Topotarget (CPH: TOPO) has been feeling the heat from having a cash conscious partner that has done a good job creating shareholder value but has a little bit different incentives from those of Topotarget at the moment. The Spectrum Pharmaceuticals - Topotarget partnership is relatively unusual union of two Small Cap biotechs (although Spectrum may be jumping out of that territory), wherein Spectrum has obtained rights for Topotarget’s leading drug candidate Belinostat for milestones up to 300 million in North America and India (with the first right to negotiate in China). The companies are sharing study costs according to predetermined rules with 70/30 split for future development costs, so Topotarget needs to be on the same page with Spectrum for the initiation of new studies.
Spectrum has a deep pipeline and plenty of options for new studies to choose from. New studies on Zevalin and Fusilev potentially compete with new indication studies for Belinostat in priority reviews. Spectrum has verbalized a very tight cost control, apparently in part to fight short-sellers who were targeting the stock earlier this year.
For Topotarget everything hinges on Belinostat and it would be important for Topotarget to advance the drug in other indications to mitigate risk (the company views Belinostat a pipeline within a drug and still sees blockbuster potential in the drug with better safety profile as the differentiating factor vs. other competing drugs). Apparently the review on next indications will be done after data from the two main studies for Belinostat mentioned below will print and it is not completely inconceivable thought that Topotarget might have to try push ahead with some of those on its own via some creative way or a European partnership (NCI has been funding quite a number of studies as well). Topotarget wrote-down other pipeline drugs and is about to divest its marketed drug Totect for a small fee.
Topotarget is up more than 50% within the past couple of weeks. The company’s valuation had slipped to a very low number and it is still only just above 50 million Euros. Main catalyst for the rebound came from a presentation the company gave in Århus, where it said that the expected phase 2 data from Belinostat in combination with carboplatin and paclitaxel for cancer of unknown primary (CUP) is running late due to events happening later than expected. The odds that data would print very strongly increased considerably as a result.
The current hypothesis is that Belinostat is best suited for such combination treatment and has strong synergies with the aforementioned drug combination. Largest commercial opportunity for the drug is in the solid tumour field but Topotarget plans to forge ahead in lymphomas as well. Topotarget's posters for The American Society of Hematology meeting 2011 are an example of the wide ranging potential of Belinostat. Several early-stage data printouts are also expected within the next few months.
Topotarget’s reporting to shareholders has sometimes left a lot to be deserved. As an example in the third quarter conference call, CEO Martelet (who has a good track record and vast experience in the Histone DeACetylase inhibitors field and was hired to Topotarget precisely for that reason) sidestepped some of the questions from investors. This is in quite a contrast to Spectrum CEO Shotriya, who usually takes on such questions head-first. Of course for some of the questions regarding Belinostat's development, Spectrum is the party with the answers. With regards to Belinostat’s pivotal trial as a monotherapy in Peripheral T-Cell Lymphoma PTCL, both companies haven’t been doing a very good job estimating the timeline nor with the wording when it comes to continued delays. The trial was finally fully enrolled recently and should print data next year.
Topotarget announced reorganization plans earlier today. The company is further cutting staff, which resulted in a lowered guidance for this year and expected 9 million DKK savings going forward. While this is not a massive amount, Topotarget management believes that the company will be able to hang on until milestones from PTCL filing from Spectrum are due, which shows that the company still believes the SPA target of 20% ORR will be met. This was somewhat put to question by both the delays and a further fuzzy wording in the Århus meeting presentation on the Data Monitoring Committee interim analysis report (which includes futility analysis and concluded that the trial should continue).
After these latest cuts, Topotarget should in theory be in condition for M&A activity. However considering the current high risk involved, this would be another very unusual event. Topotarget will host a conference call on Thursday, December 8th at 14.00 CET on the reorganization. The market initially stared at the headline for a lowered 2011 guidance and Topotarget was down nearly 4% in today’s session.
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