Let's start by looking at CPXX and what happened with their stock this year:
3/14/2016: $8.19 per share: They announced that they are the first therapy to demonstrate statistically significant improvement in overall survival and induction response rate in high-risk Acute Myeloid Leukemia (AML) patients.
3/23/2016: $11.09 per share: They announced the pricing of a $38M financing ñ ultimately closing on $43.7M.
4/18/2016: $15.57 per share: They announced positive data for their lead drug VYXEOS at the American Association for Cancer Research annual meeting.
5/31/2016: $30.00 per share: They announced an agreement for Jazz Pharmaceuticals to acquire them for $30.25 Per Share.
For the savvy investor who was able to buy-in at $1.50 a share back in February, which was only around a $70M market cap at the time, and then hold on long enough to capitalize on the JAZZ buyout at $30.25 in late May… that was a textbook example of the perfect investment!
The question is how can you find a similar opportunity?
Earlier in the article we brought up a company called Moleculin Biotech (MBRX). They recently IPO'd on the Nasdaq on June 2, 2016 and they too are going after Acute Myeloid Leukemia (AML) just like CPXX did.
After reading a white paper on Moleculin's website which you can find by clicking here, we feel they have a strong argument as to why their lead drug could possibly be a game changer in the treatment of AML patients.
If their analysis is correct regarding their lead drug called Annamycin, then the investment scenario that we saw with CPXX this year might be happening again with MBRX.
Understanding biotech companies can be intimidating for a lot of investors, but we'll do our best to explain the CPXX/MBRX story in the most basic way possible.
Let's start with the disease that both CPXX and MBRX are going after which is called Acute Myeloid Leukemia (AML). To fully understand the dire situation that these newly diagnosed AML patients face, it's best to put you in their shoes.
All cancers are terrible, but AML is a very ugly disease which is very hard to treat.
So let's say that you have received the unfortunate news that you have AML. What happens next is that your oncologist will put you on a regimen called 7+3, which is a combination of drugs that are highly cardiotoxic (causing severe, permanent and sometimes fatal heart damage) and they also succumb to multidrug resistance (your body begins to reject the drugs more and more each time they are injected into your body).
Because of multidrug resistance, it makes it very hard to treat AML patients as your body gets better and better at recognizing the 7+3 chemotherapy agents and rejects them by pumping them out of your cells. To achieve the same results as the first treatment that you received, your oncologist will have to increase the dosage for each and every treatment thereafter.
That might seem like an easy solution, but as your oncologist increases the dosage, he or she has to worry about the damage that is being done to your heart since these drugs are highly cardiotoxic. So it becomes a risk/reward scenario since the drugs can actually cause heart failure on the spot if the dosage is too high.
Now that you are being treated with the currently approved drugs used in the 7+3 formula, we need find out which group you fall into.
As of today, around 20% of AML patients will respond positively to this 7+3 regimen and will ultimately ìqualifyî for a bone marrow transplant. For AML patients, bone marrow transplants mean life. As a newly diagnosed AML patient, you will quickly learn that you want to qualify for a bone marrow transplant to have the best odds at survival.
If you respond well enough to 7+3, then you will most likely qualify for a bone marrow transplant and have a much better shot at beating AML. However, even though the drugs did their job at killing your cancer cells, they also did long-term damage to your heart potentially causing heart problems for you in the future.
If you were part of the 80% group that didn't respond well to the 7+3 therapy, then your oncologist will have really bad news for you. On average, patients who fall into this group will die within 6-months of treatment and unfortunately, there are no other currently approved options after 7+3.
This is a very important part for you to understand as this where the rubber meets the road for AML patients. 7+3 is referred to as 'First-Line Therapy' or the 'Standard of Care'
This just means that newly diagnosed patients will always receive approved first-line therapy drugs. If they fail first-line therapy, which as we said before will be around 80% of the AML population, then they will try the next approved ìSecond-Line Therapy.
The problem with this scenario is that there are NO currently approved second-line therapies for AML patients. So if you fail first-line (7+3), then you will have to try it again to see if a different result is achieved. But if you fail that again, then you are out of luck and on average you will be dead in 6-months.
So what did CPXX do in the AML space to get JAZZ to buy them for $1.5B?
What CPXX did was to take two currently approved drugs that were used in the 7+3 formula and combine them into one liposomal formulation at a 5:1 ratio. There is a lot more detail than just that little explanation, but since we're trying to write this for the layperson, we won't get into all of it. We will just focus on the results.
In their Phase 3 trial of VYXEOS, for the 80% of AML patients that did not qualify for a bone marrow transplant, their lifespan was increased from 6-months to 9.5-months an extra 3.5-months which is almost a 50% increase in survival time.
Importantly, an additional 9% of patients receiving VYXEOS went on to receive a bone marrow transplant as compared with 7+3.
So JAZZ saw this as a huge opportunity since VYXEOS will most likely become the standard of care for AML patients and will ultimately result in a big payday for the company and that is why they decided to pay $1.5B for them.
Although VYXEOS represents an important improvement in first-line therapy for AML patients, it still leaves the vast majority of patients (80%) without a cure or a second-line option. It also doesn't appear to tackle the fundamental problems attributed with the currently approved drugs: cardiotoxicity and multidrug resistance.