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Ziopharm Blows Up On Sarcoma Drug Failure (Update)

NEW YORK (TheStreet) -- Let's do the postmortem exam on Ziopharm Oncology (ZIOP) : Death by clinical trial failure.

The short thesis on Ziopharm and palifosfamide was explained last Friday by a fund manager with an excellent track record of predicting clinical trial blow ups. Ziopharm is another notch in his belt. Great call. Kudos also go out to TheStreet contributor Aafia Chaudhry for raising concerns about Ziopharm.

In the failed phase III sarcoma trial, median progression-free survival (PFS) for the doxorubicin control arm was 5.2 months -- better than expected. Median PFS for patients treated with palifosfamide and doxorubicin was approximately one month higher than doxorubicin alone (a specific number wasn't provided by Ziopharm.) Still, median PFS of around 6 months for palifosfamide was lower than expected.

Palifosfamide underperformed while doxorubicin did better -- pretty much exactly what my short-selling hedge fund investor source predicted.

I got Ziopharm wrong. My prediction of success for palifosfamide was a bad call, obviously.

The Feuerstein-Ratain Rule said Ziopharm had a small chance for success but not impossible or inconceivable like other trials run by small-cap drug companies. Prescient.

You've heard me say this before, but it's worth repeating: It's vitally important to know and understand both sides of any stock. This doesn't mean you have to agree with the counter-argument, but dismissing out of hand is folly. Many readers excoriated me for writing about the Ziopharm short thesis so close to the announcement of the palifosfamide results. They also slammed my hedge-fund investor source. But again, the goal was to educate and provide a counter-balance to the avalanche of bullish opinion (including my own.)

For those that read Friday's piece and decided to reduce your risk or exposure to Ziopharm, I say well done.

As for Ziopharm's future, it sounds as if palifosfamide is dead. While other trials will continue, expect investors to write off the drug's value completely. That leaves the company solely reliant on its unproven "snythetic biology" platform partnered with Intrexon, plus cash of less than $1 per share.

As I type, Ziopharm is down 61% to $2 per share, which seems generous given the risky, early-stage and totally unproven synthetic biology platform. Ziopharm will need to raise money soon. I'd also expect current management, including CEO Jon Lewis, to depart at some point so healthcare investor/entrepreneur R.J. Kirk (Intrexon is his company) can install his own people into the company and complete the transformation from Ziopharm to Intrexon.

My news brief on the palifosfamide from earlier this morning:

Ziopharm Oncology is scrapping the development of palifosfamide after the sarcoma drug failed to benefit patients in a pivotal phase III clinical trial, the company said Tuesday.

The combination of palifosfamide plus doxorubicin was unable to delay the growth of tumors compared to doxorubicin alone in patients with newly diagnosed sarcoma. Independent data monitors recommended that patients in the study be followed for overall survival, but Ziopharm has chosen not to do so. Full details of the study results were not disclosed Tuesday but will be presented at a future medical meeting, the company said.

Ziopharm shares fell 52% to $2.48 in Tuesday pre-market trading.

With palifosfamide's failure, Ziopharm said it will cut workers to reduce costs and focus clinical development efforts on a synthetic biology drug program in partnership with Intrexon.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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