AUGUST 2016

Disrupting

Acute Leukemia

When CPXX went from $1.50 to $30.50 per share this year and then was eventually bought out for $1.5 billion... this showed Wall Street how much upside potential there was for investors of acute leukemia companies!

Moleculin Biotech recently IPO’d on the Nasdaq and they are getting ready to begin their Phase IIb clinical trials for their lead drug candidate that could possibly disrupt the acute leukemia space!

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To discover why it is our 2016 Biotech Stock!

JAZZ PHARMA CLOSES OUT CELATOR PHARMA ACQUISITION FOR $1.5B

Could Moleculin Biotech (NASDAQ: MBRX) Be Next?

If you're new to the biotech space, then you most likely didn't hear about Jazz Pharmaceuticals (JAZZ) $1.5B buyout of Celator Pharmaceuticals (CPXX) on May 31, 2016. It was a big bet for an $8.3B company like JAZZ considering the fact that CPXX's market cap at the time was only around $750M.

So why did Jazz risk 18% of their company to make such an aggressive bid for a small cap company like CPXX and what could it mean for a company like Moleculin Biotech (MBRX) since they are going after the same disease as CPXX, yet they are currently only trading at a $75M market cap?

Let's start by looking at CPXX and what happened with their stock this year:

intro-go2/16/2016: $1.37 per share: They announced that they expect to announce overall survival results later in the quarter for their Phase 3 trial.

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.

pieAs 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?

cpxxWhat 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.

This is where Moleculin Biotech (MBRX) comes into the picture.

Moleculin's lead drug candidate called Annamycin, was developed at the world's largest cancer research institute, MD Anderson, and it appears to potentially be a disruptive drug when it comes to the treatment of AML patients.

Moleculin's COO is a man named Dr. Donald Picker. When asked about Annamycin's potential, he responded with: 'I have been in drug development for close to 35 years and led the development of carboplatin and cisplatin, which have been blockbuster drugs for years. In all my experience, Annamycin is one of the best drug development opportunities I've seen.

So what do we consider disruptive when it comes to Annamycin and why do we feel MBRX could possibly replicate CPXX's success?

First off, in over 6 clinical trials involving 114 patients, Annamycin showed NO signs of cardiotoxicity in any of the patients. Remember, when treating AML patients with the currently approved drugs, including VYXEOS, cardiotoxicity is the number one dose limiting toxicity for oncologists. This means that they always have to monitor the patient's heart levels and adjust dosing accordingly when treating them for AML.

By having to adjust dosing based on cardiotoxicity levels, severely limits the oncologist's ability to treat the patients properly.

Since Annamycin is non-cardiotoxic, if approved, oncologists could treat their patients properly without the fear of creating life-threatening heart damage while they are trying to kill the cancer.

Secondly, Annamycin doesn't succumb to multidrug resistance. So this means that one of the most common reasons for existing therapies to fail in AML patients is overcome by Annamycin. Like all other currently approved AML therapies, VYXEOS is also vulnerable to multidrug resistance, thus hindering the oncologist's ability to effectively treat the patient.

You would think that since CPXX is being acquired for $1.5B that VYXEOS would have solved these two major life-threatening issues when it comes to the treatment of AML patients, but the current data that has been released doesn't support that or make any claims as to such.

Thirdly, what's most impressive about Annamycin is that in the two most recent clinical trials, Annamycin was able to generate significant activity with AML patients who would be considered part of the unlucky 80% or labeled as untreatable.

Specifically, the patients that entered the most recent clinical trial had failed an average of five previous 7+3 therapies. This means that they didn't have 6-months to live, they literally had weeks to live and many of their organs were almost at failure due to the excessive amounts of chemotherapy they had received in those prior five treatments of 7+3.

Even facing those incredible odds, in 30% of those 'untreatable' patients, Annamycin was able to remove 95% of more of their bone marrow blasts (cancerous white blood cells originating in the bone marrow), which is considered the primary measurement to qualify for a bone marrow transplant. And, at the same time, putting none of those patients at risk for heart damage.

The importance of this cannot be overstated, as we believe it makes Annamycin a potential game-changer in the treatment of AML patients.

The patients that entered their trial were deemed 'untreatableî and could not be helped by any approved drugs and even at that, Annamycin was able to take that population and give 30% of them a chance at life!

That is something that is extremely impressive and potentially disruptive if Annamycin is approved as a drug.

As we mentioned before, there are no second-line therapies approved by the FDA. So if you fail first-line, there are no other approved options.

VYXEOS will most likely be approved for first-line therapy for AML patients.

The strategy that Moleculin has chosen is to seek approval from the FDA as a second-line therapy.

The reason they have done this is because they believe it is the quickest and cheapest pathway to approval.

Because there are no currently approved drugs for second-line therapy for AML patients, the FDA has the ability to grant accelerated approval on the basis of fewer and smaller clinical trials where a drug has the potential to fill a significant unmet need.

Since there is no approved second-line therapy for AML patients and since an average of 80% of AML patients fail the first-line therapies, the unmet requirement appears to be met and Annamycin could potentially fill that massive void.

At the same time, since such a large majority of patients (80%) fail the first-line therapies, Moleculin believes that by becoming the ONLY approved second-line therapy that it has greater value than an approved first-line drug like VYXEOS that is only successful in a minority of patients.

Moleculin is about to begin their Phase 2b clinical trials for Annamycin, which they hope will be their 'approval trial.î If they identify and hit the end points required by the FDA, then it is likely they will be the ONLY second-line therapy approved for AML patients.

The question was asked earlier in this article about how an investor could find a similar opportunity like CPXX when it was trading at a $70M market cap

Moleculin Biotech, Inc. (MBRX)

Consider the following facts regarding CPXX:

1) JAZZ paid $1.5B for Celator and its drug VYXEOS

2) JAZZ'S VYXEOS still suffers from cardiotoxicity and multidrug resistance

3) JAZZ'S VYXEOS increased survival from 6-months to 9.5-months for the 80%

4) JAZZ'S VYXEOS increased qualification for a bone marrow transplant by 9%

Consider the following facts regarding MBRX:

1) Currently trades at a $75M market cap

2) Annamycin is non-cardiotoxic and it doesn't succumb to multidrug resistance

3) Annamycin cleared bone marrow blasts (the key measurement for bone marrow transplant viability) in 30% of AML patients that had failed an average of five previous 7+3 treatments

4) Annamycin is being submitted as a second-line therapy which can potentially qualify it for an accelerated approval by the FDA

Judging from the way Celator’s investors were rewarded with a staggering $1.5 billion buyout by Jazz Pharma, even though their drug was highly cardiotoxic, suffered from multidrug resistance and left a large population of AML sufferers with no hope… this could bode extremely well for Moleculin’s shareholders if they are approved as a second-line therapy since Annamycin doesn’t suffer from either of those critical shortcomings… especially when you consider the fact that MBRX is currently only trading at a $75 million market cap!

As a relatively new public company, we look forward to seeing what happens with MBRX over the next 12-months as more and more investors learn about Annamycin and what it could possibly mean for the future of Acute Leukemia patients and how that may affect their market cap and stock price.

Nasdaq traded Moleculin Biotech Inc. (MBRX)

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