The Soft Underbelly of ZIOPHARM Oncology

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous so looking for stocks based on what you already know and own might be a path to pursue.

Motley Fool CAPS, the 180,000 member-driven investor community that translates informed opinion into stock ratings of one to fives, helps you focus your attention by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list and then scans stocks picked by highly rated players with lists similar to yours as well as industries in which you currently have active picks and targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Buy what you know
No doubt based on my having weighed in on such biotechs as Arena Pharmaceuticals (Nasdaq: ARNA  ) , Zalicus (Nasdaq: ZLCS  ) , and Dynavax (Nasdaq: DVAX  )  (which I rated to outperform the broad indexes) and Sarepta Therapeutics (Nasdaq: SRPT  ) and Cell Therapeutics (Nasdaq: CTIC  ) (which I saw underperforming them), the CAPS supercomputer thought I also might be interested in ZIOPHARM Oncology (Nasdaq: ZIOP  ) .

It was one of five Stocks of the Day it offered up for my consideration this week along with biotech AEterna Zentaris (Nasdaq: AEZS  ) , health-care services REIT Healthcare Realty Trust (NYSE: HR  ) , life sciences specialist Sigma-Aldrich (Nasdaq: SIAL  ) , and nutritional supplements maker Schiff Nutrition, but they were recently acquired by privately held Reckitt Benckiser, the makers of Lysol, Easy-Off oven cleaner, and Finish furniture polish.

Even though the biotech is targeting an area of cancer treatment that hasn't seen an FDA approval in 30 years despite high need, just remember that, as smart as the CAPS algorithm may be, it's still just an algorithm. So be sure to look before you leap on any of its suggestions.

ZIOPHARM Oncology snapshot

 

 

Industry

Biotechnology

Sector

Health care

Market Cap

$360 million

Revenues (TTM)

$1 million

1-Year Stock Return

3.9%

Return on Investment

(81.4%)

Estimated 5-Year EPS Growth

N/A

Dividend & Yield

N/A

Recent Price

$4.52

CAPS Rating

*****

Source: FinViz.com. N/A = not available; ZIOPHARM doesn't pay a dividend.

Long, hot summer
ZIOPHARM is developing palifosfamide, using a synthetic biology platform that releases powerful immune system proteins that can kill cancer cells. Two years ago, Intrexon took a large stake in the biotech in exchange for it using its delivery system and allowing it to raise its ownership position as studies of the drug went further along. Intrexon CEO Randall Kirk, a 10% owner of the company and a member of ZIOPHARM's board of directors, has continued to buy large tranches of stock. Last year, he dropped $10 million on the company and has bought smaller amounts since.

Palifosfamide is a different avenue for attacking cancer and is aimed at treating reoccurring soft-tissue sarcoma, which are cancers that form in connective tissue. As noted above, the FDA hasn't approved a new treatment for the illness in over three decades, though GlaxoSmithKline (NYSE: GSK  ) won approval from the regulatory agency for its second-line therapy, Votrient.

While ZIOPHARM is seeking to have palifosfamide used as a frontline of defense in the cancer treatment hierarchy, it faces a long and growing list of larger, better-financed rivals from Eli Lilly (NYSE: LLY  ) and Merck (NYSE: MRK  ) to smaller shops such as Threshold Pharmaceuticals (Nasdaq: THLD  ) , which is pursuing TH-302 in fighting multiple types of cancer, and ArQule (Nasdaq: ARQL ).

ZIOPHARM has nothing else on the market right now, and it still has a long way to go before palifosfamide is ready for FDA consideration, so the road it has to travel to financial stability will likely be rocky. It does have other products in its pipeline, but they're really so much farther back in the development process that they can be ignored for the time being.

With some analysts thinking it has at best a 50-50 chance of being successful in achieving its endpoint of progression-free survival, ZIOPHARM Oncology is an exciting opportunity, but one I wouldn't risk putting my money into for now.

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