What: Shares of Ziopharm Oncology (NASDAQ:ZIOP), a clinical-stage biopharmaceutical company focused on developing cancer immunotherapies utilizing chimeric antigen receptor T-cell technology, or CAR-T, shot higher by 27% in June based on data from S&P Capital IQ, following rumors that it could be a potential takeover target.
So what: According to an article from the Boston Business Journal published on June 11, Ziopharm purportedly could be the target of an acquisition of as much as $10 billion within the next 18 months. For added context, that would be about an eightfold increase from where it ended June.
Per Boston Business Journal columnist Don Seiffert, the hiring of a new CEO at Ziopharm, as well as Intrexon (NASDAQ:XON) – Ziopharm has a partnership with Intrexon – sending its company-owned Ziopharm shares to investors as a dividend, raised some eyebrows. The article notes that R.J. Kirk, CEO of Intrexon, had this to say when asked about sending company-owned shares to Intrexon shareholders as a dividend:
"There are other parties for whom a Ziopharm acquisition might be very attractive in the future ... our dividending these shares to our shareholders actually would simplify any such transaction."
Seiffert also spoke to Joe Barton of hedge fund White Rock Capital who had this to say,
"I would say that (Ziopharm) has the ability to control the genes and CAR-T cells in a way that will become the leading technology (for gene therapy). We believe the suite of technology, including the RheoSwitch, is going to be the operating system for controllable, reliable gene therapy."
Barton suggests a buyout potential for Ziopharm of between $5 billion and $10 billion if it were to happen within the next 18 months, or in the "tens of billions" if it happens in a few years. Barton also highlighted the duos' recent deal with Merck Serono, a Merck KGaA subsidiary, as another valuation catalyst.
Now what: Although Ziopharm clearly has a lot working in its favor, the true reason behind its June run-up is merely a rumor that it could be an acquisition target at some point. And as we all know, betting on a buyout is rarely, if ever, a smart investing decision.
On paper Ziopharm and Intrexon's cancer-fighting technology looks like a first-in-class winner. But, Ziopharm has but a single mid-stage compound (Ad-RTS-IL-12 for breast cancer) and a two phase 1 studies -- one focused on B-cell malignancies, and the other patients with glioblastoma, an aggressive form of brain cancer. Everything else cooking in Ziopharm's pipeline is preclinical or discovery in nature. Long story short, Ziopharm's billion-dollar-plus valuation may already be lofty considering how early in the development process it currently is.
Cash is another concern, although it's not an immediate concern. Because Ziopharm's pipeline is still so green behind the ears, and it's likely years away from generating any recurring revenue, the company's $129.7 million in cash and cash equivalents is only enough to get it through the first-half of 2017. True, that's still two years of cash runway for Ziopharm to prove its worth. However, that's also an overhang that could result in dilutive share offerings for investors.
My suggestion would be to hang tight on the sidelines until Ziopharm's data matures a bit. This way investors can make a more informed decision in this stock.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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