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CytRx (CYTR) Corporation, with a rapidly advancing pipeline and money in the bank, may be skimming below the radar for investors searching for an undervalued company that might be gearing up to make a big splash in the cancer treatment sector.

Companies with products that are not yet beyond Phase II, which I like to refer to simply as 'Phase II companies', are considered by some to be highly risky investments since a lot can happen between Phase II trials and an FDA approval, but some of the best deals in the biotech/health care sector can be found by searching out a good 'Phase II' company trading for a reasonable price with a pipeline of potential.

For instance, shares of Keryx Biopharmaceuticals (KERX) were trading for roughly the same price as the CYTR stock is now when that company was also considered a 'Phase II company'. As we have seen with KERX, once the Phase II trial results started rolling in and Phase III were underway, shares appreciated significantly and now trades with a market cap of over three times that of CYTR.

Given the potential of the CytRx pipeline, which contains two solid Phase II products, it's quite possible that CYTR shares will experience a similar pattern and could be trading for considerably higher prices as the time draws nearer to the release of Phase II results. Should those results turn out positive, and the products move on to Phase III, then an even more pronounced increase in price could be realized.

Something else to like about this company's pipeline is the fact that it has a built-in insurance plan. In addition to its two lead products, Bafetinib and Tamibarotene, INNO-206 serves as a third product candidate that provides a cushion - or a 'Plan C' - should one or both of the more-advanced product candidates hit a road block or experience a setback in development.

Having a third candidate in the pipeline is a luxury that many small, aspiring companies in this sector can enjoy. Even those small companies that can boast multiple product candidates often cannot fund trials for each one simultaneously, which is something that CytRx is successfully managing.

Of the three product candidates, Bafetinib may hold the most market potential. This product is being investigated for effectiveness in treating multiple cancer indications, including advance prostate cancer, brain cancer and leukemia. According to statistics posted by the Center for Disease Control and Prevention (CDC), prostate cancer is the number one cancer suffered by men. 217,730 new cases were reported in the US alone last year, according to data supplied by the National Cancer Institute, and any move into that market by CytRx is sure to become a lucrative undertaking while significantly boosting shareholder value.

The second Phase II candidate, Tamibarotene, is being tested as a for treatment of non-small cell lung (NSCL) cancer and acute promyelocytic leukemia (APL). CytRx would only need to make a small dent into the NSCL market to significant boost the company's bottom line, and APL is a $100 million market in itself.

INNO-206, although still earlier in the stages of development, could also become a big player as an anti-tumor agent. Multiple studies are underway and the product has already demonstrated success in early animal and human clinical studies. This will be a product to keep a keen eye on as the others develop.

One major concern that all potential investors have when investing in the biotech/health care sector is how a company will fund its clinical development. Dilution is the largest of concerns, as shareholder value becomes diluted along with the stock, but CytRx has undertaken a strategy of finding non-dilutive alternatives to fund its developmental stage, and thus far it's been a successful strategy.

CYTR issued a press release last month announcing the sale of the worldwide rights for its molecular chaperone assets to the privately-held Orphazyme ApS, based in Copenhagen, Denmark.

For a small company such as CytRx, this was no insignificant deal.

The total value of the transaction, should all milestones be met, could be worth up to $120 million, which today is roughly 20% more than the current market cap of CYTR.

In addition to an up-front payment and the milestone potential, CytRx will receive royalties on all sales of products utilizing the molecular chaperone technology. Give it some time, and this deal could turn out to be a coup for the company.

CEO Steven A. Kriegsman noted as such in a recent press release:

“This could be a game-changing transaction for CytRx with an ultimate potential value that exceeds our current market capitalization.”

He then went on to comment about the company's strategy of funding its oncology pipeline through investments that are non-dilutive to shareholders:

“It illustrates our exceptional execution of a strategy to acquire assets and add value, in this case through multiple clinical and preclinical trials, then monetize them to support our focus on oncology.”

The management team looks to be navigating this strategy with success and precision, as the company also raised $17 million in a sale of RXII stock. Additionally,

CytRx received 163,000 shares of ANX in exchange for its 19.1% stake in SynthRx, according to the above-noted press release.

Given the recent developments at CytRx, the solid pipeline and success in adding funds to the war chest in a non-dilutive manner, CYTR might not be trading below the radar for too much longer.

Worth taking a look.

Disclosure: No position

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