Actinium: Scarcity Value After Bayer Takeout Of Closest Peer

Actinium (OTCQB:ATNM) has received some more interest since my last article on October 15th, and has continued to put out impressive data, which combined with the recent offer by Bayer (OTCPK:BAYZF) for $2.4 billion on Algeta ASA (OTCPK:ALGZF), the other alpha emitter cancer therapy company, on November 26th, likely indicates the company has compelling prospects ahead.

Recent Corporate Updates

Its corporate update revealed that Iomab-B is ready for its pivotal Ph-III ahead of its BLA. As reviewed elsewhere, Actinium intends to enroll 150 patients into the study, with 75 patients in each treatment arm. One arm will use Iomab-B to prepare patients for the transplant, while the other will receive agents that are currently used.

The company is looking for a statistically significant improvement in complete response rates with a 6 month duration, and 1-year overall survival will also be measured as a secondary endpoint.

Iomab-B will be tested as a conditioning agent to prepare relapsed/refractory AML patients for bone marrow transplantation. Because the company is currently targeting older patients that cannot tolerate traditional conditioning regimens, patients enrolled will be age 55 and up. The bone marrow transplants will be from donors who are HLA-matched - significantly reducing chances of incompatibility complications such as graft-versus-host disease (GVHD), where implanted marrow recognizes the host recipient as foreign and subsequently generate an immune response, injuring the host instead of having intended therapeutic effect.

Bayer Offer

Algeta is a Norwegian company that discovered Xofigo for castration-resistant prostate cancer, and partnered with Bayer to expand the latter's growing portfolio of cancer therapies. Algeta received an offer from Bayer for $2.4b (336 Norwegian kroner) to buy out the company. The deal would make good sense for Bayer, which has been steadily building up its oncology work. The cancer division at Bayer includes a partnership on Nexavar and the second-generation therapy Stivarga, now managed by Amgen (AMGN) following the Onyx buyout. When Algeta signed its $800 million collaboration deal with Bayer 4 years ago, the savvy Norwegian company kept its hands on co-promotion rights in the U.S. while carving out a royalty stream from Bayer.

As reported on Bloomberg and elsewhere, Bayer is funding some medical trials for Algeta's medicine Xofigo, and buying Algeta would mean it doesn't need to share profits or pay royalties on the medicine. Algeta said in March that there was broad industry interest in its thorium-227 technology. Thorium-227 is an alpha-particle emitting element that can be linked to monoclonal antibodies to create localized tumor-killing cancer treatments. Algeta is working with Sanofi, Ablynx NV, Affibody AB and Immunomedics Inc. in studying their monoclonal antibodies linked with thorium-227.

Catalyst Pathway

From here, can expect that the trial will enroll throughout '14, complete in '16, and then look for FDA approval in 2017. One may also expect an update at the ASH annual meeting in 1 month on the Actimab-A product potentially.

As far as the Phase III trial, management has estimated the costs of $15-20mm. While the trial is indicated for AML, based on prior data, clearly utility may be demonstrated for other indications such as Acute Lymphoblastic Leukemia, Hodgkin's Disease, Non-Hodgkin Lymphoma, or Multiple Myeloma.

Corporate Background

Actinium is a biotech developing innovative targeted payload immunotherapeutics for the treatment of advanced cancers. Actinium's targeted radiotherapy is based on its proprietary Alpha Particle Immunotherapy platform, which is is a highly potent and selective form of targeted radiotherapy and allows powerful alpha emitting radioisotopes (Actinium 225* or Bismuth 213) to be carried by monoclonal antibodies (mAbs) directly to cancer cells. By virtue of carrying alpha emitters, mAbs bring them directly to cancer cells where alpha emitters can selectively kill the targeted cell. ATNM has 2 drugs in clinical trials: Iomab-A and Actimab-A. Iomab-B is a combination of a mAb and beta-emitting radio-isotope, and is being developed for patients needing a hematopoietic stem cell transplant (HSCT). The drug has completed a Phase I/II trial in bone marrow conditioning for hematopoietic stem cell transplantation (HSCT) in relapsed and/or refractory elderly acute myeloid leukemia (AML) patients demonstrating a clear survival benefit which is potentially curative- i.e. all patients had complete response, 1 year survival at 30% (in acute myeloid leukemia pts vs. 10% normal). It is entering phase III in 2014. The company will be hosting a Webinar on October 15th to discuss its progress with Iomab-B as well.

Its other drug, Actimab-A, is a radioimmunoconjugate combining a mAb and actinium-225 (also for AML). Here too, the drug had good early data, with ph-I showing eradication of leukemia in 67% of pts. For this drug, phase II should read out in middle of 2014.

Updated Risk/Reward: Still Attractive

On the downside, as of 2Q (ended 6/30), the company had $5.6mm in cash on its balance sheet, and is burning about $1-2mm a quarter. With 16mm shares outstanding, cash per share is about $0.40. A downside scenario pegs the stock at about $3, based on the pipeline value, the platform and IP position, and a total market value of $50mm (3 x 16).

On the upside, I think about the market potential as such- with peak year sales occurring 5 years post launch:

1. Iomab-B peak year sales of $500mm in the US for AML, with a 2018 launch (based on phase III starting in '14 and completing in '16)

2. Actimab peak year sales of $300m in the US for AML, with a 2019 launch (based on phase II completing in '14, and phase III starting in '15)

Note that these estimates are well within the overall addressable markets that I outlined earlier- the combined AML market is only $770mm, but the HSCT is >$2b and I am not ascribing any value to the other cancers (as they are not indicated yet), but clearly those numbers are materially larger.

Based on this staggered peak year sales outlook, I ascribe a DCF based 'target' price of about $16, which I think it could hit next year as data comes together. Specifically, as the company announces it is moving into ph-III validated trial in '14 after getting through the FDA meetings, and as it reads out from Actimab data next year (ph-II), I believe that those 2 catalysts should get the stock moving as investors position around data (and improve volume).

As such, it's worth keeping on the radar for now and monitoring the price action & volume to set up into a 2014 trade. With a downside of $2.50 per share and an upside of $15+ per share, it's an attractive time to take a look. Finally, with a takeout of its closest competitor at $1b, clearly there is some scarcity value here.

Source: Actinium: Scarcity Value After Bayer Takeout Of Closest Peer

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCQB:ATNM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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