For the MEIP holders, page-2

http://seekingalpha.com/article/2837226-mei-pharma-a-rare-hidden-gem-with-impressive-clinical-data

MEI Pharma: A Rare Hidden Gem With Impressive Clinical Data
21 Jan 2015

Summary

• Rare combination of possessing a clinical stage drug with impressive efficacy, an extensive drug pipeline, a healthy balance sheet while maintaining full rights to all their drugs.
• Impressive durable clinical responses seen with Pracinostat in intermediate and high-risk MDS and elderly AML.
• With a current enterprise market value of only $44M I believe MEI Pharma has significant upside and could make a big run in 2015.

I'm always on the hunt for bargain biotech stocks, especially those that have underappreciated best-in-class drugs with small market caps. Typically, these stocks have a lot of room to run on upcoming catalysts or clinical trial results. Those that follow my articles have done well on my small cap recommendations. For example, Ovascience (NASDAQ:OVAS) is up over 500% since I suggested the stock a little over a year ago. Those that bought my Cytokinetics (NASDAQ:CYTK) recommendation two months ago are already up nearly 100%. I tend to focus on biotech companies who are working on diseases with an unmet clinical need. After scouring my notes from the American Society of Hematology (ASH) meeting this year I came across what I believe is a hidden gem with significant upside. MEI Pharma (NASDAQ:MEIP) is a clinical stage oncology company focusing on novel therapies for cancers with high unmet need. What really caught my eye is the unprecedented clinical activity illustrated in clinical trial results from their best-in-class histone deacetylase (HDAC) inhibitor Pracinostat in hematologic diseases Myelodysplastic syndrome (MDS) and Acute Myeloid Leukemia (AML), which currently have very few treatment options available. Importantly, the company also has a nice pipeline of other compounds and indications, which looks impressive compared to its valuation. With significant upcoming catalysts, very impressive clinical trial data in AML and MDS, and a current enterprise market value of only $44M I believe MEI Pharma has significant upside and could make a big run in 2015.


Pracinostat Impressive in MDS and AML Clinical Trials

The use of HDAC inhibitors in cancer is not a new idea. Acetylation of histones is associated with gene expression, while deacetylation is associated with gene repression. Countless studies have illustrated a global loss of acetylation in human tumors resulting in aberrant gene regulation. Furthermore, overexpression of HDACs have been correlated with poor prognosis in numerous tumor types. Several compounds have made their way through clinical trials with limited success as single agents, with vorinostat and romidepsin, FDA approved for refractory cutaneous and peripheral T cell lymphoma, the only successful HDAC inhibitors to date. Importantly, compared to other HDAC inhibitors Pracinostat is considered best-in-class with a superior pharmacokinetics and toxicity profile. The bioavailability of the drug is thought to make Pracinostat more clinically active than other HDAC inhibitors. In fact, Dr. Guillermo Garcia-Manero, Chief of MDS and Deputy Chair of Translational Research at MD Anderson Cancer Center is heading up the Pracinostat studies and has stated that the drug's favorable pharmacokinetics profile is likely why this HDAC inhibitor has been more successful than others in the clinic.


Elderly AML a Good Target

Although an early pilot study of Pracinostat administered by itself in elderly AML patients induced complete responses in 14% of patients, the power of the drug is really observed when combining with a hypomethylation agent. The idea to couple Pracinostat with a hypomethylation agent scientifically makes sense. Epigenetically, both deacetylation and methylation are associated with gene repression. Therefore, treating patients with Pracinostat in combination with hypomethylation agent Azacitidine (Vidaza) should provide a synergistic clinical benefit. The results in AML and MDS have shown this is the case, resulting in extremely impressive clinical responses.

Elderly AML (~65 and over) has very high unmet clinical need and no current FDA approved drugs specific for this indication. Most elderly patients cannot undergo rigorous intensive chemotherapy or stem cell transplantation and therefore are typically treated with Azacitidine with varying results. MEI Pharma and Dr. Garcia-Manero from MD Anderson designed a Phase II study for elderly AML, which enrolled 41 patients at 15 sites who received both Pracinostat and Azacitidine with a primary endpoint of complete response rate. Importantly, the patient population had a median age of 76 and very complex cytogenetics profiles resulting in poor prognosis. After an interim response assessment, a remarkable 45% of patients had achieved the primary endpoint of a complete response. Another 10% achieved a partial response and 12% had stable disease. The time to response was also very fast, occurring generally in the first two cycles of treatment and durable. No patient that has achieved a clinical response has progressed to date with six patients on study for over 230 days and counting.

Slide from MEIP analyst and investor event Dec. 8, 2014.

According to Dr. Garcia-Manero typical complete response rates in the elderly AML population with Azacitidine, which is standard of care for this population, is 8-9% and takes an average of 6-8 months to achieve. One can see why these results have generated a lot of excitement. Management has been in extensive talks with the FDA on the design of a Phase III clinical trial and have been granted orphan drug status designation. The FDA has agreed that complete response is an appropriate primary endpoint for accelerated approval with overall survival follow-up data for full approval. Phase III trial initiation is expected in the summer of 2015.


Intermediate and High Risk MDS

Similar to the results seen in AML, Pracinostat has been just as impressive in treating MDS. The hypomethylation agent Azacitidine is already FDA approved for treating intermediate and high-risk MDS, which showed a clinical response rate (complete and partial) of 16% in Phase III clinical trials and an overall survival benefit. In the pilot Phase II trial combining Pracinostat with Azacitidine there was an impressive 90% complete response rate (9/10 patients). This data led to a randomized Phase II trial at 24 sites evaluating 102 patients randomized 1:1 with Pracinostat and Azacitidine or Placebo and Azacitidine with a primary endpoint of complete response. The data from this trial is expected to be released in March 2015, which would be a significant catalyst if positive. Perhaps even more impressive is the data that was released on December 22, 2014 from the Phase II clinical trial where Pracinostat is being evaluated in combination with a hypomethylation agent in patients that have previously failed hypomethylation treatment alone. Interim analysis from the first 28 patients revealed three have now achieved clinical responses (1 partial and 2 marrow complete responses) extending the trial into the second phase. Again, the ability for Pracinostat to achieve clinical responses in the most difficult to treat disease cohorts further proves its impressive clinical efficacy.


MDS and AML market opportunity

The intermediate and high-risk MDS and elderly AML patient population are growing and have very limited treatment options making them good drug targets. Currently most patients who are high-risk and can't tolerate chemotherapy receive a hypomethylating agent. Before becoming generic in 2013, Azacitidine and Dacogen had sales exceeding $1 Billion. Currently it's estimated that there are 18-23K patients with MDS and AML being treated with a hypomethylation agent that could benefit from combination therapy with Pracinostat. Importantly, patients remain on the drug indefinitely once achieving a complete response. With the durability of the responses shown to date that would mean significant revenue since MEI Pharma owns the full rights to the compound. With a conservative treatment population of 20K patients I would assume high uptake if approved since the drug is tolerated well and there are few other treatment options available. Pracinostat is also just a pill taken three times a week so convenience is not an issue. Conservatively, the drug could bring in $500M a year for the company if priced in the $20-30K a year range.


Drug Pipeline is icing on the cake

Pracinostat is progressing nicely in numerous clinical trials and has been used to treat over 300 patients to date, establishing important characterization data. Besides MDS and AML, Pracinostat is also being tested in numerous other tumor types and drug combinations. Although, this is the company's most advanced clinical drug, MEI Pharma also is testing ME-344 in a Phase I clinical trial with refractory tumors. This novel compound targets the mitochondria causing cancer cell death and illustrated efficacy in pre-clinical ovarian cancer models. Data presented from the Phase I trial following ME-344 treatment in refractory tumors illustrated 8 of 21 patients achieved stable disease or better, with 5 patients experiencing progression free survival at least twice as long as their prior treatment. Remarkably, one patient with small cell lung cancer had a partial response and has remained on the drug for over 2 years. Another drug candidate PWT143 is a PI3K inhibitor, which has shown impressive pre-clinical data in hematologic cancers. MEI Pharma expects to file an IND application with the FDA soon for this compound. Long story short, MEI Pharma has a healthy drug pipeline with several compounds being tested in numerous indications.

Slide from MEIP analyst and investor event Dec. 8, 2014.


Financials and Risks

In my opinion, the valuation of MEI Pharma is significantly low, with an enterprise value of under $45M. They have a strong balance sheet, having just raised over $40M in a public stock offering bringing their total cash balance to ~$80M with no debt. They also own the full rights to all their drug compounds, including Pracinostat. If the data looks good coming out the Phase II MDS clinical trial or the Phase III AML trial I would not be surprised to see some of the big players in the blood cancer space come knocking. I predicted a similar situation with Geron's (NASDAQ:GERN) Imetelstat drug for Myelofibrosis, which they recently partnered with Johnson & Johnson (NYSE:JNJ) in a deal valued at over $1 Billion. I'm sure Celgene, which owned the rights to Azacitidine before going generic, would love to get some of that revenue back.
When playing small cap biotech stocks the rewards are high but so are the risks. The cash position and drug pipeline buffer some of this risk but it is still a highly volatile small cap stock that can swing wildly in either direction on significant news. We will get a better idea of Pracinostat efficacy in March 2015, when the first data from a trial with a placebo controlled arm is released.


Conclusion

For a small cap biotech stock, MEI Pharma has the rare combination of possessing a clinical stage drug with impressive efficacy, an extensive drug pipeline, a healthy balance sheet while maintaining the full rights to all their drugs. With significant catalysts upcoming and one of the most promising compounds in clinical trials to treat MDS and AML I think there is significant upside to the stock. The stock is currently trading at a ridiculously low enterprise value of only ~$44M. I might not be the only person that thinks MEI Pharma is a hidden gem on Wall Street. A recent Life Sciences Report for 2015, which brings together a team of analysts from different companies, lists MEI Pharma as one of the 12 small-cap biotech stocks poised to bring in big returns for investors this year. An enterprise value of $200M right now should not be out of the question and represents a nice four bagger from current levels.

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