CytRx Corporation (NASDAQ:CYTR) collapsed on Monday after data relating to its lead pivotal hit press, and the company will open on Wednesday at just $1 a share – 60% down on its Tuesday bell price. We’ll look at the data in a little more detail shortly, but the long and short of it is the drug in question failed to demonstrate any level of stat sig improvement over currently available therapies. Management, however, is claiming that a clinical hold applied earlier in the trial has impacted the data, and that a more accurate representation will come on the back of a subsequent analysis scheduled for the final quarter of the year. CytRx investors are faced with this dilemma: take a loss and drop the exposure, or hold on in the hope that the follow up analysis will reveal something that the primary analysis didn’t. Of course, it’s impossible to say with certainty which side of the question is the right thing to do. We can shed some light on the facts, however, in an attempt to make the decision a little easier for those faced with making it. Here goes.

So, the drug. It’s called aldoxorubicin and it’s a reformulation of an already well established anti cancer agent, doxorubicin. Doxorubicin is one of the most widely used cancer drugs in the world – it’s on the WHO’s list of essential medicines, and is one of the go to chemo drugs for a whole host of cancers. It works by a process called DNA intercalation, which is essentially getting in between the DNA strands and distorting them, so as to inhibit the transcription (and in turn, replication) process.

It’s got a terrible safety profile, though. It causes hair loss, nausea and pain in nearly every patient that takes it, and has a high rate of cardiovascular associated AEs, most seriously cardiomyopathy. It’s been called red death, and not just because it’s got a scarlet hue.

With aldoxorubicin, CytRx is trying to improve on the safety profile of Doxorubicin. Well, improve the highest tolerable dose is probably a better way to put it. The former has attached to it what’s called an EMCH linker, and this makes the drug bind to albumin (which circulates in the blood stream) on administration. Albumin accumulates at tumor sites, and so the theory is that by binding to it aldoxorubicin can deliver the active compound selectively and in a targeted fashion, while minimizing the impact on non cancerous cells. This allows for far higher dosing while maintaining a similar, or even improved, safety profile to doxorubicin. Phase II data supported this theory. Phase III has not.

Basically, the data that just hit press stated that across 191 progression events, there was no stat sig difference in progression free survival between an adoxorubicin arm and an arm treated with investigator’s choice therapy (one of which was doxorubicin). Both arms came in at a little over 4 months PFS. However, across a couple of other measurements (ORR, disease control) the active arm improved upon the control arm. By how much, we don’t know, but as the company reports – significantly.

At this point it’s probably worth mentioning that there has been a lot of talk surrounding what perhaps might be construed as questionable IR activity by CytRX. This author has no opinion on that, other than to say that it’s the data that matters, and there’s generally more value in following the data than there is in following behind the scenes activity – to an extent, of course.

So in this instance, the data doesn’t look good. But we have to ask why. It would be easy to say that CytRx management is spinning its response to blame the clinical hold, and that the follow up data claim is just a delay. Some outlets are claiming exactly that. The bottom line, however, is that the CytRx drug delivers a far higher dose of a drug that is only really limited in efficacy by its toxicity, and so reducing that toxicity (as adoxorubicin does) should raise efficacy. Phase III data says it doesn’t, at least in terms of PFS, but phase II suggested it did, and by a considerable margin.

So what about the initial question? Well, it comes down to risk tolerance. This was a risky exposure before the data, but it just became twice as risky. There are two ways this is going to play out. The first, that the follow up data supports the non stat sig efficacy improvement conclusion, and the company tanks. It’s got some follow up pipeline, but not enough to support a valuation that was built on adoxorubicin’s potential, even taking into account the recent decline. The second, the follow up data suggests that the clinical hold did have an impact – for reference, the company is claiming it meant that it couldn’t sufficiently follow up on nearly two thirds of the 433 enrolled patients – and CytRx recovers.

If holders are willing (financially able) to wait and see, a small scale allocation could be an interesting one come fourth quarter. If they are looking for something low risk, however, this is not the place to find it.