New coverage by JPM Securities:


We are initiating coverage on ZIOPHARM Oncology with a Market Outperform rating and $7
price target. Ziopharm is developing a portfolio of oncology drug candidates, all of which may offer
“capital-efficient” best-in-class approaches against validated targets. Palifosfamide is the
company’s lead candidate, and it is being developed for the treatment of advanced sarcoma, a
high-value indication (read: unmet medical need, defined path) with a market opportunity we
estimate to be in excess of $400MM at peak. The compound has demonstrated efficacy and safety
in a Phase II trial, and we anticipate that a pivotal trial will begin by the end of 2Q10. We value
Ziopharm on the palifosfamide opportunity alone, supported by an analysis of comparable company
valuations, but note that additional pipeline programs offer upside to our valuation and provide
further clinical catalysts in 2010. Over the next 12 months we anticipate that Ziopharm will undergo
a transformation from an early-stage pipeline story to a late-stage development company with a
high value asset nearing pivotal data. As such we look for the valuation to reflect later-stage
comparable companies with a broader investor base, but without near-term binary risk. We are also
confident that management is executing a rigorous development plan to reduce the risk of the
palifosfamide program and therefore the binary risk associated with late-stage drug development.
Our $7 price target is based on an NPV of palifosfamide sales, which assumes revenues to
Ziopharm approaching $300MM in 2016 (and peak sales of more than $460MM in 2020) and a
discount rate of 35%, to which we add our projection for year-end 2010 cash of ~$1 per share.

· Palifosfamide risks reduced at multiple points of development. Ziopharm’s palifosfamide is
about to enter a pivotal trial for the treatment of advanced sarcoma. In our view, the risks for this
program have been and continue to be reduced by 1) focus on a validated target; 2) positive data
from a randomized Phase II trial; 3) pre-clinical activity in multiple cancer settings, providing the
potential for multiple label expansions; 4) the receipt of Orphan Drug status; and 5) progress with
securing a Special Protocol Agreement (SPA) with the FDA for the pivotal trial, which we anticipate
soon. These 5 factors make for a capital-efficient program that we believe investors favor.

Pivotal to start in 2Q09, should yield data by early 2012. Related to the pivotal program, it is our
view that the most important focus for the trial design is that it secures the SPA. We are, of course,
looking forward to clarity on the details of the trial design, which we expect in 1-2 months; however,
in our view, collaboration with the FDA on the requirements for approval is the most important
factor in terms of ensuring that the product reaches the market in the most timely and cost effective
manner. We are more compelled by larger, less noisy trials with well accepted endpoints and high
power than “swing for the fence” designs that have a likelihood of “just missing”, as have been
employed by many biotechs. In our view, with the recent equity transaction, emerging clinical
profile, and breadth of opportunities for partnering, we believe Ziopharm is well positioned to
complete a Phase III study that fully meets the FDA’s requirements.

· Near-term clinical progress will enhance visibility of palifosfamide and pipeline with
institutional and “strategic” investors. Ziopharm’s pipeline includes two additional oncology
product candidates: darinaparsin and indibulin. Over the next 12-18 months, we expect these two
products, as well as palifosfamide, to make substantial progress in the clinic. In our view, this
pipeline could emerge into the arms of a pharma or larger biotech company as each of these
product candidates represents likely best-in-class, unpartnered, multi-$100 million approaches to
targeting well-validated and broadly-applicable anti-cancer mechanisms. In addition to clinical
catalysts for palifosfamide in 2010 (SPA for sarcoma in 1H10, initiate pivotal trial in 2Q10), we
anticipate value inflection with progress in both the darinaparsin and indibulin programs. For
darinaparsin, a Phase I trial with an oral formulation is expected to be completed in 1H10, and for
indibulin a Phase I trial in breast cancer may also be initiated in 1H10. In our view, at the current
trading ranges for ZIOP shares, investors are getting a “free call” on darinaparsin and indibulin, and
our valuation is driven solely by an absolute valuation of palifosfamide. With increased visibility on
the darinaparsin and indibulin programs, we will conduct a similar analysis for these candidates and
incorporate the value of these into our price target objective.


Smufty (still long ZIOP)