Targeted Radiation Looks To Create And Grow Revenue

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 |  Includes: ADMD, IMMU, NDZ, SPPI
by: The Swiss Trader

The evolution of novel cancer therapeutics has led to many innovations in treating the disease. Immunotherapies and antibodies have become popular in recent years, but remain second-tier treatments. Radiotherapy, or radiation treatment, has long since been the treatment of choice in fighting cancer, but some have elected to focus on newer and safer cancer targeting therapeutics. Innovations in radiation-based therapies have transpired in recent years, and companies are now finding a more effective targeted approach with radiation-based treatments. However, these companies must now continue to develop, fight regulatory hurdles, and capitalize on the market potential to become effective in a competitive space. Therefore, I aim to look at companies with radiation-based therapeutics that have the potential to return large gains in the years that lie ahead.

Spectrum Pharmaceuticals' (NASDAQ:SPPI) Zevalin is an FDA approved product that is highly effective but has underperformed in sales year-after-year. The drug is administered as a combo of Rituxan and the medical isotope yttrium-90. Hence, it is a radio immunotherapy, but uses an antibody conjugated with radioisotopes. It might sound confusing, but most effective cancer therapies are a bit complicated.

Zevalin is currently being used as a treatment for non-Hodgkin's lymphoma (NHL); despite significant advantages over the competition, regulatory hurdles have negatively impacted its sales. Zevalin has an 83% overall response at treating NHL compared to Rituximab's 55%; however, Rituximab is a highly successful drug, and Zevalin has not been able to achieve the same presence within its targeted market.

Spectrum Pharmaceuticals has three FDA-approved drugs, and Zevalin is arguably its most promising. The company's CEO has spoken at various conferences in the last six months and has used Zevalin as a selling point to potential investors. As of now, it is a drug achieving about 10% of its potential $400 million in sales.

Last year the company did make progress after a labeling change removed a required imaging scan from the requirements of using the drug. Most believed it was this scan, and the high costs, that had prevented Zevalin from seeing higher sales. Now with the scan being lifted, the drug being more affordable, and the company working to eliminate additional costs associated with the logistics of its use, Spectrum could see increased sales in 2013 and could lead the charge for other companies that are developing similar products.

In terms of performance, Spectrum Pharmaceuticals is a $680 million company that is projecting $300 million in total sales for 2012. If the company reaches its goal it would have posted sales growth of more than 50% compared to 2011. However, none of the company's growth was related to Zevalin, and looking ahead to 2013, the company is already seeing slowed growth from its lead product Fusilev. Therefore, Zevalin must contribute, and if so, this could be a stock to produce significant gains, but the company must do a better job at execution.

Immunomedics, Inc. (NASDAQ:IMMU) is a $250 million company with two approved products: one for the detection of Human Anti-Murine Antibodies (HAMA) and the other is LeukoScan, used for diagnostic imaging. The company has a huge pipeline, including a promising product for the treatment of late-stage pancreatic cancer. The company's product, Y-90 Clivatuzmab Tetraxetan is a radioimmunotherapy that targets an antigen found in most pancreatic cancers.

The company's radioimmunotherapy consists of the same medical isotope found in Zevalin, Y-90, which is highly effective at treating cancer. In the past, this form of cancer would be difficult to target, but Immunomedics uses its technology to target the cells and can then directly apply a therapeutic level of Y-90 to treat the disease. This product has been granted an Orphan Drug designation, and now investors are hoping it continues to produce similar results as at the ASCO meeting earlier this year. If the company can maintain or stay close to its 9.3 month overall survival for patients receiving multiple cycles, then it will further validate the potential of targeted radiation as a form of treatment to cancer.

In terms of pricing and stock, IMMU has lost more than 15% of its valuation in the last two and a half months. Much of the company's loss was a result of a recent downgrade by TheStreet. This comes due to excessive spending: The company's loss rose 44% during its last quarter, which further adds to its $224 million accumulated loss. The company's spending, cash flow, and balance sheet, has been a concern, but if its product proves to be effective then perhaps this concern will prove itself to be meaningless to shareholders.

Nordion (NYSE:NDZ) is a diversified medical isotope-focused company that has seen its fair share of problems in the last year. Recently, Canada denied the construction of the MAPLE facilities, which was to be the company's plan for replacing the NRU reactor once it shut down in the coming year. The stock has now lost more than 35% of its value in the last six months, as investors prepare for the company to see a third of its revenue wiped out (more than $70 million annually). However, the company is progressing in other areas, with its Targeted Therapies segment.

In the last year, more than a quarter of Nordion's revenue came from its targeted therapies segment. This segment is driven by sales from the company's liver cancer treatment, TheraSphere, a radiation treatment used to treat inoperable liver cancer. The company has used the same targeted approach that has been discussed in this article, a high-dose of radiation with few side effects directed to the site of the tumor. In the last two years sales from this segment have slowed, but are still growing at a compound rate of 40% over the last five years. But much like Zevalin, investors believe there is great upside to this treatment, and that sales could grow rapidly because it's administered as an outpatient treatment.

As an approved treatment and if the company can grow sales, it would benefit the space and the outlook for targeted radiation treatments. Nordion is a company with great relationships in the medical community because of its medical isotope business, and has the potential to significantly grow sales. However, Nordion must capitalize on this opportunity for the sake of its future and for investors, because with the NRU closing and no option for its medical isotope business, the company will be redefined in the coming years, one way or the other.

The final company is Advanced Medical Isotope Corp. (OTCPK:ADMD), and although it is an OTC company, and carries more associated risk, it does have great potential in this space. The company has increased in valuation by more than 130% in the last six months, partially as a result of Nordion's failure to find a medical isotope supply when its NRU reactor closes. This affects ADMD because it has a partnership with the only U.S. reactor that can handle demand, the MURR reactor. The company has already said that it aims to control half of the Mo-99 supply in the next few years; and thanks to Canada's unwillingness to repair its nuclear reactors, it looks as though it will. Furthermore, the U.S. has always been resistant to bringing isotope production to the country, but the government has said that it would be willing if able to minimize the use of highly enriched uranium (HEU), which is a very dangerous substance.

ADMD's technology consists of Low Enriched Uranium (LEU), which further adds to the optimism that this small company will benefit from Nordion's collapse in the medical isotope business, which is valued at roughly $70 million per year. Advanced Medical Isotopes has a very experienced team of executives who formed this company on the notion of future regulatory changes, and are placing their bets on the belief that large scale production will be brought to the U.S. in the coming year. However, there is a risk that this does not occur, or perhaps another reactor besides the MURR is chosen for supply. Although unlikely that the U.S. would allow a reactor other than MURR to produce Mo-99, it is a risk that investors must consider.

Aside from production, Advanced Medical Isotope is also developing its own targeted radiation treatment. The company licensed a technology from Battelle to develop a high-dose radiation therapy called "radiogel". The product uses the same isotope as Spectrum and Immunomedics, Y-90, which works by delivering the radiation directly to the tumor in a water-based biodegradable polymer. After injected, the radiogel's liquid polymer is warmed by the patient's body temperature, which then traps the isotope inside the region that is affected. Thus, not only is the cancer effectively targeted, but the gel is unable to escape, resulting in minimal side effects and a more effective therapy. This treatment is believed to work on any cancer that cannot be surgically removed, and will be tested to determine the range of its potential.

In terms of potential revenue, the company has said that sales could reach $5 million to $15 million in 2013, and up to $100 million possible. Right now the company has minimal revenue, producing medical isotopes but not on a large scale. Therefore, its gains have been a result of speculation, not fundamental improvements. However, if radiogel does achieve the targeted sales next year, and its possible revenue, combined with the $70 million from the medical isotope business, this stock has a lot of potential in this sector. Trading with a market cap of just $20 million, it could appreciate to a worth north of $150 million based on two times sales in the next three years. Not to mention, Nordion's most profitable business has often been medical isotopes, which is why Advanced Medical is excited about its opportunity and Nordion is not looking forward to seeing it go.

The business of targeted radiation is growing, but is still undervalued. It has a great deal of potential and could appreciate in the coming years. For each of the noted companies, radiation-based therapies will be very important to the valuation and trends of each company. As a result, with large potential and effective treatments, it makes these four stocks very interesting to monitor in the coming years.

Disclosure: I am long SPPI, OTCPK:ADMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.