On September 25th, 2019 the MS Money Moves Executive Leadership Team had an hour long conference call with President and CEO of DelMar Pharmaceuticals (Nasdaq: DMPI) Saiid Zarrabian and acting Chief Operating Officer Greg Johnson. The purpose of the call was twofold: 1) To familiarize our team with the story of DelMar and 2) Learn the value proposition DelMar offers investors at its current market valuation. On a follow up 1-on-1 phone call I spent another hour picking Mr. Zarrabian’s brain to gain a deeper understanding of DelMar’s story. In this article I will summarize what I learned and my outlook for the company.
DelMar’s prior operational strategy involving a high cash burn rate and an insufficient focus on near term value accretion priorities has sullied investor sentiments toward DelMar of today. Over the two-years since assuming the roles of President and CEO, Mr. Zarrabian has rationalized the company’s investment and product portfolio, reduced the monthly cash burn rate by over 50%, focused DelMar’s intellectual drug development skills, as well as financials assets, on Glioblastoma Multiforme (GBM), with initial emphasis on the 60%+ of patients grossly under-served by currently approved therapies and identified by well-established biomarkers. The company has also done much to clean up its balance sheet and has zero debt. In addition, Mr. Zarrabian has assembled an elite Scientific Advisory Board, further enhanced the board of directors with added biotech expertise and implemented a feasible plan to transform DelMar from an early stage clinical-stage company to a late stage company with two phase 2 trials nearing completion. Mr. Zarrabian further highlighted key points that we feel partially de-risk DelMar relative to other companies. DelMar is single mindedly pursing treatments for brain cancer (GBM), and in the future, on additional solid tumor indications like platinum resistant ovarian cancer, NSCLC, and DIPG (a very rare pediatric cancer).
DelMar’s lead asset VAL-083 has confirmed biological and tumor effecting activity in GBM. Furthermore, DelMar has exclusive access to the National Cancer Institute’s data from 40+ clinical trials and over 1000 patients in various solid tumor cancers (including GBM and ovarian) enabling utilization of the 505(b)2 FDA regulatory pathway. Since the first-line use of radiation therapy, and the approval of Temozolomide (TMZ, Temodar) in 1999, there have been no advances to meaningfully extend survival rates in GBM, and the situation is even more dire for the >60%+ of GBM patients who possess MGMT-unmethylated diagnosis status. Today’s benchmark of 6.9 months progression free survival (PFS) in newly diagnosed unmethylated patients is set by Merck’s (NYSE: MRK) chemotherapeutic agent TMZ. The lack of any recent breakthrough is not due to a lack of significant effort. This includes big pharma where Bristol-Myers Squibb (NYSE: BMY) recently announced the failure of Opdivo, their immunotherapy drug, and Tocagen, a gene therapy company, who recently announced their Toca 511 and Toca FC didn’t prolong patient survival in the Phase 3 trial in recurrent glioma vs. the standard of care treatment.
Core challenges to treating GBM include the ability of drugs to cross the blood-brain barrier (BBB), and that GBM is an immunologically cold tumor making it far less suitable and more difficult for immunotherapy treatments to be effective. At ASCO in May 2019 DelMar presented compelling phase 2 data evaluating VAL-083 as a first-line therapy in 20 patients (17 were evaluable at this time; 30 patients total are to be enrolled). Investigators saw robust results consisting of 53% Complete Response (CR, 9/17), 41% Stable Disease (7/17, SD), and 6% Progressive Disease (1/17, PD). Updated data in August, 2019 reaffirmed these stats. Of critical importance, 80% (16/20) of the patients enrolled were still alive at this time-point and significant concentrations of VAL-083 was detected in cerebral spinal fluid samples supporting VAL-083’s ability to cross the BBB. Additional data is expected at the Society for NeuroOncology (SNO) 2019 Annual Meeting (November 22nd-24th).
Mr. Zarrabian has launched a 3-pronged strategy aimed at addressing the largest unmet need in GBM- Unmethylated MGMT patients. GBM is an extremely aggressive cancer and all patients eventually relapse with a 5-year survival rate of only 3% given current therapies. Chemotherapies such as TMZ and VAL-083 work by causing damage to the cancer cell DNA preventing replication. The difference is TMZ breaks the DNA strand at the O6 position on guanine, which is easily repaired by the MGMT enzyme, rendering those patients even more susceptible to rapid progression and death. DelMar’s VAL-083 creates inter-strand DNA cross-links at the N7 position of guanine, resulting in double-strand DNA breaks and cancer cell death via apoptosis, which the MGMT enzyme in >60%+ of patients cannot repair. The limited benefit of TMZ in unmethylated patients is validated by the fact that the National Comprehensive Cancer Network (NCCN) updated its guidelines in 2017 to permit withholding TMZ treatment in certain MGMT unmethylated patients, while noting the limited clinical benefit in others. Unfortunately, two-thirds of GBM patients fall in this category. DelMar is seeking to address this unmet need and thus is initially targeting exclusively 3 patient groups with unmethylated MGMT status. This novel approach gives them three shots on goal (newly diagnosed, adjuvant treatment, and recurrent disease) and positions DelMar to design a phase 3 study with the highest probability of success.
DelMar has enough capital to get through key milestones including top-line phase 2 data in newly diagnosed and recurrent patients. In accomplishing this Mr. Zarrabian cut non-essential expenses and negotiated favorable contracts with clinical partners. Consequently, the monthly cash burn was significantly reduced from ~$1.0M to $500K. To solidify DelMar’s cash position a public offering financing was completed in August 2019 raising net proceeds of $6.6M at $1.00 per share. The price has drawn criticism because at the time DMPI traded around $1.83. This is understandable given it meant an almost certain drop below $1.00. Unfortunately, though, it was necessary to entice enough investors. With the offering in the rearview shareholders can look forward to several upcoming catalysts with the potential to restore the share price. The first being updated phase 2 data in newly diagnosed and recurrent patients at SNO (Nov. 20-24th). The completion of enrollment in the adjuvant arm of the M.D Anderson study is expected to occur in the fourth quarter of calendar 2020. Also, in the fourth quarter of calendar 2020 the company plans to report top-line data for newly diagnosed, and the recurrent setting patient cohorts.
With SNO around the corner I feel that now is an excellent time to build a position in DelMar Pharmaceuticals. At its current valuation of $6.5M, which is below the company’s cash balance, the market apparently has not priced in the phase 2 data reported at ASCO on May 31, 2019. To this point, a significant risk inherent to clinical stage biopharmas is whether they can demonstrate their product provides a therapeutic benefit that outweighs any safety concerns and disease progression. DelMar is in the unique position to approach the FDA with robust clinical data in support of initiating a registration study and submitting a New Drug Application (NDA). The maturing data being presented for both newly diagnosed patients and recurrent setting patients at SNO on Nov 22 should be very telling. Remember, the benchmark to beat is 6.9-months PFS in newly diagnosed patients. From June to November is six months, so the data will give us a preliminary indication of whether VAL-083 is up for the task. In addition to solid science, biopharma companies need enough capital to get clinical development to data readouts. For the time being, we can check off this box. The obvious question is what about phase 3 and commercialization? As top-line phase 2 data come to fruition Mr. Zarrabian intends to find a suitable partner to advance VAL-083 through these inflection points. Right now, DelMar needs support from investors more than ever. I implore those who have lost faith in the company to give them a second chance under Mr. Zarrabian’s leadership. And if you are new to the DelMar story like our team was, take a good hard look at the value proposition. After doing so myself I decided to invest and am excited to potentially be part of an extraordinary comeback story.
I am/we are long DMPI