Captain Kirk Likes Ziopharm

Biotech play Ziopharm Oncology (ZIOP: Nasdaq) rallied nicely at the start of the year, but fresh concerns around the cash burn have disgorged those gains. Despite the obvious risks of further dilution, we still see solid upside for this stock and are reiterating our Buy rating.

As a quick recap, successful biotech CEO and investor, Randall Kirk, inked a deal with Ziopharm through his privately-held  Intrexon last January. The deal gave Ziopharm the rights to Intrexon’s DNA-based UltraVector Technology to help it produce anti-cancer effectors, in exchange for paying Intrexon 50% of net profits derived from the collaboration. Intrexon also got a tidy 3.6 million shares of ZIOP. To boot, Intrexon agreed to invest up to $61.6 million in new Ziopharm shares.

The recent pullback in ZIOP is likely the result of Investors reacting to the fact that R&D spending is now running at a higher pace. R&D has moved up from $5 to $8 million per quarter, into the $12-14 million range. Still, for a company with roughly $150 million in the bank, the cash burn is hardly cause for alarm. The fact that cash constitutes almost half of the company’s market value implies a technology value of just $170 million for the company’s pipeline.

Ziopharm addressed the progress of its clinical pipeline in its quarterly press release, and frankly, there is no news to spur upside for ZIOP in the near term. Efficacy data are largely in-line with past results, and the timing of any potential final FDA submissions is not clear at this point.

So a year after entering this intriguing biotech play with few imminent catalysts, the description of ZIOP remains disappointingly unchanged. But as we found out recently with our huge biotech win in Threshold Pharmaceuticals (THLD: Nasdaq), positive catalysts (like partnerships) can arise without warning. And we remain convinced that a positive catalyst is much more likely than a negative one for ZIOP. Mr. Kirk obviously does as well judging by the additional $10 million purchase his Intrexon made on January 20th as ZIOP fetched $5.20 a share.

For investors who can handle a high-risk/high-reward biotech position, ZIOP is a Buy.

To view ZIOP’s insider history, Click Here.


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