Ziopharm Oncology Inc. (NASDAQ:ZIOP) shareholders have been on a roller coaster ride this year. The stock soared 16% in May, but the ride promptly went downhill in June, with the biotech's share price dropping more than 10%. The first four months of 2018 featured more of the same up-and-down action.

But does the latest pullback present a great buying opportunity? Or are the risks for Ziopharm too great? Here's what you need to know in determining whether or not to buy this small-cap biotech stock.

Scientist holding test tube with icons related to drug research displayed in foreground

Image source: Getty Images.

Potential

Ziopharm is unusual to some extent for a small biotech in that it has two different drug platforms. The company's most advanced platform focuses on controlling interleukin-12 (IL-12), a protein made by white blood cells that Ziopharm calls the "master regulator of the immune system."

The lead candidate -- actually, the only candidate -- in Ziopharm's controlled IL-12 platform is Ad-RTS-hIL-12. While the drug's name doesn't exactly roll off the tongue, the company thinks its controlled IL-12 therapy has tremendous potential. In earlier testing, Ad-RTS-hIL-12 showed promise in turning cold tumors hot. The immune system attacks cancer cells in hot tumors but doesn't do so in cold tumors. This means that controlled IL-12 could help turn the body's immune system into a weapon to fight cancer.

Controlled IL-12 has significant potential in treating brain cancer. Ziopharm is evaluating Ad-RTS-hIL-12 as a monotherapy and in combination with Bristol-Myers Squibb's Opdivo in treating glioblastoma multiforme (GBM), the most aggressive type of brain cancer. Around 70,000 new cases of GBM are diagnosed each year across the world. 

The biotech's other platform has an easy-to-remember name: Sleeping Beauty. With this platform, Ziopharm hopes to engineer T cells to fight cancer at the point of care.

Current chimeric antigen receptor T cell (CAR-T) therapies require T cells to be modified using gene therapy and multiplied outside the patient's body. Ziopharm's goal with Sleeping Beauty is to eliminate the need to grow T cells outside the body. This would speed up the treatment and reduce the cost.

Sleeping Beauty currently includes two clinical-stage programs: a CAR-T therapy, and a T cell receptor (TCR) therapy. Ziopharm is working with Intrexon, Germany-based Merck KGaA, the National Cancer Institute, and the University of Texas MD Anderson Cancer Center on these programs.

The biotech expects to begin phase 1 clinical studies of its point-of-care CAR-T therapy targeting treatment of CD19-positive leukemia and lymphoma in the second half of the year. Enrollment is already underway for a phase 1 study of its CAR-T therapy targeting treatment of patients with acute myeloid leukemia that expresses the CD33 protein.

Problems

As promising as Ziopharm's platforms are, achieving success is easier said than done. The biotech has already run into one major problem. Ziopharm stated in early May that it was "pausing plans" for a pivotal phase 3 clinical study for its controlled IL-12 therapy. The company has to resolve some technical manufacturing issues before moving forward. 

Historically speaking, the odds of success for the Sleeping Beauty platform are really low. From 2006 to 2015, only one out of every 20 cancer therapies entering phase 1 clinical studies went on to win regulatory approval, according to a Biotechnology Innovation Organization report

There's plenty of pessimism about Ziopharm's chances. Over 28% of the stock's float is currently sold short. That reflects some big bets that the stock will continue to go down rather than move higher.

Some of that negativity could be more related to finances than clinical prospects. Ziopharm reported cash and cash equivalents of $51.1 million at the end of March. The company thinks that amount will fund operations into Q2 2019. However, Ziopharm won't be able to wait until then to raise more cash. That means it's highly likely, if not inevitable, that the company will issue more shares, which would dilute the value of existing shares. 

To buy or not to buy?

I think that Ziopharm's pipeline is intriguing and could have tremendous potential down the road. More effective treatments for brain cancer are sorely needed. Controlled IL-12 holds the promise of extending survival for patients with GBM. Ziopharm's point-of-care therapies could be game-changers if they're successful.

The reality, though, is that there's a long way to go -- and Ziopharm doesn't have enough cash to reach the finish line. My view is to cheer for the biotech's success on the sidelines until after the next dilution-causing stock offering and we see what happens with the pivotal study for Ziopharm's controlled IL-12 therapy. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.