Fifteen years ago, Brentwood-based biopharma company CytRx Corp. was flying high, with its share price topping $150 as investors poured money into its efforts to develop drugs to fight cancer and other diseases.
But the company’s fall since then has been steep as investors have largely passed on its cancer treatment approach of improving chemotherapy drugs in favor of newer, more targeted cancer therapies. And things went from bad to worse starting last summer as the bear market for small-cap biotech investments took hold. For the last nine months, CytRx shares have languished in penny stock territory, closing April 19 at an all-time low of 12.3 cents per share.
To try to right the ship, CytRx recently hired a new chief executive – serial entrepreneur and medical venture capitalist Stephen Snowdy – and has made some cost-saving moves, including bringing its main subsidiary fully in-house and converting preferred shares to common shares to avoid paying a penalty to a major investor hedge fund.
Snowdy replaced longtime chief executive and board chairman Steven Kriegsman, who retired at age 80. Last month, Snowdy wrote an unscheduled letter to shareholders, laying out the company’s recovery strategy. But that did little to stem the slide in CytRx shares. In an interview last week, Snowdy explained the company’s recent moves and tried to reassure investors that the company’s drug pipeline could start delivering revenue as early as next year.
“Our focus now is on these drugs under development and getting them ready for FDA approval for clinical trials,” Snowdy said. “That and obtaining more cash to help speed that drug development along, whether through partnerships with other drug companies or through other means.”
The cash crunch has been so severe that Snowdy, who recently stepped down as chief executive of Atlanta-based Visioneering Technologies Inc., has decided to remain in Atlanta and run CytRx from there rather than have the company pay his relocation costs.
Snowdy is one of only three full-time employees at CytRx; the other two are based at the company’s office in Brentwood. All of the drug manufacturing work is outsourced.
But will the steps undertaken by Snowdy and the CytRx board be enough to save the company?
David Nierengarten, managing director of equity research for downtown-based Wedbush Securities Inc. said CytRx faces a fundamental problem.
“They are moving ahead with their strategy to take existing chemotherapy drugs and try to improve on them,” Nierengarten said. “That strategy can work as chemotherapy has worked for decades now to treat cancers. But there has been a general moving away from this strategy in favor of newer, more targeted approaches such as antibody delivery directly into tumor cells or therapies that boost the immune system’s response.”
Rocky path
Investors in CytRx have grown used to trying to overcome hurdles. A decade ago, they hoped for significant income from two drugs that CytRx licensed out to Copenhagen, Denmark-based Orphazyme A/S in 2011; one of the drugs targeted amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease), among other diseases and the other drug was aimed at treating diabetic ulcers. But the drug to treat ALS has not yet passed muster in clinical trials in the United States and has been rejected by the European Medicines Agency. There’s no recent word of development of the other drug. Furthermore, Orphazyme has gone through a restructuring under supervision of the Danish equivalent of bankruptcy court.
Meanwhile, CytRx was developing a drug platform called LADR that allowed for delivery of higher concentrations of chemotherapy drugs without a corresponding increase in toxic side effects.
The first existing chemotherapy drug to be applied to this platform was doxorubicin, which in typical use has side effects ranging from congestive heart failure to bowel inflammation and skin eruptions. CytRx’ name for its version of the drug it combined with its LADR platform is aldoxorubicin.
In July 2017, CytRx licensed the drug to Culver City-based ImmunityBio Inc. (then known as NantCell), the immunotherapy company founded by billionaire Patrick Soon-Shiong, for further development. As the upfront payment of the deal, ImmunityBio purchased $13 million in CytRx common stock. For the “down the road” part of the deal, CytRx is entitled to receive up to $343 million in potential milestone payments when the drug clears specified regulatory approvals or commercial milestones.
ImmunityBio is now in Phase 2 clinical trials for aldoxorubicin; Snowdy said in the interview that he expects ImmunityBio to enter into talks with the FDA later this year about the path forward for consideration of drug approval.
“This could become a near-term revenue source,” Snowdy said.
But Snowdy admitted that the company lacks the cash to complete the pre-clinical testing for these drugs.
“We will need more cash to help the development, whether through licensing or other partnerships with pharmaceutical companies or through another cash infusion,” he said.
Last year, New York hedge fund Armistice Capital invested around $11 million in CytRx through the purchase of shares. But because CytRx didn’t have enough common shares at that time, Armistice Capital agreed to be paid in preferred shares that would later be converted to common shares. Failure to convert to common shares would result in CytRx paying a $1 million fee to Armistice Capital.
Shareholders last month approved the conversion of Armistice Capital’s holdings to common shares, thus avoiding the $1 million fee.
And in another cost-cutting move, Snowdy brought a company subsidiary fully in-house. That subsidiary, Centurion BioPharma Corp., held the LADR and drug assets, but had no independent staff or resources.
With those moves now in the rearview mirror, Snowdy said the focus of the company can return full-time to getting its pipeline drugs ready for clinical trials. Analyst Nierengarten said some of the underlying forces driving that downturn appear to be stabilizing.
“There is still a bit of a hangover from all the delays in clinical trials that were pushed off during Covid,” he said. “Once those clinical trials get going again at full strength, that should start to increase biotech company valuations and, in turn, create a more favorable environment for investment.”
