Healthcare Business

Can MEI Pharma Survive?

Biotech and pharmaceutical companies live and die by the sword of innovation, or specifically, by clinical trials that test new drug candidates. A successful trial can mean a boom in the stock price, while inconclusive or negative results can bust the stock. MEI Pharma Inc. (NASDAQ: MEIP) announced results from one of its studies, and the stock cratered as a result. Now analysts are making their calls on where the stock looks to go from here.

Monday, MEI released top-line data from its randomized Phase 2 clinical study of its investigational drug candidate Pracinostat in combination with azacitidine in patients with previously untreated intermediate-2 or high-risk myelodysplastic syndrome (MDS). The study consisted of 102 enrolled patients at 19 sites in the United States.

Unfortunately, according to the top-line data, the results showed no difference in the rate of complete remission, the study’s primary endpoint. Data from event-driven endpoints, including duration of response, event and progression free survival and overall survival, will require a longer follow-up in order to achieve meaningful conclusions.

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No new or unexpected toxicities were observed in the study, but in fact, fatigue, gastrointestinal toxicities and myelosuppresion occurred more frequently in the combination group and resulted in a higher rate of drug discontinuations, compared to azacitidine alone.

The market cap nearly imploded — down to $64 million from the previous level just over $200 million. A drop of this magnitude would lead many investors to wonder if the company can recover.

Cash and cash equivalents were recorded at $23 million on the balance sheet, along with short-term investments at $55 million, totaled roughly $79 million for MEI’s total current assets at the end of December 2014. This increased for the most recent quarter, but prior to this, it has steadily been declining on the year.

Merrill Lynch cut the rating to Neutral from Buy with a new price target of $3.00. At the same time, the firm lowered its probability of approval for MEI to 10% from 40%. It said that the acute myeloid leukemia (AML) Phase 3 start is likely delayed, considering tolerability issues in the MDS study. The firm believes that MEI could delay the start its Phase 3 trial in newly diagnosed elderly patients with AML until it can better understand the data around the MDS study. Merrill Lynch’s report said:

Given tolerability issues in the MDS study and questions about optimal dose/schedule for pracinostat, we believe MEI could delay the start its phase 3 trial in newly diagnosed elderly patients with AML until it can better understand the data around the MDS study. We have not changed our 50% likelihood of approval in AML and still model a 2019 US launch.

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Here is the problem: With such a small company and a low cash balance, how can investors consider this company’s ability to fund itself for another four years after this setback?

Wells Fargo downgraded MEI to a Market Perform rating from Outperform, with a price valuation range of $2.00 to $2.25 from the previous range of $10.00 to $11.00. The firm also assumes a later Phase 3 start, at least six months delayed, while MEI continues to analyze the Phase 2 data. Wells Fargo detailed in its report:

Similarly after MEIP’s ongoing analyses of MEI-003, a path forward in 1st-Line MDS may exist with Overall Survival (OS) as the primary Ph. III endpoint, but until MEIP has more mature OS, Progression-free Survival (PFS), safety, and complete remission (CR) data later in the second half of 2015 it is hard to ascribe any value to P/V in MDS at this time, in our view. As a result of these factors and a number of clinical/product profile questions that remain for P/V in both AML and MDS, we believe MEIP’s shares are likely range-bound in the near-term.

On Monday, shares of MEI fell about 69% to $1.93. That drop was on a whopping 28 million shares, when the average volume is closer to a million shares. Tuesday’s trading had shares up 3.3% at $2.00 shortly after the open. Anything is possible, but that does not sound like the world’s greatest conviction of a big bounce.

MEI Pharma has a 52-week trading range of $1.87 to $13.98. Keep in mind that Monday was the day that the 52-week low was hit, and shares had been at $6.30 on Friday’s closing bell. This took the stock lower than the low seen in 2012.

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