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2019-10-16 20:41:29

In our most recent article, we focused on Iovance (IOVA), a cell therapy company that in our opinion has consistently generated positive data, has developed a commercializable product and is deploying a de-risked clinical strategy for a clear unmet need. As a result, we saw nearly 100% upside in Iovance's stock.

In this article, we highlight Ziopharm (ZIOP), a cell therapy company that we think represents the polar opposite to Iovance. Ziopharm's history is long and littered with suspended and abandoned programs. The company has not shown an ability to develop a commercial product. Looking at the company today, we believe its three main programs will be proven worthless in time. While we think Iovance can double from current levels, it is our view that Ziopharm represents a compelling short opportunity with 100% downside. Our price target is $0.

Below, we summarize our short thesis for Ziopharm:

Section 1: describes Ziopharm's history as a public company and its extensive list of failed programs and the impact of those failures, includingZiopharm's continued cash burn and repeated shareholder dilutionthe ties its largest shareholder has to a disgraced scientist and claims made by the largest shareholder about the value of Ziopharm's programs that we view as outlandishSection 2: addresses the problems that we see with Ziopharm's approach to the unproven TCR T therapy, includingThe shortcomings and potential issues regarding TCR T that make it different from successful CART T therapiesWhy we believe that Ziopharm's approach to TCRs (both the NIH trial and what we believe is their own internal program) is unlikely to show competitive efficacy, can only address a small market segment, and relies on a manufacturing process that likely makes it unviable as a commercial productKite Pharma/Gilead's little-known competing neoantigen TCR T program that we believe holds much more promise than Ziopharm's programHow investors are likely placing too much hope in Ziopharm's recent hire of Drew DenigerSection 3: discusses Ziopharm's 3rd generation CAR T program and what we see as a risky approach that skips crucial steps which we believe resulted in its current Clinical Hold, one that we think will likely remain in effectSection 4: examines the IL-12 program's history of efficacy, safety, and CMC issues and why we don't believe its new combination approach holds promiseSection 5: walk through our valuation which results in a price target for Ziopharm of $0First section: Ziopharm's shady beginnings; the company's unsuccessful drug development record; and the promotional investor who supports Ziopharm

Ziopharm's history is littered with programs that have failed clinical trials or failed to develop meaningfully

For context, Ziopharm was founded in 1998 and became public by entering into a reverse merger with an OTC-listed company in 2005. In September 2006, Ziopharm shares were up-lifted onto the NASDAQ. We think this should serve as a red flag. Companies that enter the market through reverse mergers often carry greater risk of fraud and tend to be lower quality. In fact, the SEC has issued a Bulletin cautioning investors against reverse mergers and later tightened the rules for reverse merger listings. While we have not uncovered any evidence of fraud, in our opinion Ziopharm is a classic example of a lower quality company.

It is also important to point out that since its founding, Ziopharm has not successfully brought a drug to market. When Ziopharm first came to the market, it aimed to advance its lead assets ZIO-101 and ZIO-201. ZIO-101 was an organic arsenic in development to treat hematologic cancer, and ZIO-201 was a formulation of isophosphoramide mustard in development to treat solid tumors. At the time of its reverse merger, Ziopharm claimed that peak sales for the two products could approach $800 million.

Those peak sales numbers failed to materialize, and the company has spent the last 10 years developing these products with little to show in the end.

While these two products were the first programs to disappoint during Ziopharm's history, they were certainly not the last. A summary of the company's failed attempts at drug development is contained in the following chart.

Ziopharm has consistently burned cash and diluted shareholders

As none of its programs have generated meaningful cash through product sales, Ziopharm has repeatedly issued equity and diluted shareholders. In fact, since the company's up-listing to the NASDAQ in Sept. 2006, Ziopharm has burned nearly $500 mn of cash from operations (source: Bloomberg). Meanwhile, shares outstanding have increased by nearly ~12x (source: SEC filings). Not surprisingly, share performance has been weak. Since the up-listing, Ziopharm shares have lost 16% of their value as compared to the +417% return for the NASDAQ Biotech Index (NBI).

Our research indicates that Ziopharm's largest shareholder has ties to Brian Kaspar, the disgraced scientist who allegedly fabricated Avexis animal data and that the largest shareholder has a history of making statements about the company that we view as promotional

With Ziopharm's history of repeated failures and shareholder value destruction, it's not surprising that Ziopharm lacks significant institutional ownership from established healthcare funds. Nevertheless, we were surprised by its largest shareholder who is a vocal backer of the company. Ziopharm's largest shareholder is White Rock Capital, which is managed by Thomas ( Tom ) Barton.

Tom Barton was an early-stage investor of Avexis and was involved when the company hired Brian Kaspar. Kaspar has been implicated, along with his brother, as one of the two scientists responsible for the data manipulation of Zolgensma, the Avexis gene therapy drug that Novartis (NYSE:NVS) acquired. The FDA has indicated that it is considering pursuing criminal penalties.

Tom Barton also has a history of making highly promotional statements about Ziopharm. For example, in June 2015, Barton told a reporter at the Boston Business Journal that he [Barton] believes Ziopharm will be ripe for an acquisition for as much as $10 billion in the next year-and-a-half. At the time, Ziopharm had a market cap of $1.2 bn. A takeout at $10 bn would have represented an unprecedented 733% premium at the time of the article's publication. Instead, shareholders were rewarded with a 30% drop in share price and underperformance relative to the NASDAQ Biotech Index (NBI) over the next year and a half.

Source: Bloomberg

Tom Barton has mentioned Ziopharm in other interviews and was the source of an article from 2014 when he suggested that the article's author should take a look at Intrexon (XON) and Intrexon cubs such as Ziopharm, Synthetic Biologics (SYN) and Fibrocell Science Inc. (FCSC). Synthetic Biologics and Fibrocell Science both now have market capitalizations of under $30 mn.

In summary, our research indicates that Ziopharm came to the market with an inauspicious beginning, has a history of product development failures and shareholder dilution, and is backed by an investor whom we believe has a checkered history.

Second Section: We believe Ziopharm is taking unproven TCR T therapy and adding additional efficacy, commercialization, and possible safety risks with their approach

Ziopharm investors may not be aware of the shortcomings and potential issues regarding TCR T that make it different from successful CART T therapies

Today, Ziopharm bulls appear to be most excited about their TCR T therapy program. As we detailed in our Iovance article, the success of CAR T therapy in blood cancers was not repeated in solid tumors. Along with TIL therapy, TCR T has emerged as a potential cell-based technology to treat solid tumors. We are strong believers in Iovance's streamlined TIL approach and our research indicates it will likely be the next major revolution in cell-based cancer therapy for solid tumors. While TCR T could emerge as a viable alternative someday, we think Ziopharm is unlikely to be a major player in this market due to its risky approach. Some of these risks are innate to TCR Ts, but we think the major ones are tied to Ziopharm's methods.

For background, TCR T and CAR T therapy follow a very similar approach. In both, patient T-cells are extracted and combined with a DNA sequence that encodes for a protein that is designed to bind with a protein expressed by cancer cells. These cells are then usually expanded (allowed to multiply in vitro) and re-infused back into the patient, where they continue to multiply, detect, and eliminate the cancer.

The primary difference between the CAR T and TCR T approach lies in whether the engineered T cell product recognizes cancer proteins expressed on the surface of the cell (CAR T) or inside the cells (TCR T). Proteins called major histocompatibility complex (NYSEARCA:MHC) class I molecules present internalized proteins to the cellular surface for recognition by T-cells. The TCR T cells then bind with the MHC class I receptor along with the cancer protein ligand that is presented. If the T-cell recognizes the ligand as a foreign cancer protein (i.e., non-self), this is supposed to initiate an immediate response from the immune system against the non-self-antigen-presenting cell. This results in the cell's destruction (hopefully the cancer cell) and a further escalation of the immune response.

While TCR T may be a promising therapy for solid tumors and is similar to CAR T, it's important to note the TCR T approach remains to be validated. Importantly, there are a number of major obstacles that exist today.

1) On-target, off tumor toxicity could be substantial:

TCR T therapy appears to have higher sensitivity to its directed antigen compared to a CAR. While this is good in terms of potential potency, we believe it comes with increased safety risks. If the TCR T target is expressed on healthy cells, the targeting of healthy cells could result in substantial tissue destruction and toxicity. One of the frontrunners for TCR T therapy in the clinic, Adaptimmune (ADAP), has already seen five treatment-related deaths across four early-stage clinical trials; Additional literature has pointed out the extreme care that needs to be taken to ensure cross-reactivity with similar peptides does not occur following the death of a number of animal models.

Ziopharm is attempting to mitigate this risk by targeting its therapy on neoantigens, but there are no guarantees that the neoantigens will not also be expressed by some healthy cells. In addition, as we will go through later, we believe the neoantigen approach carries a risk of being less efficacious, is likely impractical from a manufacturing and cost perspective, and faces regulatory uncertainties.

2) Human leukocyte antigen (HLA) haplotype matching may drastically shrink the commercial opportunity:

The potency of TCR T relies on an interaction between the MHC and the peptides bound to it. In order to work, an off-the-shelf engineered T-cell product must be matched to the HLA alleles (genetic variations of a particular gene) of the patients it is treating to induce efficacy. There are three main HLA classes associated with MHC class I proteins (HLA-A, HLA-B, and HLA-C) and six main HLA classes associated with MHC class II proteins (HLA-DPA1, HLA-DPB1, HLA-DQA1, HLA-DQB1, HLA-DRA, and HLA-DRB1). Additionally, each HLA class has different mutational combinations that are donated by each parent (for example, HLA-A can be further subdivided into HLA-A*0201, HLA-A*0301, HLA-A*2402, among many other combinations of mutational variations of the HLA-A gene).

This is very problematic for TCR T therapy as therapeutic TCR can only be used in patients who express the appropriate HLA alleles. In addition to limiting the population from an efficacy perspective, if HLA alleles are mispaired, we believe patients risk developing potentially fatal graft-versus-host disease (GVHD), which has already been seen in murine models. Based on discussion with industry experts, we believe the FDA is taking a cautious approach initially to TCR T regulation and treating each HLA-matched therapy for each cancer type as a separate drug. This means a full development program would be needed for each HLA subtype in each type of cancer (including full clinical trials).

The end result is that the addressable market for each TCR T therapy is actually quite small given the number of TAM cuts that are needed for each therapy. For example, the most common HLA allele in white populations, HLA-A*0201, still only accounts for roughly 45% of the total white population (importantly, the US is only ~60% white and is becoming more heterogeneous over time).

3) TCRs have difficulty eradicating metastatic tumors because of the immunosuppressive tumor microenvironment:

Tumor cells are known to inhibit the expression of T-cell trafficking signals. Additionally, competition for glucose within the tumor frequently induces a hypoxemic state, thereby leading to suppressed T-cell activation.

We believe Ziopharm's solutions to address the above TCR T problems are likely to come with efficacy, efficacy, manufacturing time, and possible safety trade-offs

To date, Ziopharm has disclosed two main strategies to advance TCR T. The first is a partnership with the NCI to use Ziopharm's non-viral Sleeping Beauty cell therapy platform in creating personalized, neoantigen-directed TCRs. The second is a neoantigen hotspot (KRAS, p52, EGFR) program that appears to be moving forward internally within Ziopharm. Our research into these programs leads us to believe that the strategies are likely to add incremental risk to an already unproven and highly risky approach. As a result, we think Ziopharm's TCR T program is unlikely to work and, therefore, is worthless. Below we describe the basis for our views on these two strategies.

1) A partnership with the NCI for neoantigen-directed TCR T:

An investigator-sponsored trial has been started that is investigating the use of TCRs directed against neoantigens in glioblastoma, non-small cell lung cancer, breast cancer, and gastrointestinal/GU cancer. A neoantigen is a protein that results from a random somatic mutation that occurs in individual tumors and varies both between patients and within patients from time to time. Since this protein is not an endogenous protein normally made under any other circumstance, the hope is that by targeting these neoantigens, the risk of on-target, off-tumor binding can be eliminated.

However, in our view, such an approach would risk trading off substantial efficacy, would be very expensive, and would result in commercially unfeasible manufacturing time with today's technology. In order to identify unique tumor antigens, solid human tumors would require sequencing of the whole genome of each individual tumor in order to identify mutated genes and choose a motif of proteins that are presented by the HLA alleles. Tumor heterogeneity can thus result in mixed results depending on how many mutations the therapy captures when produced, reducing the efficacy potential. Additionally, each therapy is technically unique to the patient, which is problematic as there is no framework within the FDA to evaluate such a drug. This substantially increases regulatory risk in our view. The end result is summarized in neoantigen TCR T review papers that describe a personalized neoantigen approach as representing a massive undertaking for the care of a single patients, at a time when there is an increasing focus on value in cancer care.

Perhaps not surprisingly, Ziopharm has never discussed how such a therapy is even close to being commercially viable. Recall that TIL therapy had remained an interesting academic experiment (but not a commercial drug) for nearly 20 years largely because the vein-to-vein manufacturing process took up to eight weeks before Iovance's innovations reduced this process to approximately three weeks. Based on our conversation with Ziopharm, it is our understanding that the neoantigen screening phase will take 4-6 months (17-26 weeks) per patient enrolled. In other words, this screening process is 5-9 times longer than what is viewed as commercially viable as a vein-to-vein time with both TIL and CAR T therapy. We believe that after factoring in patients who have progressed during the screening process and are no longer eligible or alive to receive therapy, this approach will result in a very low ORR rate on an ITT-basis.

Per clinicaltrials.gov, the trial is expected to enroll 200 evaluable patients across the four tumor types (50 per tumor) in 2-4 years. Since this trial is open-label, we would not be surprised if Ziopharm pushes the NCI to look opportunistically to report early-stage data in order to try and convince investors of the platform's activity. However, unless Ziopharm pre-specifies when the trial readouts will occur, such an approach would confound the unblinded nature of the trial (this happens by continuously looking at the evolving data results until they happen to look interesting and then publishing on that) vs. a true drug effect signal. We believe the institutional biotech investing community will be unconvinced by such an outcome.

To sum it up, Ziopharm's neoantigen-directed approach that is currently in clinic through the NCI may be so specialized and patient-specific that it may not be economic for broad use and may also not be approvable by the FDA. Furthermore, when accounting for patients who progress during the very lengthy screening process, it may not be an effective treatment for aggressive cancer. The first phase 1 trial is expected to take 2-4 years to enroll, which we feel means commercialization is likely a decade away even if Ziopharm's approach is viable.

2) A neoantigen hotspot trial that we understand will be developed internally by Ziopharm:

Few details are known about how this trial will be designed, but we believe the theory is relatively straightforward. There are certain mutations that are associated with a number of different cancer types that produce a neoantigen, such as KRAS, p53, and EGFR. Ziopharm appears to be attempting to develop a TCR product directed against these neoantigens hotspots. We believe Ziopharm will face the same substantial challenges that we detailed above regarding neoantigens generally. Solid tumors are highly heterogeneous, so the expressed neoantigen may actually only be a percentage of the total tumor burden of the patient and thus TCR T may have limited efficacy in such a patient.

Furthermore, HLA alleles, as described earlier, would significantly reduce the total addressable market for each individual therapy if the company proceeds with developing these drugs using an off-the-shelf approach. A TCR T expert that we spoke with believes that the largest HLA haplotype (group of alleles inherited from a single parent) for KRAS (HLA-CW8) represented only ~10% of all U.S. patients with a KRAS mutation. Ziopharm bulls may not realize that this approach will likely result in a small market opportunity.

Another obstacle for Ziopharm arises because the development of a drug to target neoantigens such as KRAS has been notoriously difficult. Initially hyped expectations are now being tempered by more mature data with the risk that follow-up confirmation scans may further reduce ORR. Therefore, there is a high risk that Ziopharm will not be able to successfully design a product that reproducibly engages the KRAS binding pocket, or that the efficacy of targeting KRAS may disappoint relative to what we see as current lofty expectations.

Lastly, while the neoantigen approach to TCR T is designed to improve the safety profile of the product, the safety profile of this general approach is still an unknown, as is Ziopharm's specific product. In summary, we view this program as very unlikely to succeed and do not believe a program that has publicly disclosed so few details at such an early-stage of development should warrant any value being ascribed to it.

Ziopharm investors may not be aware of what we believe is Kite Pharma/Gilead's superior approach to TCR T

We believe Ziopharm will face stiff competition from competitor programs if the general TCR T approach is eventually validated. In particular, we would note that Kite Pharma/Gilead (GILD), the manufacturer that developed Yescarta, has an exclusive license with the NCI for the use of TCR-based product candidates directed against MAGE A3 and A3/A6 as well as an exclusive license from Steve Rosenberg's lab for TCR Ts targeting neoantigens. We believe many investors in Ziopharm are completely unaware of the viral-based neoantigen program that is currently in development at Gilead and that directly competes with Ziopharm's TCR T program. We believe Kite/Gilead's viral approach is well-established and could easily leverage the entire validated Kite/Gilead cell therapy development platform.

While Ziopharm loves to highlight its relationship with the Rosenberg lab, we believe the relationship between Rosenberg and Kite/Gilead must be much closer given Kite helped brandish Rosenberg's legacy by commercializing his CAR T approach, and since their formal partnership has lasted since 2012. This is in comparison to Ziopharm's relationship with TCR T that began in 2017 and is still in very early stages of development.

In terms of execution, we believe it's no contest on whether investors should bet on Ziopharm (who has not been able to get a product to market) vs. Kite/Gilead (who successfully developed and marketed Yescarta, along with many other blockbuster drugs) if they desire TCR T exposure.

Source: Zhang et al. 2019

In the end, a combination of very high clinical and execution risk, direct competition from validated cell therapy platforms, and manufacturing/commercial uncertainty leads us to ascribe $0 of value to the Ziopharm TCR T program.

Ziopharm investors may be placing too much emphasis on the company's hiring of Drew Deniger

Ziopharm bulls have pointed to the company's hiring of Drew Deniger as a significant positive, but we think bulls may have gotten over their skis. Before market open on July 3rd, 2019, Ziopharm announced the hiring of Dr. Drew Deniger to direct Ziopharm's TCR-T program. The announcement added $100 mn of market cap to Ziopharm's stock that day, and bulls have pointed to Deniger as a key hire and compared him as an heir to the Rosenberg lab and even claimed that he could win a Nobel prize:

While we recognize that Drew has research experience in cell therapy and worked with Steve Rosenberg, we believe bulls place far too much value on the hiring of him than they should. Deniger was still very early in his academic career when he was hired as head of Ziopharm's TCR T program. As far as we can tell, he has never held an academic professorship position of any kind. A search on Pubmed yields 15 total publications of which he's been an author, and 8 first author publications after spending 13 years in academic research (seven as a graduate student at MD Anderson and six as a post-doc fellow at the NCI). This is compared to a search of Steve Rosenberg which yields 654 publications.

Third Section: We believe Ziopharm's 3rd generation CAR T program is a misguided science experiment

Our research leads us to believe Ziopharm's non-viral approach may carry significant safety risks

While investors are most excited about Ziopharm's TCR T program, some seem to still cling to hopes that Ziopharm's earlier CAR T program will bear fruit. Despite an FDA clinical hold that has been ongoing for over a year, investors hope that the Clinical Hold for the 3rd generation, point-of-care CAR T program will be resolved and that the new Investigational New Drug (NYSE:IND) application in later stage cancers will save the program.

We think these hopes are misplaced. Instead, we anticipate Ziopharm's CAR T program is likely to fail to materialize into a meaningful, active program and will be discontinued.

First, we believe there are efficacy and safety issues inherent to Ziopharm's non-viral CAR T approach. Investors may not realize that Ziopharm's Sleeping Beauty point-of-care approach to CAR T has never been clinically validated.

In contrast, the CAR T viral vector approach as a treatment for blood cancers has been validated through the clinical success and approval of both Yescarta and Kymriah. It's important to understand the differences in the approaches. We believe a good starting point to understanding the risks to the Ziopharm CAR T program comes from knowing the six main manufacturing steps to the FDA-approved CAR T therapies, as seen in the chart below.

While approved CAR T therapies offer a highly efficacious option for patients with blood cancer, the logistical complexities of manufacturing and administering CAR T therapy (i.e., steps 2-4 in the above chart) have been a headwind to broad use. Manufacturing time (also known as vein-to-vein time) of Yescarta is ~17 days, and Kymriah is ~22 days. Many people believe that shorter vein-to-vein times would improve efficacy and commercial success as long as CAR activity is not sacrificed.

Ziopharm claims its non-viral approach can reduce the manufacturing time to less than two days and offer a point-of-care offering. This is also sometimes referred to as the third-generation CAR T program or Rapid Personalized Manufacturing (RPM) process by the company.

While this may seem impressive on the surface, the details of how Ziopharm reduces the traditional CAR T manufacturing method to a two-day process are highly concerning to us. It appears that Ziopharm shortcuts at least two of the six steps in the viral CAR T process that is currently used:

Ziopharm's Sleeping Beauty system replaces the viral vector delivery method with a transposon/transposase system and electroporation. While this is cheaper than viral vector methods, based on our discussion with industry experts it can be a traumatic process that results in greater cell death, reduced yield, and a potential thrombosis safety concern from cellular debris in a population already at substantially elevated risk of clotting. This is particularly important given point number two;Based on discussions with cell therapy experts, we believe cell replication cannot be substantially accelerated relative to on-market Yescarta/Kymriah methods and that the quality control release is a gating 10-day process. Therefore, it appears to us that Ziopharm does not perform a cell expansion phase. Instead, we believe the company infuses the CAR T product back to the patient and hopes that it will lead to sufficient cell expansion inside (in vivo) following injection of the product. This is supported by a statement in the company's 10-K that indicates the 3rd generation product reduction in time is primarily achieved by skipping the culture (and apparently the quality control check) phase of development:

Additionally, we believe Ziopharm may also be attempting to eliminate the lymphodepletion portion of the CAR T process, which we think also poses risks by reducing the ability for the CAR T cells to propagate appropriately in vivo:

We believe this is a very risky approach to CAR T. As the cell transformation process is never 100% efficient, cell expansion allows for the enrichment of CAR+ cells and therapeutic dosing of T-cells. This also enables a rapid in vivo (in person) expansion that peaks at roughly 14 days post-infusion.

While Ziopharm may save up-front time by electing not to expand the T-cells ex vivo (outside the body), we think this will almost certainly be offset by a longer in vivo expansion period. This also may not allow the drug to reach the peak CAR T concentration levels that are achievable with the on-market CAR T therapies. Efficacy may be further hindered if the lymphodepletion step is removed from the process as lymphodepletion is through to support T-cell engraftment by depleting populations of suppressive T regulatory (Treg) cells and eliminating competition for IL-7, IL-15, and IL-21. While Ziopharm attempts to circumvent the lymphodepletion step by tethering IL-15 onto the T cell's membranes, we see this as an unvalidated approach that may not be as effective as suppression of Tregs via administration of lymphodepleting agents such as cyclophosphamide and fludarabine (cy/flu). Due to these issues, we do not believe the patient will achieve CAR T activity that is equivalent to Yescarta and Kymriah.

Ziopharm's 3rd generation CAR T program remains on FDA Clinical Hold, perhaps due to the issues we highlighted above

We view FDA's decision to place the CAR T program on clinical hold on June 18th, 2018 due to poor cell viability as validation of our views. While Ziopharm has referred to this as a hold relating to the chemistry, manufacturing and controls (CMC), we think it is likely related to patient safety. We believe a product below the 70% viability threshold would not only trigger ethical concerns about injecting a product that may not have enough live cells to result in meaningful activity, but also that cellular debris caused by the dead cells could pose as a risk for potentially life-threatening occlusion and thrombosis (blood clots) especially in cancer patients who already have an extremely elevated risk of thrombosis.

In fact, we believe FDA makes it crystal clear in a regulatory consideration slide deck that unreasonable or significant risk of illness or injury is the driver for IND holds in cell therapy. Based on our discussions with industry experts, we understand that these two on-market competitors are well above 70% cell viability. In fact, we know that Yescarta production is 97% on-specification. Therefore, even if Ziopharm is able to consistently reach the 70% cell viability threshold, it certainly does not ensure that it will have a product with competitive safety and efficacy relative to existing on-market options. In fact, we believe the company's decision to pursue this CAR T strategy will result in an inferior product if it is ever able to obtain approval.

Based on Ziopharm's 2Q19 conference call, Ziopharm now claims it understands how to produce T-cells to reach the 70% viability threshold. Note that the company states only that it believes it knows how to do it and not that it has consistently achieved this important milestone.

Furthermore, Ziopharm's recent actions to move the CAR-T program into what we view as sicker patients suggest problems remain. The company is now highlighting a new IND for donor-derived CAR T therapy in transplant failure patients, specifically in patients who have relapsed with CD19+ leukemias and lymphomas.

Ziopharm bulls claim this is a signal that the company has improved the manufacturing process to meet the FDA's threshold for releasing the clinical hold. We disagree. We think the company is attempting to move its CAR-T program into a sicker patient population where the FDA is more lenient with regards to safety risk and that the company has not addressed the potential underlying safety issues behind the clinical hold. Additionally, this patient population represents a significantly smaller market opportunity than the 3rd generation CAR T trial that is on clinical hold. Therefore, while we're aware some investors may view this IND clearance as a positive signal for the 3rd generation program coming off hold soon, we believe they are entirely independent events.

Finally, the new IND is for donor-derived CAR T therapy, which we believe is very risky and poses its own unique safety concerns. By pursuing an allogenic approach with patient-derived cells, we think Ziopharm will now be faced with risks of inducing graft vs. host disease (GVHD), CAR T rejection, and off-target cleavage with gene editing that could result in oncogenic mutations of the T-cells.

Fourth Section: Our research indicates significant problems with Ziopharm's brain cancer IL-12 program, which has encountered significant setbacks in easier to treat cancers

Ziopharm tried the IL-12 program in melanoma and breast but stopped due to what we believe were efficacy and safety concerns

Our final section addresses Ziopharm's IL-12 program. Ziopharm has been working on the IL-12 program since at least 2014. To date, the program consists of all phase 1/2 programs and the data has been underwhelming in our view. Still, some investors believe the IL-12 program holds much promise. Below, we will describe the history of the program and reasons we do not place any value on IL-12.

The Ziopharm IL-12 program is an adenoviral vector for IL-12 expression that is controlled via an oral activator. While originally designed to treat melanoma and breast cancer, these programs were discontinued in these indications following what we believe to be unacceptable efficacy/safety profile in phase 2 studies. When the company announced plans to discontinue melanoma and pause the breast cancer program at a banking conference in early 2017, the company cited that the primary driver of its decision was introduction and approval of highly promising new single and combination agents.

In effect, the company admitted that it didn't believe the IL-12 program in melanoma and breast cancer was competitive enough to pursue development in light of emerging competition and the new standard of care. However, we believe a safety issue also played into the decision, since 6 of the 9 breast cancer patients developed dangerous cytokine release syndrome. We believe the combination of a lack of efficacy versus standard of care and safety issues deep sixed the melanoma and breast cancer programs.

We believe the IL-12 program's focus on recurrent glioblastoma multiforme is likely to fail

Ziopharm then pivoted toward the backup indication of recurrent glioblastoma multiforme (rGBM) as the lead IL-12 program. We believe the reasons why GBM was reserved as a backup indication is clear. First, Ziopharm saw GBM as by far the smallest market for IL-12, as seen in investor presentations from 2014.

Second, GBM is an exceptionally difficult-to-treat cancer that has resulted in a large number of phase 3 failures even when earlier data has been positive. In fact, a recent study found that between January 2005 and December 2016, of eight completed phase 3 trials, only a single trial reported a positive outcome and implied a high degree of risk when trusting early-stage open-label data in GBM.

As a base case, we believe investors' risk adjustment to any GBM trial should be exceptionally high. Moreover, Ziopharm's IL-12 program should be viewed as even riskier since it previously failed to show a favorable risk/reward in easier-to-treat cancer.

In fact, the difficulties in GBM have already been seen in the IL-12 program. Despite originally licensing the IL-12 technology in 2011 and starting preclinical development in June 2013, the monotherapy GBM program has only managed to advance into phase 1. In fact, the monotherapy program was in phase 3 at one point; however, a CMC issue forced the program to be placed on an indefinite hold. As a result, Ziopharm reverted back to testing the drug in phase 1. We think this is yet another example of how Ziopharm hyped up a potential opportunity only to miss on execution.

We do not believe the IL-12 combination program holds much promise and may be unsafe

The most advanced IL-12 trial in Ziopharm's pipeline is a phase 2 IL-12 + Libtayo combination study for rGBM. The company is also running an rGBM + Opdivo trial and a monotherapy rGBM expansion study as well, but they're earlier stage programs. Both Opdivo and Libtayo are PD-1/PD-L1 inhibitors. Opdivo has failed to show any meaningful efficacy in three separate GBM clinical trials (here, here and here) and we believe there is little reason to think it will contribute any meaningful effects for the combination study with IL-12. In fact, we believe it may increase the risk of patients experiencing difficult-to-manage and/or life-threatening cytokine release syndrome which has already been observed at the moderate and high doses of Ziopharm's IL-12 monotherapy program and the breast cancer program.

Lastly, Ziopharm administers its IL-12 for rGBM through an intratumoral injection into the brain. We believe this carries substantial risk because solid tumors are associated with angiogenesis (in fact, drugs that inhibit angiogenesis are effective cancer treatments) and blood hemorrhaging from a trauma-induced injury (such as that from an intratumoral injection) is toxic to brain tissue. Thus it is clear to us that an injection directly into highly vascularized tissue within the brain carries with it, in our opinion, a high degree of risk. Indeed, this risk is not theoretical but was previously observed when a patient who was injected with Ziopharm's IL-12 died from an intracranial hemorrhage (bleed).

Given what we see as unresolved CMC issues in rGBM in addition to the clinical risks associated with the ongoing trials, we do not believe the IL-12 program is worth anything.

Final section: Valuation

We value Ziopharm on a sum-of-the-parts basis. Given what we see as an exceptionally risky and commercially challenging path for the TCR T program that Ziopharm is currently running, we assign a risk-adjusted valuation of $0 for the program.

Due to the clinical hold for cell viability on CAR T that appears may never be lifted and, even if lifted, will likely result in an uncompetitive product, we assign a risk-adjusted valuation of $0 for the program.

We see the IL-12 program as being progressively deprioritized with early data that suggests little efficacy yet carries the risk of an intratumoral injection into the brain. We assign a risk-adjusted valuation of $0 for this program as well.

At the end of 2Q19, Ziopharm had roughly $51 mn in cash on hand and negligible debt and we model $104 mn pro-forma cash with runway out to early 2022 at current burn rates (though we see this going up with additional trials starting soon).

Ziopharm bulls like to point to the forfeited Ziopharm Series 1 convertible preferred stock owned by Intrexon as a positive for Ziopharm's balance sheet. We actually think this is a negative since it scaled back their partnership and reduced partnership money inflows from Intrexon. In essence, it left Ziopharm to fund the development of the IL-12, CAR, and TCR programs itself, which increases cash burn at the company. We believe Intrexon likely gave up its preferred stock in Ziopharm, which had a 12.7% annualized dividend rate, and its share of the operating profits that would have been produced from a successful commercialization, because Intrexon didn't think the costs of funding the development would pay off. Instead, Intrexon offloaded the funding requirements to Ziopharm.

We believe the current cash balance will be fully spent to further all three of these programs, yielding a price target of $0 per share.

Disclosure: I am/we are short ZIOP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am/we are long IOVA.I am/we are short XON.


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