Cyclacel Pharma (NASDAQ:CYCC): Initiated Buy and $7 target at Roth Capital - 2010 Pivotal for CYCC

Roth Capital is initiating Cyclacel Pharma (NASDAQ:CYCC) with a Buy and $7 target saying 2010 is the "Pivotal" Time for Sapacitabine and Cyclacel

Investment Case
What’s the play here? Cyclacel is now on the verge of becoming a pivotal stage biotechnology company. Its lead product, sapacitabine is in clinical development for several oncology indications. However, its primary focus is on hematological oncology. At the end of 2009 at the ASH conference, the drug delivered positive Phase II data in elderly AML patients, specifically encouraging response data, a favorable safety profile and importantly, encouraging one year survival data. When these three important clinical endpoints are taken together, Roth believes the profile for sapacitabine in treating AML patients is such that this could be a drug that physicians could administer chronically. This is in contrast to agents currently used to treat AML, which can elicit a high rate of remission. However they are associated with high rates of relapse and importantly high rates of 30-day all cause mortality. Subsequent to ASH in December, Cyclacel met with the FDA to discuss the plans and potential design of the sapacitabine pivotal trial program. In 2010, Cyclacel is expected to file a Special Protocol Assessment (SPA) and begin the pivotal study in mid-2010 potentially followed by a pivotal study in MDS patients.

Key Investment Drivers

- Lead sapacitabine program to enter pivotal studies in 2010. Sapacitabine is being developed primarily for hematological cancers and has completed a Phase II study in AML and is in an ongoing Phase II for MDS patients. Cyclacel is expected file for an SPA shortly with the FDA for an AML pivotal study expected to start in 2010. Recent positive Phase II data in elderly AML patients showed encouraging 1 year survival up to 35%, overall response rates up to 45% and low rates of all-cause mortality, which is common in older patients.

- Unmet medical need in elderly AML for potentially differentiated product. AML is generally a disease of older individuals and there is still an unmet medical need for new therapies. Sapacitabine can offer up not only encouraging efficacy to elderly patients, but a favorable safety profile. Additionally, the profile of the drug is such that patients could receive the drug chronically, which is generally not possible with current therapies. The goal of current drugs is to quickly induce remissions. However, especially in older patients, many of these remissions do not last and the safety profiles are not especially favorable to the patient. Following relapse there are none to few therapeutic options. Sapacitabine could offer a new alternative in being able to not only treat first line patients, but also could have the ability to treat relapse patients as well as be a maintenance therapy over the longer term.

- Stock-driving catalysts in 2010. News flow across Cyclacel’s programs should help to drive the stock in 2010 (highlighted below). Roth believes the receipt of an SPA by the FDA for the AML pivotal program will be viewed positively by the Street. Cyclacel has taken the right steps, in firm's belief, to capitalize on the missteps of others (e.g. Genzyme) in working hand in hand with the FDA to design and institute a proper randomized study for AML patients in order to bring sapacitabine to commercialization.

- Partnering potential. Based on sapacitabine’s differentiated profile potential in treating several tumor types, they believe a partner could be interested in having sapacitabine as part of its portfolio. To this end, Roth believes Cyclacel is actively engaged in partnering discussions for the compound. While it is difficult to predict timing of such an event, they do believe that a partnering catalyst would provide a significant stock catalyst, possibly in 2010.

- Long term pipeline growth. Sapacitabine is currently the primary value driver for Cyclacel. Roth sees long term potential for this product, not only for the lead AML program, but also for MDS patients as well as the significant potential of moving further into solid tumor development. Following sapacitabine is seliciclib, which is in Phase II development for NSCLC and NPC and the company’s aurora kinase program, which over the longer term could provide upside potential based on clinical trial progress. Additionally, they look to further efforts by Cyclacel to move into programs beyond oncology based on its expertise in cell cycle inhibition.

Notablecalls: This is a fairly interesting call from Roth Capital's Joseph Pantginis, PhD as he is among the first to pick up coverage on this small-cap momo biotech. As with most of the stuff in this field (and I guess life in general), there's a reason behind it.

Back in January CYCC used the sudden spike in its share price to raise additional capital and guess what?

(What?)

Roth served as the sole placement agent for the offering.

I know this looks a bit suspicious suggesting Roth got the deal by promising to pick up coverage on the name (pref. with a Buy & a high target) but...

(What? What?)

I gotta hand it to Roth for not initiating CYCC ahead of the offering as many of the other firms do, but rather after the capital raise. It was the semi-ethical thing to do and they pulled it off.

After reading the full note (all 18 pages of it), I must say I'm somewhat impressed with the quality of work Pantginis has put into it. It's definitely not your typical small-cap bio hype one gets from small firms but a rather sensible overview of the company.

Make sure you read it if you can get your hands on the full note.

I think CYCC can trade towards the $2.50 level today, with higher levels not out of the question if the market holds. This one's a mover.