Cellceutix Corp.: A Biotech With High Risk But High Reward
Investors willing to accept higher levels of risk in return for much higher reward possibilities typically have at least one biotechnology stock in their portfolio. For the past couple of years, biotechnology allocations have likely performed very well. As investors look ahead, one company has the potential to offer significant return but not without its fair share of risk. That company is Cellceutix Corp. (CTIX:PK)
Cellceutix is a development-stage biotechnology company focused on the development and commercialization of small molecule therapies for areas of unmet medical need such as infectious disease, oncology, and dermatology. The company currently has four products in its pipeline: Kevetrin, Brilacidin-OM, Prurisol, and Brilacidin.
In 2012, Cellceutix was one of the brightest stars of the biotechnology industry, having seen its share price rise approximately 300 percent. Investors were expecting great things in 2013, but the big events that investors were waiting on never seemed to have much of an impact on the share price. Instead, shares appreciated by a modest 13 percent, which could be considered disappointing considering the biotechnology industry as a whole performed much better.
Despite the volatile share price that investors endured for much of 2013, the potential that Cellceutix has cannot be disputed. The company’s flagship product candidate is Kevetrin, a small molecule compound that has demonstrated potent anti-tumor efficacy against various forms of cancer like lung, breast, colon, prostate, and squamous cell carcinoma. Kevetrin has the potential to radically improve cancer treatment because of its unique mechanism of action. Kevetrin works by activating the p53 gene, also known as the “Guardian Angel Gene” because of its critical role in controlling cell mutations.
The candidate is currently being evaluated in a Phase 1 clinical trial at Harvard Cancer Center’s Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center. The trial is expected to enroll roughly 40 patients in the dose-escalation portion of the study with the possibility of an additional 12 patients enrolling at the MTD dose level.
Cellceutix is also developing Prurisol, an anti-psoriasis drug candidate. Psoriasis is a chronic skin disease that is the most prevalent autoimmune disease in the United States. It is a small molecule that acts through immune modulation and PRINGS reduction. Prurisol has been found to be more effective than conventional therapies in human psoriatic tissue xenografts. In late 2012, Cellceutix announced a manufacturing agreement with Dr. Reddy’s Laboratories (NYSE:RDY).
Dr. Reddy’s Laboratories agreed to manufacture Prurisol for the minimum necessary dosing levels to complete the Phase 2 and 3 trials. Early last month, Cellceutix announced that it would need to complete a short Phase 1 crossover study to ensure that Prurisol converts into abcavir in humans. If all goes well, Cellceutix will then move on to the much larger Phase 2 and 3 trial. The crossover study is expected to be completed within one month, so investors should expect an announcement on or before January 9.
Currently, approximately 7.5 million Americans are affected by psoriasis. Due to the high unmet treatment need and the chronic nature of the disease, the affected population is expected to grow substantially in the future. The current market is valued at roughly $2 billion, which is expected to continue grow in the years ahead. Given that Cellceutix’s compound, Prurisol, has demonstrated superior results in testing thus far, the company stands a good chance of capturing a large percentage of this market.
The company’s current market cap is just over $200 million, which makes it seem fairly undervalued relative to the potential of Prurisol alone. Throw in Kevetrin and the company’s other compounds as an added bonus, and investors have a good chance of capturing significant gains in the months and years ahead.
As of the third quarter 2013, Cellceutix had approximately $4.6 million in available cash. However, the company entered into a common stock purchase agreement with Aspire Capital in October. This deal allows Aspire Capital to purchase up to $20 million of Cellceutix’s common stock over the next three years. It’s a favorable deal for shareholders, as Cellceutix will control the timing and amount of any stock sale to Aspire Capital. Given that the company has lost an average of $4.7 million for each of the last three years, this financing agreement should be enough to satisfy the operating requirement for at least the next three years.
The potential of Cellceutix cannot be disputed. The company is building a diversified pipeline of products that will have the potential to generate significant revenue in the years ahead. Nevertheless, this company remains an extremely risky and speculative investment and investors should only invest funds that they can afford to lose.
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