Pretty striking difference in the value created between $THLD and $ZIOP in just over two short years. Both were trading at similar valuations roughly two years ago, but $ZIOP has simply outperformed $THLD.

Source: Yahoo! Finance, 2yr comparison chart accessed 5-22-11

A little over two quarters post-Lehman, when the biotech world was still in turmoil, $THLD was valued at $25.5M (15.2M shares outstanding x $1.68/share, 4-30-09) and $ZIOP, a hair smaller with a $18.6M valuation (21.85M shares outstanding x $0.85/share, 5-14-09). Today, $THLD is valued at $89M, but its share price has languished at $1.81/share (5-20-11), whereas $ZIOP is now worth $449M, with shares trading at $6.59 (5-20-11).

So, what happened? Both companies have Phase III ifosfamide-based therapeutics for soft tissue sarcoma with $ZIOP ahead by roughly a year. Quick refresher (mostly for me): ifosfamide is an old-school nitrogen mustard alkylating agent used in cancer. It is a prodrug that must be activated along the cytochrome P450 pathway to generate its active metabolite, chloro-isophosphoramide, which is unstable, but in doing so, also creates other metabolites, such as acrolein, which is nephrotoxic, and chloroacetaldehyde which is thought to contribute towards neuro- and nephrotoxicity.

Both companies have designed molecules aimed to sustain the efficacy of ifosfamide (IFOS), but without the corresponding side effect profile. $ZIOP has bet on palifosfamide, a stabilized form of the active agent (chloro-isophosphoramide), which eliminates the need for activation and circumvents ifosfamide’s toxicity profile. $THLD has designed TH-302 to accomplish two things: 1) site-specific activation under hypoxic-conditions, which releases, 2) a chloroacetaldehyde analog, as its payload, also without the formation of toxic metabolites. Between the two, TH-302 requires an extra-step for activation, which could potentially be of concern, but otherwise, pretty similar mechanistic hypotheses.

What about the pipeline? Following the failure of glufosfamide in 2007, $THLD focused exclusively on developing TH-302. In contrast,  $ZIOP had been pushing forward multiple compounds, including indibulin and darinaparsin, through the clinics. However, to be fair, $ZIOP did not appear to invest heavily in these programs post-Lehman – possibly as a precautionary measure to conserve cash and make a focused bet on palifosfamide. So it would appear value creation was not from a pipeline perspective.

The difference? It looks like $ZIOP’s investment in a controlled Phase II trial (and positive results) has paid dividends for their investors, while $THLD’s decision to conduct a single arm trial could not provide sufficient evidence/confidence for investors, especially after a Phase III trial failure on the current management team’s watch. Given that Phase II trials are generally small and are supposed be the template for Phase IIIs, I am quite puzzled as to why $THLD (and many other development stage companies for that matter) try to rush through clinical trials without a control arm. Are they crunched for cash? Trying to meet some sort of timeline? Have they drunk their own Kool-Aid? Is there some sort of clever pipeline PR ploy involved? Maybe I’m simply just not sophisticated enough to understand the subtle nuances behind the disease and its treatment paradigms.

Lesson. Please run controlled trials. We will entering an age where comparative effectiveness studies are becoming the norm, so why not start sooner rather than later?

As I think about value proposition, $ZIOP feels a bit rich (almost half a billion market cap, no revenues, and a Phase III trial looking at PFS as the primary endpoint – against FDA guidance, but will follow for mOS), but does $THLD make the cut? Being a year behind in sarcoma with uncontrolled, single arm data gives me pause, so I wouldn’t put my marbles in that bag. This leaves me with pancreatic cancer, which is expecting data from a controlled Phase II trial YE11.

My understanding of pancreatic adenocarcinoma is that it is a fast-growing tumor. This means that the inner “guts” of the tumor does not have its own vasculature and must rely on diffusion for metabolic processes resulting in a hypoxic cellular environment. As long as TH-302 can reach this region and release its payload, it should have an effect and kill from the inside out. The clinical data suggests that this is possible. They have reported PFS of 5.9 months and mOS of 8.5 mo from 43 evaluable patients (January 24, 2011) – both parameters appear superior to historic controls. Gemzar was approved with a +1.2 mo disease progression advantage over 5-FU (2.1 mo vs 0.9 mo) and a +1.5 mo survival advantage (5.7 mo vs 4.2 mo). I am always wary of single-arm data, especially in cancer, but if the Phase II data are positive, this could allow $THLD to create the value $ZIOP has accomplished over the past two years.

No position in either company, but if I wanted to take a flyer on positive Phase II results, I would be patient and make sure they at least complete enrollment by MY11 (as guided). Further, I would need to research how the newer molecular targets (e.g. mTOR inhibitors) compare to old school IFOS.