When investing in biotech companies, I try to find undervalued companies with low-risk upcoming catalysts. For example, several months ago when Medivation (NASDAQ:MDVN) was trading at a 52 week low and all the analysts were downgrading the stock I wrote an article detailing why they would soon be getting offers from large pharma to be acquired. In accordance, last week it was released that both Sanofi (NYSE:SNY) and AstraZeneca (NYSE:AZN) have been in discussions to buy the company, sending the stock up nearly 100% from its lows.

Having seen the updated Pracinostat overall survival data in elderly Acute Myeloid Leukemia (AML) from MEI Pharma (NASDAQ:MEIPpresented at the recent Needham Healthcare Conference, I believe this is another opportunity to buy a severely undervalued stock with a good chance of doubling your money.

To put the potential of MEI Pharma’s Pracinostat into perspective and how much investors could make by investing today one needs to look at the recent reaction to Celator Pharmaceuticals (NASDAQ:CPXX) VYXEOS results in AML patients. First to be clear, VYXEOS and Pracinostat are targeting two different elderly AML markets. VYXEOS is for individuals who cat tolerate chemotherapy while Pracinostat is for a much sicklier population who cannot tolerate chemotherapy. Therefore, one would expect the complete response (NYSE:CR) rate and survival for VYXEOS to be much better than Pracinostat, but shockingly that is not the case. The Phase 3 data for VYXEOS revealed a CR rate of 37% and median OS of 9.6 months. Although Pracinostat is just entering Phase 3, the Phase 2 data illustrated a CR rate of 42% and median OS currently over 16 months (approaching 19 months now).

*Slide from Needham Healthcare Conference, April 12th 2016

Even when looking at just the high-risk population in the Pracinostat trial the median OS is 13.3 months. The big difference here is VYXEOS data is based on a Phase 3 placebo controlled trial while Pracinostat Phase 2 was an open label trial. Regardless, MEI Pharma’s Phase 2 data to date is better than anything ever released for this patient population and certainly warrants Phase 3 initiation. Notably, since the recent release of the Phase 3 data, Celator is up over 1000%.

Risk Level is Low

The risk level for investing in MEI Pharma is low with a market cap of only ~$50M. In addition, we already know the median OS data for Pracinostat is approaching 19 months and the stock should see a nice boost once released. What really strikes me from the data released is the strong correlation between CR and OS with 86% of patients who experienced a CR still alive, some longer than 2 years.

*Slide from Needham Healthcare Conference, April 12th 2016

With the majority of CR occurring early in treatment, clinicians could select fairly rapidly who should remain on treatment. Although one would not know from the market cap, MEI Pharma has a pretty nice clinical pipeline that has been progressing nicely including the novel mitochondrial inhibitor ME-344 and PWT143, a PI3K Delta Inhibitor in clinical trials. Financially, the company is well established with no debt and over $50M in cash on hand. The company is trading at cash level. Analysts are a bit concerned the company will have to raise cash to progress the Phase 3 clinical trial, but I would expect the shares to be trading in the $2-3 range on release of the Phase 2 final data before that occurs. It is also not out of the question that MEI Pharma will look to partner either Pracinostat or PWT143 to raise additional capital and/or support clinical progression. It’s important to note that last year Cowen analyst Boris Peaker stated

We expect to see survival data at ASH and believe anything beyond 1 year warrants Phase 3 development

With the median OS expected to now reach at least 6 months longer than anticipated, the results are even more substantial. They have even blown away my expectation of 15 months which I predicted in November of last year. I wanted to keep this article short and sweet as I’ve expanded on their pipeline and previous AML data before. Investors looking to invest in a small cap biotech with a nice pipeline, a drug entering Phase 3 with best-in-class data, and trading at cash should invest in MEI Pharma.


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