Strong investor demand, it appears, already exists for this newly public oncology developer. A secondary offering that was initiated at the beginning of May, planned for $50M, had to be increased in size by 20% to accommodate more buyers, and the deal priced at only a slight discount to market. The offering infused Stemline with ample capital, and at current prices, around half of Stemline’s market capitalization is in cash -- a technology value of less than $85M and cash per share of $7.50, over half of STML’s current share price. Stemline will present three abstracts for lead candidate SL-401 at the upcoming meeting of the American Society for Clinical Oncology (ASCO, May 31-June 4), and we believe that interest in SL-401, in addition to the greater CSC space, could drive enthusiasm for Stemline in the near-term. But a combination of this industry exposure at ASCO, Stemline's low float, and the expectation of more data flow through 2013 creates a particularly opportune scenario for STML in the second half of this year -- it's primed for a run higher if demand, which we’ve already seen with the latest offering, continues to uptick. The company plans to initiate a pivotal study of SL-401 in early 2014, and we expect more information on the broader development plan for both candidates to materialize throughout this year, driving further interest as timelines become clear. While Stemline is yet early-stage, impressive clinical data, ample cash reserves, and the possibility of a low float-induced rally suggest this one is worth a closer look.
Cancer Stem Cells
Stemline, as well as several other biotechnology companies (more on these later), develops oncology therapies that are based on targeting and destroying cancer stem cells. Cancer stem cells are a specific type of tumorigenic cell that, when present in a patient’s system, give rise to other cancer cells, thereby creating tumor growth.
As the diagram above shows (produced by Stemline), traditional oncology therapies can kill off most of a tumor, but if the cancer stem cells that gave rise to said tumor are left intact, they can induce a relapse. Stemline’s CSC therapy, however, targets both the “normal” tumor cells, as well as the underlying CSC cells, thereby fully eliminating the tumor and preventing a relapse. CSC’s have been the subject of much debate in the medical community, with some experts going so far as to dispute their very existence. However, a 2009 paper published in Nature [authored by Piyush Gupta (from the Broad Institute of Massachusetts Institute of Technology and Harvard), Christine Chaffer (from the Whitehead Institute for Biomedical Research and the Ludwig Center for Molecular Oncology/Massachusetts Institute of Technology),and Robert Weinberg (from the Broad Institute, the Ludwig Center, and the Department of Biology at the Massachusetts Institute of Technology], lays out a clear case for CSC’s. These cells, as the Nature paper notes, are defined “on the basis of their ability to seed tumors in animal hosts, to self renew and to spawn differentiated progeny.” CSC’s certainly meet these standards; such cells create non-CSC tumor cells, and if left unchecked, can cause a tumor to regrow, even if the bulk of it has been destroyed by more conventional oncology treatments. The Nature paper goes on to lay out an argument, one we see as valid, that much of the controversy surrounding CSC’s has shifted to the debate over whether or not these cells are “true stem cells.” Standard stem cells are either oligo- or multipotent (oligopotent cells are able to form 2 or more cell types within a tissue, while multipotent cells are limited in their ability to differentiate, with most hard-wired to produce specific types of cells). When viewed through this prism, CSC’s may not meet the traditional definition of stem cells. But, they do align with the core of what it means to be a stem cell: CSC’s are self-renewing and give rise to regular cells, even if these “progeny” cells are tumor cells. CSC’s have been identified in multiple cancer types, including brain, breast, lung, pancreatic, and multiple myeloma. A recent Nature paper, published in April 2013 and authored by Jan Paul Medema of the Laboratory for Experimental Oncology and Radiobiology at the University of Amsterdam, further delved into the debate regarding CSC’s. Medema’s paper outlined the challenges and opportunities of CSC-therapy, and noted that much of the controversy surrounding CSC’s can be traced to their imperfect definition. The following excerpt outlines Medema’s views on the definition of CSC’s (the full paragraph is provided for proper context):
The CSC concept has existed for over a century2, 4, 5, but only emerged at the forefront of cancer research with the identification of molecular markers that allowed the isolation of leukaemia CSCs6. Over the past decade, several CSC markers were identified in a wide range of solid and haematopoietic malignancies (Table 1). Although this simplified the study of CSCs, formal proof that cancer cells have self-renewal and differentiation capacity requires a functional tumour growth readout by transplantation into a recipient animal1. The requirement for such approaches to study CSCs ignited fierce controversy, as opponents argued that xenotransplantation assays could be selecting for cells more fit to grow in a foreign and hostile environment7, 8, 9. The fact that most CSC surface markers are, in one way or another, linked to cellular attachment supported this view10. Moreover, the percentage of melanoma cells with CSC capacity seemed to depend on the level of immune deficiency in recipient animals, suggesting that fitness and immune-mediated effects determine xenotransplantability11. Further, the existence of hierarchy was disproved in Eμ-myc lymphoma, through syngeneic transfer of murine tumours8. Although these arguments remain valid, recent reports of work combining mouse models that spontaneously develop tumours with genetic tracing provided exciting support for the CSC theory12, 13, 14. Parada and colleagues marked a subset of cancer cells in a glioma mouse model by expressing green fluorescent protein under the promoter of the stem cell marker Nestin12. They found that this cell sub-population was responsible for tumour regrowth after chemotherapy, suggesting that these cells represented CSCs. The Blanpain13 and Clevers14 groups used expression of a selective promoter-driven CreER recombinase that could activate a permanent fluorescent protein mark in either intestinal or skin cells following tamoxifen administration. This cell lineage tracing approach confirmed that a subset of cancer cells has the capacity to repopulate the complete tumour and to give rise to all types of differentiated progeny. These findings seem to settle the argument as to whether CSCs exist or are merely a consequence of xenotransplantation fitness and immune-mediated selection. Nevertheless, it should be noted that the adenomatous polyposis coli (APC)-mutated intestinal adenomas used by Clevers and colleagues14 have so far failed to generate tumours following transfer to recipient mice, and would thus not qualify as CSCs under their widely accepted definition. If these studies12, 13, 14 are to be accepted as proof for the existence of CSCs, the imperfect nature of the CSC definition also needs to be recognized and the definition itself potentially revised. [Emphasis added]
Several other companies work in this segment, and a number have backing from large pharmaceuticals for this class of therapy.
Stemline: Stemline’s 2 clinical assets, SL-401 (targeting the interleukin-3 receptor (IL-3R) and SL-701 (synthetic peptide-based cancer vaccine) are in Phase I/II trials for the treatment of 7 cancers; blastic plasmacytoid dendritic cell neoplasm (BPDCN), acute myeloid leukemia (AML), adult-high grade glioma (HGG), pediatric malignant glioma, multiple myeloma, high-risk myelodysplastic syndrome (MDS), and a cluster of high-risk IL-3R+ cancers.
Verastem (VSTM), $194M market cap: Verastem is one of 2 other publicly traded CSC-based companies, and it currently develops 4 separate CSC-based therapies in mesothelioma and ovarian cancer, with 2 other products currently in early testing for undisclosed indications. Verastem also has a collaboration agreement in place with Eisai.
Boston Biomedical: A subsidiary of Japan’s Dainippon Sumitomo, Boston Biomedical is developing CSC-based therapies in ovarian, colorectal, and gastric cancers, as well as melanomas and solid tumors.
OncoMed Pharmaceuticals: Privately held OncoMed, which has collaboration agreements in place with both GlaxoSmithKline (GSK) and Bayer (and counts Glaxo as an investor), is developing CSC-based therapies across several indications, with its lead program targeting lung and pancreatic cancer. Development in solid tumors is also ongoing, and other compounds are in early-stage trials.
Stem Cell Therapeutics: Canadian-based Stem Cell Therapeutics, which began trading on the OTC market last week, is developing CSC-based therapies for AML, spread across two separate clinical programs. However, this is the company’s only targeted oncology indication, and the rest of its pipeline is focused on non-oncology disease areas.
Stemline’s S-1 lists two other companies as potential competitors: Bionomics, and Stem CentRx. It should be noted however, that Stem CentRx was founded in 2008, and currently works with a discovery platform only. Bionomics (listed in Australia), is targeting tumor cells via different mechanisms of action; BNO69 and BNC105 both target tumor blood vessels. It is clear that although Stemline does focus on a unique area of oncology research, the company itself is not alone in seeing the potential of CSC-based therapy, and large pharmaceutical companies have already expressed interest in the technology. And with the exception of Stem Cell Therapeutics (whose most advanced AML program is in Phase I testing, behind those of Stemline), the company does not face direct competition across its various clinical-stage oncology indications.
Efficacy, Safety & Market Opportunities: Examining Stemline’s Potential
The potential of Stemline’s therapies is clear, as CSC’s have been shown to play a role in tumor formation, as well as tumor relapse. Preliminary data for these clinical programs has been favorable thus far for SL-401 and SL-701 (SL-401 is being tested in all of Stemline’s non-glioma indications, while SL-701 is being tested for glioma -- pediatric malignant and adult high-grade).
SL-401 is Stemline’s first clinical-stage asset, targeting the IL-3R receptor, and the diagram below displays SL-401’s mechanism of action.
At the 2013 ASCO meeting this June, Stemline will present an update from its 81-patient trial of SL-401 in AML and BPDCN. AML patients in this trial were all >3rd-line. SL-401 induced a durable complete response in 2 out of 59 patients, with multiple other cases of blast reductions. SL-401 also showed an overall survival benefit in AML, with OS for these 59 patients coming in at 3-fold (with a 95% confidence interval) the historical median OS for 3rd-line AML patients. The trial showed that SL-401 was well tolerated in AML at clinically active doses.
In BPDCN, 3 out of 4 patients treated with a single cycle of SL-401 showed complete responses, with no detectable malignant blasts in either bone marrow or bloodstream. As in AML, SL-401 was well tolerated at clinically active doses, with no treatment-related bone marrow suppression seen during the course of the trial. Patients treated with SL-401 exhibited no treatment-related hematological toxicity, and SL-401 has been shown to be non-toxic to bone marrow, a key differentiating factor relative to existing hematologic cancer therapies. The table below summarizes the existing clinical data for SL-401 after a single cycle of therapy across several indications (a single cycle of therapy is defined as a daily 15-minute intravenous infusion for either 5 or 6 days, depending on dosing arm).
SL-401 Single-Cycle Efficacy
|BPDCN (n=4)||AML (relapsed & refractory) n=59||AML (> 3rd-line) n=35||AML (not chemotherapy candidate) n=11||MDS (high-risk) n=7|
|Tumor Shrinkages/Disease Stabilization||75%||46%||43%||55%||43%|
|3 Complete Responses||2 Complete Responses||1 Complete Response|
This study was conducted in collaboration with the MD Anderson Cancer Center and Scott & White Hospital, and the study concluded:
SL-401 demonstrated single agent anti-tumor activity and was well tolerated in patients with advanced AML. Improved survival was observed among patients who received a single cycle of SL-401 as 3rd line treatment, a disease setting in which there is no standard therapy. SL-401 may be an attractive treatment option for these patients given their tendency to be myelosuppressed and therefore often poor candidates for myelosupressive therapies that have limited benefit on clinical response and survival in this setting. Based on these positive findings, SL-401 will be advanced into a randomized Phase 2b trial to treat patients with AML in the 3rd line setting. Patients will be randomized to treatment with either multiple cycles of SL-401 or physician's choice, which will consist of available standard therapeutic agents. In addition, the efficacy and safety of SL-401-based combination therapy will also be studied in earlier lines of AML given the lack of overlapping toxicities with existing hematologic cancer therapies.
Stemline is in the process of conducting the Phase I/II trial across several indications (AML, BPDCN, MDS, and plasmacytoid dendritic cell leukemia). The 90-patient trial currently has an estimated primary completion date of December 2013, with primary outcomes designated as toxicity, clinical response rate, and duration of response, as well as multiple other condition-specific outcomes (the full list is available at ClinicalTrials.gov). SL-401 has received orphan drug status for AML in the United States (the company plans to seek orphan drug status for BPDCN as well) and Stemline has also indicated that SL-401 may be targeted for potential use in earlier lines of AML therapy when combined with chemotherapy. Stemline holds full global rights to SL-401 via an exclusive license from Scott & White Hospital, and will pay Scott & White a single-digit royalty on any commercial sales of SL-401. Management has indicated that Stemline will begin a pivotal (Phase 2b) trial in BPDCN in early 2014, has plans for a similar trial in AML, and hopes to initiate mid-stage studies in a number of other rare IL-3R+ disorders (hairy cell leukemia, mastocytosis).
SL-701 is a synthetic peptide-based brain cancer vaccine designed to target IL-13Rα2 and Ephrin-A2 (EphA2), both of which are overexpressed in brain tumors. Like other vaccines, SL-701 is combined with a helper peptide and an adjuvant to achieve a clinical effect; the helper peptide stimulates cytotoxic T-cells, while the adjuvant stimulates the immune system. SL-701 is being developed for use in the treatment of both adult high-grade glioma (HGG) and pediatric glioma, and early clinical data certainly supports continued development.
In adult high-grade glioma, SL-701 was tested in 22 patients with HGG, 13 of which were refractory/recurrent, and 9 of which had anaplastic glioma. 11 of the patients were second relapse or greater, and 2 of those patients received Avastin as a prior treatment. Within this trial, 46% of the refractory/recurrent patients and 78% of the anaplastic glioma patients sustained either an anti-tumor response or disease stabilization. Two “durable” complete responses were noted, as were 3 partial responses. Overall survival was also extended relative to historical averages at both 6-month and 12-month intervals, as shown in the table below.
SL-701 Overall Survival (OS) Benefit in Refractory/Recurrent Patients
|Refractory/Recurrent Median OS||13 Months||5-7 Months|
|Refractory/Recurrent 6-Month OS %||80%||38%-55%|
|Refractory/Recurrent 12-Month OS %||55%||14%-25%|
Stemline notes that patients in the anaplastic arm of the trial also saw an overall survival benefit.
As with SL-401, Sl-701 was well tolerated at clinically active doses, with injection site reactions as the most common adverse events, with resolution generally achieved within 24 hours. Due to the fact that SL-701’s side effect profile has no overlap with those of chemotherapy, radiation, or Avastin (the current standard of care), Stemline is planning a Phase IIb combination trial of SL-701 and Avastin and a study of SL-701 in low-grade adult glioma is ongoing. 24 patients have been enrolled in the trial, and currently available data indicated that as in high-grade glioma, SL-701 was well tolerated and induced immune responses. To date, 10 of 17 patients for whom data is available have stable disease.
SL-701 has also shown benefits in pediatric glioma. A Phase I/II trial of 27 pediatric glioma patients (where SL-701 was injected once every 3 weeks for up to 24 weeks showed) showed that 86% of the patients exhibited tumor reductions and/or disease stabilization, with 3 durable partial responses recorded. 4 of the patients had stable disease with survival of at lease 13 months. Tumor pseudoprogression was seen in 4 cases within this trial. This is notable because tumor pseudoprogression (which, according to Stemline is “manifested by edema and contrast enhancement on MRI”) is thought to be a marker of anti-tumor activity. As in the adult trials, SL-701 was well tolerated in pediatric patients, with the most common adverse events being injection site reactions, as well as low-grade fevers, which were found to be controllable with analgesics. Stemline is working with the Pediatric Brain Tumor Consortium to secure funding for a clinical trial of SL-701 in pediatric patients diagnosed with both brainstem and non-brainstem malignant glioma. The National Cancer Institute approved their joint letter of intent in October 2012, and Stemline is crafting a full trial protocol to submit to the National Cancer Institute. Preparations for a Phase IIb European trial are also underway. As with SL-401, Stemline has full rights to SL-701 via a licensing agreement with the University of Pittsburgh. Stemline has an exclusive license for the components of SL-701 that target IL-13Ra2, and a non-exclusive license for the components that target EphA2. The company owes the University of Pittsburgh up to $4.1 million in milestone payments (defined as both regulatory and clinical milestones) and will pay single-digit royalties on any commercial sales of SL-701.
In addition to SL-401 and SL-701, Stemline has 5 additional programs in the preclinical stage. Via its StemScreen platform, which is used for CSC isolation and identification as well as for testing of anti-CSC activity in both in vitro and in vivo setting, Stemline has identified SL-601 for bladder cancer, SL-201 and Sl-202 for leukemia, and SL-301 and SL-302 for brain cancer (SL-101 is another pre-clinical asset that was in-licensed for the treatment of Non-Hodgkin’s lymphoma).
Stemline, if successful in its development efforts, will enter a lucrative global market, particularly for SL-401, which has potential use in tens of thousands of patients. The table below outlines the market opportunity for SL-401, as defined by Stemline.
SL-401 Market Size (Annual Cases)
|Rare IL-3R+ Cancers**||4,000||5,000||9,000|
|Other IL-3R+ Cancers***||87,000||113,500||200,500|
*2,000 cases total, split 50/50 between the United States & Europe
**Hairy cell leukemia, Mastocytosis, and Basophilic leukemias
*** CML, ALL, Non-Hodgkin’s/Hodgkin’s lymphomas
As the table above shows, the majority of Stemline’s target patients are in Europe. Securing partnerships for commercialization, we believe, will be a non-issue for founder, chairman, and CEO Ivan Bergstein given a management team and a board skilled in inking not only collaboration agreements, but in outright sales of biotechy companies. The strength of Stemline’s management team, as well as its firm balance sheet, forms another leg of the bullish thesis for the company.
Cash Means Flexibility; Supply/Demand Imbalance Suggests Rally
With its January 2013 IPO, Stemline raised over $32 million and ended Q1 2013 with nearly $31 million in net cash & investments. And this week, Stemline pulled in gross proceeds of $69.9 million from a secondary offering. Note that the offering was substantially oversubscribed, and it seems the banks involved in the deal had to up the anticipated offering size from $50M to $60M to accomodate demand. Even then, over-allotment brought in an additional $9M. The offering priced on May 16 at $14.50, a discount of only 3.3% to its prior close, further evidence that investors don't need much incentive in the form of warrants or discounts to get involved.
With the proceeds from this offering, Stemline’s pro forma cash balance now stands at nearly $93 million. To date, Stemline has not been a particularly aggressive user of cash; since its August 2003 inception, the company used just over $18 million in cash, with over $3.6 million of that in Q1 2013. Even assuming a meaningful ramp up of cash burn tied to growth in R&D expenses (pro forma R&D expenses climbed 143% year-over-year in Q1 2013), Stemline has ample capital for the foreseeable future. At a burn rate of $7.2 million per quarter (double the first quarter of 2013), Stemline has around 12 quarters of capital on its balance sheet -- three years even with meaningful R&D increases.
With 12,290,580 shares to be outstanding after the completion of its secondary offering, Stemline’s cash & investments will make up $7.55 per share, a quality backdrop to its $14.50 share price.
Although Stemline has 12.3 million shares outstanding, its float will consist of approximately 8.5 million given that a third of its O/S are restricted (Stemline’s lock-up agreements are in place until late July/early August). However, even that measure may be too high, as chairman & CEO Ivan Bergstein owns over 1.8 million shares (excluding hundreds of thousands in stock options), giving him a 15% stake in Stemline, and removing those shares from day-to-day trading. Stemline’s float creates the possibility for a squeeze in the case that demand increases following the ASCO meeting in June. Stemline only recently IPO'd and remains under the rader, thus any meaningful press at the event could drive demand as we enter the third quarter. Long-term potential aside, traders should keep an eye on STML's volume coming into and following ASCO.
Stemline is an under the radar play in an emerging field of oncology therapeutics, and investors should take note. The company has ample capital to fund operations and a management team and board of directors that have proven their ability to reel in large pharmaceutical collaborators. Although SL-401 and SL-701 are early in the development process, the compounds have shown strong capabilities in early-stage trials, and we believe that through the course of 2013 as Stemline lays out the path forward for both candidates, demand should continue to drive value for current shareholders. In particular, there's reason to believe that data at ASCO and industry exposure at the event -- both medical and investment -- will drive interest in this low-float stock. The stock has set a precedence of strong support at $14.50 following the offering, and even minimal volume has the potential to move this illiquid name. It's a set-up for a supply and demand imbalance, and traders should keep an eye on STML through ASCO.
In connection with STML, PropThink has taken a long position.