CRDF - Cardiff Oncology: How The Recommitment Shapes The Investment Thesis (Rating Upgrade)

2023-08-14 03:17:14 ET

Summary

• Cardiff Oncology stock has recently rallied to around $2 per share after positive guidance from the FDA on a regulatory path forward for their PLK1 inhibitor.
• The company plans to initiate a trial called CRDF-004, a randomized study assessing onvansertib in combination with first-line chemotherapy in patients with KRAS or NRAS-mutant, previously untreated metastatic colorectal cancer.
• Cardiff Oncology's financial outlook shows a decline in cash and equivalents, and if they don't find a partner, they may need to raise funds through a common offering.

Top Line Summary - Cardiff Oncology

Cardiff Oncology ( CRDF ) is a small developmental biotech that I've covered previously , with a focus on the data supporting the use of their PLK1 inhibitor in metastatic colorectal and pancreas cancers. In my previous article, I indicated that CRDF felt like "a massive gamble" at $1.67 a share, and after falling for a few more months, the stock has recently rallied to around $2 per share, on the back of positive guidance from the FDA on a regulatory path forward for onvansertib. While I do not feel this fundamentally changes the risky nature of this investment, I have softened on my position somewhat. I cannot recommend buying at these levels until the company resolves their cash issues, but there is reason to be excited, and I would upgrade my position from "sell" to "hold if you own, and buy only as a highly speculative play." Read on to learn more about the news.

Pipeline Review

Since my last publication on CRDF, we have had 2 conferences that included gastrointestinal cancers: ASCO and World GI. The main focus of onvansertib, colorectal and pancreatic cancer, was not covered at either of these meetings. There was a presentation of a phase 1 study in progress assessing onvansertib in patients with relapsed/refractory CMML . But overall it's been a little while since we saw any new findings for this drug.

In the past, CRDF has seen encouraging efficacy with onvansertib in patients with KRAS -mutant colorectal cancer, with a 36% response rate being demonstrated in a presentation at ASCO GI 2022 . No major tolerability concerns were noted in this presentation. The ongoing, phase 2 ONSEMBLE trial is being conducted to confirm these early efficacy signals in patients with previously treated CRC, and the first patient enrolled into this portion of the study back in March .

For current shareholders of CRDF, the big news has been the announcement on August 7 that the company will initiate a trial called CRDF-004, a randomized study assessing onvansertib (either 20 or 30 mg dosing) plus first-line chemotherapy plus bevacizumab, a standard treatment option for metastatic CRC, in patients with KRAS or NRAS -mutant, previously untreated disease.

CRDF is taking the bold step of moving their drug into first-line study before gaining bona fide efficacy in the second-line studies, and certainly well before gaining a drug approval. They're also not doing it alone, as in the same announcement the company detailed that they will have study execution support from Pfizer Ignite, a service offering resources, scale, and expertise in the conduct of clinical trials.

This signals an expanded relationship with partner Pfizer ( PFE ), who currently own an equity stake in CRDF.

Financial Outlook

As of CRDF's Q2 2023 report, the company maintains $19.4 million in cash and equivalents, with another $70 million tied into short-term investments. This is down from $97 million in Q1, as the company recognized a net loss of $12.2 million, which is up from $11.2 million in Q1.

At the current burn rate, and in agreement with CRDF's guidance, the company has enough funds and short-term investments to remain afloat until around the end of 2024. In my previous article, I estimated that they would have somewhere in the realm of $10 million in funds in Q4 2024.

If they don't find a partner, the future is clear: expect a common offering to help raise funds, likely tied to some piece of good news within the next year or so. Oftentimes, companies will seek to raise in the realm of $50-$100 million through these offerings, which would be either a >50% dilution or nigh impossible, given that the market cap of the company is currently around $90 million, even with the recent rally in share price driven by the Q2 filing news.

Strengths and Risks

We should be clear: although the press release about partnering with Pfizer Ignite is a promising signal of ongoing collaboration between the two companies, CRDF did not disclose details of the arrangement. Pfizer Ignite's services are paid for via fees, equity, or strategic rights agreements. Nowhere is this being stated as being free or particularly low cost, and invoking the name of Pfizer does not really solve some of my challenges.

But let's look at a strength for the company: they're feeling confident enough in their drug to move it into first-line study, where hopefully it could do the most good as an "orthogonal" approach to treatment. PLK1 inhibition is not like other targeted therapies, and it's not particularly similar to the chemotherapy they'd be adding on to, so there is a chance that onvansertib will offer something new for the regimen.

But here's the rub on that first-line trial: it's a 90-patient study. with response rates set as the primary endpoint. Anyone looking at this should know that CRDF is not necessarily expecting to get approval based on the findings from this trial, and if the results are not a massive, clear success (think in the vein of PD-1, TRK inhibitors, etc), then I would not count on accelerated approval. That's not to dog the study design; this is how things are normally done in oncology, and there's nothing wrong with taking this step by step. But any would-be investor or long-term holder should know that there is a very high likelihood that this CRDF-004 trial will more likely lead to just a confirmatory phase 3 study, not accelerated approval.

Of course, there is always the chance that the data come out gangbusters and blow the lid off first-line therapy for KRAS -mutated CRC. At that point, you would be looking at a many-fold multiple on whatever the stock price is at that time.

But that brings up the other challenge that CRDF continues to face: cash. If they do not have a solid partner footing the bill for these trials, cash burn is likely going to increase. To date, there are only hints that PFE might want to bite at entering the fray with CRDF in a meaningful way, and anyone who might be an investor should know that going in. It could take several more rounds of dilution before that reaches fruition. And someone holding today is likely to feel a lot of pain from these rounds of dilution, possibly beyond a level they can recover from.

Bottom Line Summary

CRDF remains a very large gamble at these levels. While they have a scientific board packed with world experts in GI cancers, and they have promising early-stage data, we have to respect that funds are king at this point. If you're a current shareholder, you have things to look forward to, but the risk of further dilution is very real, with little to no indication that a partnership is imminent to save the company.

I do NOT think they'll go completely under before we get stronger data signals. But I also don't think the wait will be painless. My personal suggestion would be to hold where you are until late 2023, when there's a chance we'll see some data coming at GI ASCO 2024. Then the next big inflection will likely be ASCO next year in late May/early June.

While CRDF has some very interesting irons in the fire, and a rather aggressive attack on frontline CRC, I would only suggest a serious investment for those who are highly risk tolerant. There are too many unknowns at this time.

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