test palifosfamide in soft-tissue sarcomas (in fat, muscle, nerve, fibrous or deep skin tissues, or blood vessels).

Last year in the U.S., there were 10,660 new soft-tissue sarcoma cases and 3,820 deaths, according to the American Cancer Society. The only FDA-approved treatment is now decades old, so a Phase III success for palifosfamide would solve a problem with a high unmet need. "We saw a good match with this particular drug and how it works as a potential for first FDA approval," Lewis says.

Ziopharm plans to expand palifosfamide for use in pediatric cancer, lymphoma and breast cancer. "The side effects of palifosfamide in the trial were very few compared to the other drugs," Lewis says. "That's a very valuable attribute for patients and the health system. It's certainly possible that palifosfamide would be able to replace certain current standard treatments, especially with the oral form of the drug."

The pharma has alerted U.S. and European regulatory authorities about its global study, which it expects to start by mid-year and expects to be conclusive in early 2012.

Strong Estimates

Palifosfamide has orphan status -- drugs that fight rare diseases enjoy longer exclusivity -- and Lewis estimates U.S. sales at more than $250 million initially, and possibly at blockbuster sales as its use expands. And the low-cost strategy can generate higher profit margins.

JMP Securities analyst Charles Duncan seems to agree. He recently initiated coverage of Ziopharm with market outperform and a $7 price target, expecting the company to "undergo a transformation from an early-stage pipeline story to a late-stage development company." His sales estimate for palifosfamide reaches $400 million. But while Duncan sees less risk with the palifosfamide program, the road ahead isn't a slam dunk. Ziopharm needs to obtain a Special Protocol Agreement with the FDA for the Phase III trial, complete a pivotal trial and secure partners.

"We're in discussions with multiple potential partners, at different stages of talks," says Lewis. He believes a partnership could arise in the near future. "We recently raised over $50 million from investors," which should get Ziopharm through the Phase 3 trial. JMP Securities and Rodman & Renshaw acted as co-lead managers in the offering.

Fighting Lymphoma and Rival Pharmas

Ziopharm merged with EasyWeb in 2005 and listed on the Nasdaq a year later. Shares soared 483% in the past year and 24% year-to-date. The company is not profitable yet and may not be for years. Lewis feels the company's rivals don't pose a direct threat: Ariad's (ARIA) sarcoma drug is for maintenance therapy after front-line treatment. Others, ranging from Eli Lilly (LLY), Pfizer (PFE) and Roche, have recently put most of their programs on hold. And PharmaMar's Yondelis is approved for third line in sarcoma in Europe but not in the U.S.

The company has two other drugs in development. One is oral and intravenous darinaparsin, an organic version of arsenic, which has shown a strong signal in lymphoma. Another is indibulin, a molecule that inhibits cell-division and migration, which treats cancer following new theories of how the disease spreads. "The drug has worked very well in the lab -- we need to see how this works with people," Lewis says. Ziopharm expects within months to start a clinical trial at Sloan-Kettering for breast-cancer patients.