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ZIOP > SEC Filings for ZIOP > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for ZIOPHARM ONCOLOGY INC



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements contained in this Form 10-Q, including but not limited to, statements regarding the costs and timing our clinical trials and of the development and commercialization of our pipeline products and services; the sufficiency of our cash, investments and cash flows from operations and our expected uses of cash; our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, projected revenue or costs and objectives of management for future research, development or operations, are forward-looking statements. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as "may," "will," "should," "expects," "plans," "anticipates," "intends," "targets," "projects," "contemplates," "believes," "seeks," "goals," "estimates," "predicts," "potential" and "continue" or similar words. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. "Risk Factors" and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Business Overview

ZIOPHARM Oncology, Inc. is a biopharmaceutical company that seeks to acquire, develop and commercialize, on its own or with other commercial partners, a diverse portfolio of cancer therapies that can address unmet medical needs through the licensing and development of a synthetic biology platform and proprietary small molecule drug candidates. On March 26, 2013, we announced that our Phase 3 trial of palifosfamide in first-line metastatic soft tissue sarcoma, entitled PICASSO 3, did not meet its primary endpoint of progression-free survival. With this outcome, we made the decision to immediately terminate development of palifosfamide in first-line metastatic soft tissue sarcoma and place exclusive strategic focus on our synthetic biology programs in the field of cancer, pursuit to a partnership agreement with Intrexon Corporation, or Intrexon. Under the agreement, we obtained rights to Intrexon's effector platform for use in the field of oncology, which includes two existing clinical stage product candidates, DC-RTS-IL-12 + Activator Ligand and Ad-RTS-IL-12 + Activator Ligand. We plan to leverage Intrexon's synthetic biology platform to develop products to stimulate key pathways used by the body's immune system to inhibit the growth and metastasis of cancers, utilizing our capabilities to translate science to the patient setting. More detailed descriptions of DC-RTS-IL-12, Ad-RTS-IL-12, and our small molecule programs, and our clinical development plans for each are set forth below. More detailed descriptions of these product candidates and our clinical development plans for each are also set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and in other reports that we file from time to time with the Securities and Exchange Commission.

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Product Candidates

Synthetic Biology Programs: DC-RTS-IL-12 + Activator Ligand and Ad-RTS-IL-12 + Activator Ligand

General. On January 6, 2011, we entered into an Exclusive Channel Partner Agreement with Intrexon to develop and commercialize novel DNA-based therapeutics in the field of cancer treatment. In partnership with Intrexon Corporation, ZIOPHARM's DNA synthetic biology platform employs an inducible gene-delivery system that enables controlled delivery of genes that produce therapeutic proteins to treat cancer. The first example of this regulated controlled delivery is achieved by producing IL-12 under the control of Intrexon's proprietary biological "switch" (the RheoSwitch Therapeutic System® or RTS® platform) to turn on/off the therapeutic protein expression at the tumor site. DC-RTS-IL-12 and Ad-RTS-IL-12 are the two clinical-stage products and Ad-RTS-IL-12 is currently being tested in two Phase 2 studies, the first for the treatment of advanced melanoma, and the second in combination with palifosfamide for the treatment of non-resectable recurrent or metastatic breast cancer. Ad-RTS-IL-12 uses synthetic biology to enable controlled delivery of therapeutic interleukin-12 (IL-12), a protein important for enhancing the development of an immune response to cancer.

Clinical Development Plan for the Synthetic Biology Program. We completed enrollment in a Phase 1b dose escalation study of DC-RTS-IL-12 in the second quarter of 2012 in the United States. DC-RTS-IL-12 employs intratumoral injection of modified dendritic cells from each patient and oral dosing of an activator ligand to turn on in vivo expression of interleukin-12, or IL-12. DC-RTS-IL-12, through the RTS®, controls the timing and level of transgene expression. The RTS® technology functions as a "gene switch" for the regulated expression of human IL-12 in the patients' dendritic cells which are transduced with a replication incompetent adenoviral vector carrying the IL-12 gene under the control of the RTS®. In addition, another Phase 1 study employs direct injection of Ad-RTS-IL-12 for the regulated expression of human IL-12 for the treatment of patients with stage III or IV melanoma. The binding of the small molecule activator to the fusion proteins of RTS® regulates the timing and level of IL-12 expression. In the absence of the activator ligand, the level of IL-12 is below detectable levels. Currently, there are no actively enrolling studies using DC-RTS-IL-12, as we have prioritized our clinical development efforts on Ad-RTS-IL-12.

A clinical study of Ad-RTS-IL-12 is currently ongoing in a Phase 1/2 study for metastatic melanoma. The Phase 1 portion of the study evaluated safety in addition to immunological and biological effects and efficacy of the therapeutic candidate in patients with advanced melanoma. Enrollment in the Phase 1 portion of the study is complete and the Phase 2 portion is actively enrolling patients.

In the Phase 1 portion of the study, clinical activity was observed at the two highest dose levels. The data also showed a correlation between T-cell immune responses and biological response. We reported that clinical activity was observed in injected and non-injected lesions, and that the therapy was generally well-tolerated with a safety profile consistent with other immunotherapies at the 2013 annual meeting of the American Society of Clinical Oncology, or ASCO.

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Based on early activity, and a determination of a biologically effective dose, we advanced to Phase 2 and enrollment is on-going in this study. The Phase 2 study is a multi-center, single-arm, open-label study that is enrolling patients with unresectable Stage III or IV melanoma and further evaluating the safety and efficacy of intratumoral injections of Ad-RTS-IL-12 in combination with an oral activator ligand. Data from this Phase 2 study are expected in the second half of 2013.

We also initiated a Phase 2 trial of Ad-RTS-IL-12 and palifosfamide for breast cancer in the first quarter of 2013. Part one of this two-part study will consist of a safety assessment for Ad-RTS-IL-12 and palifosfamide, alone or in combination. Part two will consist of an efficacy evaluation of the Ad-RTS-IL-12 only arm and the combination arm. The primary endpoint of the study is rate of progression-free survival at 16 weeks. Secondary endpoints include objective response rate, duration of response and evaluation of pharmacodynamic tumor markers.

This two-part multi-center U.S. study will enroll patients with non-resectable, recurrent or metastatic breast cancer who have visible lesions or lesions accessible by injection. The study is designed to assess the safety and efficacy of the drug combination of Ad-RTS IL-12 and a chemotherapy agent. Although this study was initiated with palifosfamide as the chemotherapy and second investigational therapy, we may substitute palifosfamide with an FDA-approved chemotherapeutic or other agent.

Preclinical mouse glioma studies evaluating either DC-RTS-IL-12 or Ad-RTS-IL-12 therapy demonstrated a survival benefit in all animals treated at higher doses with no adverse clinical signs and symptoms. Additional preclinical studies are currently ongoing with Ad-RTS-IL-12 to enable initiation of a Phase 1 clinical study in the first half of 2014. This Phase 1 clinical study will evaluate the safety and tolerability of the Ad-RTS-IL-12 therapy in patients with recurring glioblastoma.

Furthermore, we are evaluating other potential preclinical candidates and continuing discovery efforts aimed at identifying other potential product candidates under our Channel Agreement with Intrexon.

Palifosfamide, ZIO-201

General. Palifosfamide, or isophosphoramide mustard, referred to as IPM, is a proprietary active metabolite of the pro-drug ifosfamide. Because palifosfamide is the stabilized active metabolite of ifosfamide and a distinct pharmaceutical composition without the acrolein or chloroacetaldehyde metabolites we believe that the administration of palifosfamide may be a more effective and well tolerated agent to treat cancer.

In addition to anticipated lower toxicity, palifosfamide may have other advantages over ifosfamide and cyclophosphamide. Palifosfamide cross-links DNA differently than the active metabolite of cyclophosphamide, resulting in a different activity profile.

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Small-Cell Lung Cancer. SCLC is almost exclusively associated with smoking. Standard of care for SCLC, which is etoposide and platinum therapy, has changed little in decades. Published studies of ifosfamide in combination with standard of care have evidenced enhanced efficacy but also with enhanced side effects, providing for an unfavorable benefit to risk association. We believe that combining palifosfamide with standard of care could offer a separation of enhanced efficacy from increased toxicity.

Clinical Development Plan for Palifosfamide. Previously we have studied palifosfamide in combination with doxorubicin in patients with soft tissue sarcoma. In March 2013, we announced that the Phase 3 study, PICASSO 3, did not meet its primary endpoint of progression-free survival (PFS) and that we would terminate our development program in metastatic soft tissue sarcoma. PICASSO 3 study data has been submitted for presentation at an upcoming major scientific meeting.

Data from a Phase 1 trial palifosfamide in combination with etoposide and carboplatin informed appropriate dosing for initiating an adaptive Phase 3 trial in first-line, metastatic SCLC. In June 2012, the Company initiated an international, multi-center, open-label, adaptive, randomized study of palifosfamide in combination with carboplatin and etoposide, or PaCE, chemotherapy versus carboplatin and etoposide, or CE, alone in chemotherapy naïve patients with metastatic small cell lung cancer, which we refer to as MATISSE. The trial's primary endpoint is overall survival.

Based on the outcome of PICASSO 3 in soft tissue sarcoma and the resulting revision in the company's development plans for palifosfamide, enrollment in this study was suspended with 188 patients enrolled. The interim analysis of Overall Survival events in MATISSE is forecasted to be reached in the first half of 2014.

Darinaparsin , ZIO-101

General. Darinaparsin is an anti-mitochondrial (organic arsenic) compound covered by issued patents and pending patent applications in the United States and in foreign countries. In vitro testing of darinaparsin using the National Cancer Institute's human cancer cell panel demonstrated activity against a series of tumor cell lines including lung, colon, brain, melanoma, ovarian, and kidney cancer. Moderate activity was shown against breast and prostate cancer tumor cell lines. In addition to solid tumors, in vitro testing in both the National Cancer Institute's cancer cell panel and in vivo testing in a leukemia animal model demonstrated substantial activity against hematological cancers (cancers of the blood and blood-forming tissues) such as leukemia, lymphoma, myelodysplastic syndromes, and multiple myeloma. Results indicate significant activity against the HuT 78 cutaneous T-cell lymphoma, the NK-G2MI natural killer-cell NHL, KARPAS-299 T-cell NHL, SU-DHL-8 B-cell NHL, SU-DHL-10 B-cell NHL and SU-DHL-16 B-cell NHL cell lines. Preclinical studies have also established anti-angiogenic properties of darinaparsin, providing support for the development of an oral form of the drug, and established synergy of darinaparsin in combination with other approved anti-cancer agents.

Clinical Development Plan for darinaparsin: Phase 1 testing of the IV form of darinaparsin in solid tumors and hematological cancers was completed and we reported clinical activity and, we believe importantly, a safety profile from these studies as predicted by preclinical results. We subsequently completed Phase 2 studies in advanced myeloma, primary liver cancer and in certain other hematological cancers. At the May 2009 annual meeting of ASCO, we reported favorable results from the IV trial in lymphoma, particularly peripheral T-cell lymphoma, or PTCL. A Phase 1 trial in solid tumors with an oral form of darinaparsin has completed enrollment. We have obtained Orphan Drug Designation for darinaparsin in the United States and Europe for the treatment of PTCL and have entered into a licensing agreement with Solasia for the Asia/Pacific territory with a focus on IV-administered darinaparsin in PTCL. Further, clinical studies are currently ongoing with Solasia.

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Indibulin, ZIO-301

General. Indibulin is a novel, small molecule inhibitor of tubulin polymerization. A number of marketed IV anti-cancer drugs target tubulin, such as the taxane family members, paclitaxel (Taxol®), docetaxel (Taxotere®), the Vinca alkaloid family members, vincristine and vinorelbine, and new classes of tubulin inhibitors including the epothilones. In spite of their effectiveness, the use of these drugs is associated with significant toxicities, notably peripheral neurotoxicity.

Indibulin is potentially safer than other tubulin inhibitors as no neurotoxicity has been observed in preclinical studies and in Phase 1 clinical trials. Indibulin has a different pharmacological profile from other tubulin inhibitors currently on the market as it binds to a unique site on tubulin and is active in multi-drug-resistant (MDR-1, MRP-1) and taxane-resistant tumors.

Clinical Development Plan for Indibulin. Preclinical work established a dosing schedule, five days on drug and nine days off, to enhance activity while managing toxicity. A Phase 1 study using this dosing regimen was conducted in late stage metastatic breast cancer and was proven to be safe and tolerable. We are currently evaluating possible third-party collaboration with respect to the further clinical development of indibulin.

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Development Plans

We are currently pursuing several clinical development opportunities, principally in our synthetic biology programs in addition to continuing to pursue opportunities in our small molecule programs. We are also evaluating additional potential preclinical candidates and continuing discovery efforts aimed at identifying other potential product candidates under our Channel Agreement with Intrexon. In addition, we may seek to enhance our pipeline in synthetic biology through highly focused strategic transactions, which may include acquisitions, partnerships and in-licensing activities. We may also seek to out-license some or all of our small molecule programs to further support our synthetic biology efforts.

Our current plans involve using our principal internal financial resources to develop the synthetic biology program, with the intention of ultimately partnering or otherwise raising additional capital to support further development activities for our strategic product candidates. As of June 30, 2013, we had approximately $38.9 million of cash and cash equivalents. Based upon our current plans, we anticipate that our cash resources will be sufficient to fund our operations into the first quarter of 2014. This forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses over the next twelve months could vary materially and adversely as a result of a number of factors, including the factors discussed in the ''Risk Factors'' section of this report and the uncertainties applicable to our forecast for the overall sufficiency of our capital resources, which are discussed under "-Liquidity and Capital Resources" below. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate.

Furthermore, the successful development of our product candidates is highly uncertain. Product development costs and timelines can vary significantly for each product candidate, are difficult to accurately predict, and will require us to obtain additional funding, either alone or in connection with partnering arrangements. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of each product. The lengthy process of seeking approval and the subsequent compliance with applicable statutes and regulations require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially, adversely affect our business. To date, we have not received approval for the sale of any product candidates in any market and, therefore, have not generated any revenues from our product candidates.

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Financial Overview

Overview of Results of Operations

Three and six months ended June 30, 2013 compared to three and six months ended
June 30, 2012

Revenue. Revenue during the three and six months ended June 30, 2013 and 2012
was as follows:

                                             Three months ended                             Six months ended
                                                  June 30,                                      June 30,
                                            2013            2012           Change           2013          2012         Change
($ in thousands)

Collaboration revenue $ 200 $ 200 $ - 0 % $ 400 $ 400 $ - 0 %

Revenue for the three and six months ended June 30, 2013 was the same as the three and six months ended June 30, 2012. This is due to the continued recognition of income related to our entry into the collaboration agreement with Solasia Pharma K.K. on March 7, 2011. Under this agreement we received $5.0 million in research and development funding which we are recognizing over the estimated period of performance under the agreement, currently 75 months.

Research and development expenses. Research and development expenses during the three and six months ended June 30, 2013 and 2012 were as follows:

                                    Three months ended                                    Six months ended
                                         June 30,                                             June 30,
                                     2013          2012             Change                2013         2012           Change
($ in thousands)

Research and development $ 14,775 $ 18,264 $ (3,489 ) (19 %) $ 33,887 $ 32,249 $ 1,638 5 %

Research and development expenses for the three months ended June 30, 2013 decreased by $3.5 million when compared to the three months ended June 30, 2012. On March 26, 2013, we announced the decision to immediately terminate development of palifosfamide in first-line metastatic soft tissue sarcoma and during the quarter ended June 30, 2013, completed a workforce reduction plan to reduce costs (see Note 3). This resulted in lower costs of $1.8 million related to the Phase 3 palifosfamide study in SCLC as the decision was made to suspend enrollment pending further data, lower preclinical trial costs of $1.7 million, lower employee-related costs of $0.9 million and lower manufacturing costs of $0.3 million. The decrease was offset by an increase of $1.0 million in discovery activities related to our synthetic biology program and other costs of $0.2 million.

Research and development expenses for the six months ended June 30, 2013 increased by $1.6 million when compared to the six months ended June 30, 2012. The increase was primarily due to $1.8 million increased discovery activities related to our synthetic biology programs, $0.8 million of costs related to the Phase 3 palifosfamide study in SCLC, higher manufacturing activities of $2.1 million and other clinical costs of $0.9 million. This was offset by a decrease in preclinical trial costs of $2.7 million, a decrease of $0.4 million related to our new safety database, lower employee-related costs of $0.5 million and decreased other clinical costs of $0.2 million, as we announced the decision to immediately terminate development of palifosfamide in first-line metastatic soft tissue sarcoma and completed a workforce reduction plan to reduce costs (see Note 3).

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Our research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costs of facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to research organizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestone payments and sponsored research fees paid to third parties.

We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a program-by-program basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed to broadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our oncology programs on a program-by-program basis.

For the six months ended June 30, 2013, our clinical projects consisted primarily of two Phase 3 projects for palifosfamide. The expenses for our Phase 3 palifosfamide study in STS incurred by us to third parties were $9.8 million for the six months ended June 30, 2013 and $44.5 million from the project inception in July 2010 through June 30, 2013. The expenses for our Phase 3 palifosfamide study in SCLC incurred by us to third parties were $4.8 million for the six months ended June 30, 2013, and $15.6 million from the project inception in December 2011 through June 30, 2013.

Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinical trials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources.

We estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines:

                   Clinical Phase   Estimated Completion Period
                   Phase 1                  1 - 2 years
                   Phase 2                  2 - 3 years
                   Phase 3                  2 - 4 years

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:

• the number of clinical sites included in the trials;

• the length of time required to enroll suitable patents;

• the number of patients that ultimately participate in the trials;

• the duration of patient follow-up to ensure the absence of long-term product-related adverse events; and

• the efficacy and safety profile of the product.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time-to-time in order to continue with our product development strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

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General and administrative expenses. General and administrative expenses during the three and six months ended June 30, 2013 and 2012 were as follows:

                                         Three months ended                                    Six months ended
                                              June 30,                                             June 30,
                                          2013          2012             Change                2013         2012             Change
($ in thousands)

General and administrative $ 3,721 $ 4,902 $ (1,181 ) (24 %) $ 8,392 $ 9,750 $ (1,358 ) (14 %)

General and administrative expenses for the three months ended June 30, 2013 decreased by $1.2 million when compared to the three months ended June 30, 2012. The decrease was primarily due to lower employee-related costs of $0.6 million as a result of our workforce reduction plan (see Note 3) as well as $0.5 million . . .

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