Positive Data And Investor Interest Uphold Stemline’s Momentum

Since my last note on Stemline Therapeutics (STML) from May 2nd 2013, the stock has rallied nearly 150%, from a previous high of $16.49/share to a new 52-week high of $39.18/share made last week. The stock is also up 188% since its IPO. Recent events include Stemline’s presentations at the JMP Securities and Wedbush conferences, the inclusion of Stemline into the Russell 3000 index, and orphan designation for the company’s flagship drug for a blood cancer indication.

The moderate market crash last Thursday tapered off Stemline’s rally, although the stock has not sustained the kind of damage that other high-flying biotechs did. This is an encouraging sign so far out from the company’s IPO, and it seems that institutional investor support is still strong after lockup expiration.

Particularly interesting in terms of institutional activity is the accumulation of STML by Perceptive Advisors – a biotech focused long-short hedge fund that recently made huge and successful bets on Sarepta Therapeutics (SRPT) and Aegerion Pharmaceuticals (AEGR). Other notable funds have also shown interest, affirming the commercial potential of the company’s cancer stem cell (CSC) targeting platform.

The theory of cancer stem cell targeting is relatively simple. The aim is to destroy the ~1-5% of tumor cells that are responsible for the regrowth of the tumor. Since these cancer stem cells are often responsible for tumor relapse, it is implied that their complete eradication would prevent tumor regrowth. To avoid toxicity, this payload-carrying molecule would also have a high specificity for cancerous cells.

So to target cancer stem cells, Stemline uses molecules that will bind specifically to receptors that are known to be located on cancer stem cell membranes, as well as the “bulk” cancer cell membranes. This is designed to destroy all cancer cells within a patient, including CSCs.

Stemline’s flagship development program is SL-401 – a cytotoxic molecule bound to interleukin-3 (IL-3), which directs SL-401 to interleukin-3 receptors. IL-3 receptors are common on blood cancer cells, implying that SL-401 will only target these malignant cells once it enters the body.

The two primary indications for SL-401 at this point seem to be relapsed/refractory blastic plasmacytoid dendritic cell neoplasms (BPDCN) and relapsed/refractory acute myeloid leukemia. These are two types of deadly blood cancers that are very difficult to treat after first and second line therapies fail. Both development programs will be moving into late stage trials soon, although the exactly timeframes could be affected by the speed of patient enrollment.

Part of Stemline’s recent strength on the stock market was caused by the recently granted orphan drug designation for SL-401 in the BPDCN indication by the FDA (link). orphan status extends the period of exclusivity for the drug once it hits the market (to 7 in the US and 10 in the EU), offers greater leniency – with fees – during clinical development , and gives some other perks. Valuation of a development program increases after orphan designation is made official.

At ASCO 2013, Stemline had good data to present from an 85 patient Phase I/IIa trial which will lead into a single-arm Phase IIb BPDCN trial and a randomized Phase IIb AML trial. Median overall survival (OS) for AML patients who had failed at least two previous treatments was 5.6 months for patients at or near the maximum tolerated dose (n=16). These data are superior to chemo patient data. AML patients also saw stabilization in 46% of patients.

With only 5 BPDCN patients in the trial, OS data analysis is not practical – although it’s certainly worth noting that there has been a 100% response rate in the small number of patients that this therapy has been tested on.

So currently, SL-401 is being developed for the following indications: blastic plasmacytoid dendritic cell neoplasm (BPDCN), acute myeloid leukemia (AML), multiple myeloma (MM), and high-risk myelodysplastic syndrome (MDS). It is also being developed as a last resort for patients with other cancers that have high interleukin-3 expression, including hairy cell leukemia (HCL), mastocytosis, and malignancies and proliferative disorders of mast cell and basophil lineage.

As mentioned, investors should pay the most attention to AML and BPDCN as these programs head into late stage trials. BPDCN in particular could drive STML significantly higher in the near future due to the possibility of accelerated approval from the FDA. The ~2,000 US/European BPDCN patient population is not very large, but allows for “rare disease pricing” (think Aegerion) as well as high market penetration potential. Another perk is that Stemline would not have the kind of commercialization costs that a primary care drug developer like Amarin (AMRN) would have.

There is still controversy over the existence of cancer stem cells themselves (in large part due to the definition itself), although the concept of CSCs has been gaining traction. Stemline has also seen successful data up to this point – especially with its two biggest indicatons.

Forward Notes
Going forward, we should see serious interest in SL-401, and STML due to its very strong post-IPO performance. Biotech investors have also been very interested in quality blood cancer drugs this year, which has bumped up the valuation of some of the larger biotech names in recent months. This bodes well for Stemline and other companies targeting rare cancer indications, and especially those with novel approaches.

Investors should also not forget about less often discussed program SL-701, which targets glioblastoma multiforme (GBM) and other gliomas (brain cancers) and is approaching late-stage development as well.

SL-401 should enter pivotal (late-stage) trials in 2014 – in accordance with the company’s expectations. Clarity on a potential accelerated approval for the drug (in BPDCN) could be provided soon.

Stemline is no longer the relatively unknown oncology developer that I wrote about in my first note, although very substantial (“triple-digit”) upside potential certainly remains given that SL-401 and/or SL-701 succeed in pivotal trials.

Notes on Biotech Risk:
Investors should realize that unprofitable biotechnology companies in the development stage experience particularly high volatility, are speculative, and do hold significant risk for loss of wealth. Investors believe that the company’s valuation will increase more over time than the rate at which the company will burn cash, which is why the high risks are taken.