Ziopharm

MARKET OUTPERFORM

Target Price $10.00

 • Oncologic drugs AdCom reaffirmed the importance of clinical benefit; reiterate Market Outperform rating and $10 price target for Ziopharm.  Yesterday, the FDA Oncology Advisory Committee panel voted 11-2 in favor for GSK's Votrient on a 3-month PFS benefit in the treatment of soft tissue sarcoma (STS), but voted 13-1 against Merck's Taltorvic due to a poor safety and unimpressive efficacy profile, despite the drug having shown statistically significant PFS.  We are encouraged by the results, demonstrating the FDA's willingness to focus on clinically meaningful efficacy and importantly to recognize a clear PFS and hazard ratio as approvable in this disease setting.  The FDA commented on the potential accelerated approval on PFS for Votrient, which further enhances our confidence in Ziopharm's palifosfamide in STS.  

Given an improved safety profile over ifosfamide, we believe a PFS readout of likely 3-months plus from the ongoing Phase III trial could be considered as clinically meaningful for  palifosfamide in first line STS (2H12), which bodes well for a potential accelerated approval. Our current $10 price target is derived from a sum-of-the-parts analysis of the palifosfamide U.S. revenue and ex-U.S. royalties in sarcoma, as well as assigning pre-POC value for Intrexondriven assets.  

 • Votrient's approval is based on PFS data and raises the likelihood of a pali approval.  The trial was a single, randomized, double-blind, Phase III study initially designed to detect a 6-month improvement in PFS in metastatic STS patients who received prior chemotherapy.  Enrollment was increased from 255 to 360 to increase powering for an OS endpoint.  Final data from the study suggest a median PFS benefit of three months; however, the median OS benefit was not significant.  The overall safety profile is comparable to the renal cell carcinoma setting, for which Votrient was approved in 2009.  The advisory committee raised questions mainly to address whether a marginal PFS benefit is sufficient for STS patients on the reliability and rigor of the PFS assessment, data comparison to baseline due to heterogeneous nature of the STS population, and regarding the importance of tumor shrinkage vs. stable disease.

 • Taltorvic's rejection due to severe toxicity and marginal benefit.  The Phase III trial evaluated Taltorvic as maintenance therapy in STS patients who had four cycles of prior treatment with chemotherapy.  Although data from this trial suggested a PFS benefit of, at best 1.3 months, which was statistically significant, the FDA raised three issues with Taltorvic:  1) the clinical importance of the PFS benefit, 2) lack of a significant OS benefit, and 3) significant safety concerns.  More importantly, severe side effects caused dose reduction in 70% of patients and 14% of patients withdrew due to adverse events.  Although the advisory committee acknowledged that STS maintenance is very important and difficult given the severe side effects caused by Taltorvic, the PFS benefit was not considered sufficient to vote for approval by the majority of committee members.

• Palifosfamide established safety profile, PICASSO3 - near-term value driver.  Ziopharm has been conducting a Phase III trial (PICASSO3) to evaluate palifosfamide in combination with doxorubicin for the treatment of front-line STS (Figure 1).  The company recently reported a third positive review for the program by the IDMC and trial enrollment completion is anticipated within this month.  Palifosfamide is an improved version of ifosfamide, a drug that was approved by the FDA in 1998 for the treatment of testicular cancer.  With a better safety profile and impressive (in our view) positive OS results (40% survival rate vs. 30% in the control arm) from a Phase II trial (despite cross-over upon progression), we believe a positive PFS interim data (3 month +) could accelerate the regulatory review process.  Additionally, when comparing the ongoing programs from the two mind-share competitors in the front-line STS setting, we tip our hat to Ziopharm for its design (double-blind) and breadth (international, not just a few centers in the U.S.).  That said, we believe that both drugs can benefit from the agency’s focus on clinically meaningful PFS in the STS setting.

FIGURE 1: PICASSO III Trial Design

Ziopharm - PICASSO II

Design Randomized, double-blind, placebo-controlled

Phase III

Endpoint PFS followed by OS

Arms  2 arms:

1.    Palifosfamide-tris: 150 mg/m2 3 days every 21 days for a maximum of 6 cycles. Doxorubicin: 75 mg/m2 1 day every 21 days for a maximum of 6 cycles.

2.    Doxorubicin: 75 mg/m2 of doxorubicin 1 day every 21 days for a maximum of 6 cycles. Placebo: 250 mL of normal saline 3 days every 21 days for a maximum of 6 cycles

Patients 424

Indication Front-line metastatic soft tissue sarcoma

Start Date July, 2010

Sites 164 global location

Key Inclusion Criteria - Metastatic disease for which the patient has not received any prior treatment, and for whom treatment with doxorubicin is considered medically acceptable.