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Introduction

OncoSec Medical (OTCQB:ONCS) is an emerging immunotherapy and drug delivery company with unique and interesting products and encouraging clinical data. Those who follow my work know that I have a special interest in active immunotherapy. I see OncoSec as having a promising and differentiated approach to immunotherapy with its lead product ImmunoPulse. At present, only Dendreon's (NASDAQ:DNDN) Provenge and Bristol-Myers Squibb's (NYSE:BMY) Yervoy are approved in the US. However, there is tremendous work going on in this area that could lead to some major new products. OncoSec also has a second oncology drug in NeoPulse that could be introduced in Europe in 2013 pursuant to signing a partnering deal.

ONCS's electroporation technology was created by Inovio Pharmaceuticals, which worked on its development for over a decade. In March of 2011, Inovio decided to focus all of its resources on DNA vaccine development and its intratumoral oncology assets were spun out to OncoSec. The assets included the technology, clinical data and intellectual property. OncoSec came public through a reverse merger in March 2011. It is focused on the development of two drug/ device products using electroporation, ImmunoPulse and NeoPulse.

I came across OncoSec at the annual M.D, Becker conference on immunotherapy and was inspired to do some further research, which led to the writing of this report. The company has produced meaningful data on ImmunoPulse in a phase I trial in malignant melanoma that has been replicated in an interim data look from an ongoing phase II trial. An interim look at a phase II trial in Merkel cell carcinoma has also shown encouraging results; this cancer is more aggressive than malignant melanoma.

In 2013, there will be topline data on phase II trials of ImmunoPulse in malignant melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma. There is also the potential for a partnering deal with ImmunoPulse with good data and the company is currently in partnering discussions for its second product NeoPulse. The company may also need to raise around $15 million later this year, if it decides to develop ImmunoPulse on its own. These are all critical events that will shape the company's future.

I usually start my reports with an investment opinion. However, in the case of OncoSec I think that many investors are not familiar with the company. I believe it is important to first explain my views on the company's technology and products and discuss clinical trial data. Without this type of background, I think that investors might not understand the reasoning behind my investment thesis for the company; hence this section is deeper within this report than normal.

Oncosec Medical's Technology Base and Products

Electroporation

OncoSec Medical is developing oncology drugs that are used in combination with its electroporation drug delivery technology. Most injectable drugs must pass through the membrane of a targeted cell in order to produce their therapeutic effect. Difficulty often occurs in penetrating the cell membrane to achieve therapeutically effective levels within the cell; this can require high levels of the drug to be injected with resultant side effect issues.

Electroporation is the brief application of high-intensity, pulsed electric fields to cells. This causes a temporary opening of pores in the cell membranes. Given shortly after a drug injection, it greatly increases the amount of drug entering cells in the injected area. Using electroporation in conjunction with the local injection of a drug can significantly improve efficacy and improve the side effect profile. OncoSec has developed an electroporation device that is called the OncoSec Medical System or OMS. It is an electrical pulse generator console combined with disposable applicators that attach to the skin and transmit electrical impulses into the tumor microenvironment.

ImmunoPulse

The drug component of ImmunoPulse is a DNA plasmid containing a gene that expresses interleukin-12 or IL-12. A plasmid is a circular piece of DNA into which a specific gene is spliced that expresses a protein, which in this case is IL-12. The plasmid must gain entry into a cell in order use the cell's infrastructure to express the protein. This process is the basis of recombinant DNA technology that created the biotechnology industry.

IL-12 plasmids are first injected into a tumor lesion with a syringe. The OMS system then administers electrical impulses which open pores in the cell membranes in the tumor microenvironment. This significantly increases the amount of the DNA plasmid taken up by the tumor and resultant expression of IL-12.

IL-12 is protein that is naturally produced in the body by antigen presenting cells of the immune system such as dendritic cells, macrophages and B- cells. It interacts with both T-cells of the adaptive immune system and natural killer cells of innate immune system to bolster their tumor killing effect. The approach of boosting natural immunity to treat cancer has been the basis of approval for two drugs, Dendreon's Provenge and Bristol-Myers Squibb's Yervoy; it is an area of intense research interest and drug development. IL-12 also has an anti-angiogenic effect (blocks blood vessel formation in tumors) that is the biological basis for Roche/ Genentech's Avastin. Importantly, this mode of action results in ImmunoPulse producing a systemic effect like Provenge and Yervoy, not just at the site of injection.

IL-12 combines systemic immunotherapy and angiogenesis, which are proven mechanisms of action for fighting cancer. This has created considerable interest in IL-12 as a possible anti-cancer agent, but the dose levels needed to produce a therapeutic effect when it is infused have resulted in unacceptable toxicity. ImmunoPulse can deliver therapeutically effective levels of IL-12 into the tumor microenvironment with mild side effects and may unleash the full potential of IL-12.

NeoPulse

OncoSec's second product, NeoPulse, is based on using the OMS electroporation system in conjunction with the injection of small molecule cancer drugs into tumor lesions. Electroporation can be used with any number of drugs, but OncoSec is focused on the older, now generic chemotherapy agent bleomycin. With NeoPulse, an injection of bleomycin into the tumor is followed by electroporation.

NeoPulse is initially being used to treat tumors that are localized such as head and neck, breast cancer, melanoma and basal cell carcinoma that are easy to reach and inject. These can be either tumors that are being treated for the first time or have recurred. NeoPulse is only active at the site of injection and does not produce benefit in treating metastases. ImmunoPulse on the other hand, through its activation of the immune system can be effective against metastases.

The current standard of care for the treatment of localized tumors is surgery or radiation. In the process of eradicating tumor tissue, they can destroy or damage normal tissue surrounding the tumor resulting in side effects and quality of life issues. NeoPulse acts only on the tumor tissue and spares normal tissue. It has the ultimate potential to be used in place of surgery or radiation, but it will take extensive clinical trials and physician experience before NeoPulse is widely accepted as a substitute for these gold standard therapies. In the near term, NeoPulse will be used as adjuvant therapy in more severe cancers or in treating cancers that don't lend themselves to treatment with surgery or radiation because of their location.

Both ImmunoPulse and NeoPulse offer significant advantages over most conventional cancer therapies which can require complicated injection administration schemes that can require multiple cycles of therapy over several months. Both are given as three injections over the course of a week and can be administered in an out-patient setting which reduces costs. The side effect profile is very mild in comparison to chemotherapy.

Clinical Trial Results for ImmunoPulse

I came across OncoSec as part of my research on immunotherapy. Readers who have followed my work will know that I have written extensively on the dendritic cell cancer vaccines of Northwest Biotherapeutics, ImmunoCellular Therapeutics and Dendreon as well as Bristol-Myers Squibb's CTLA-4 inhibitor Yervoy. These therapies are called active immunotherapies. Passive immunotherapies based on monoclonal antibodies have produced such blockbuster anti-cancer drugs as Roche/ Genentech's Avastin and Biogen-Idec's Rituxan. I believe that active immunotherapy may be the next major advance in cancer treatment beyond monoclonal antibodies, targeted therapy and the ancient chemotherapy drugs that now account for most of cancer treatment. As a result, I am always interested in new approaches, and ImmunoPulse caught my attention.

ImmunoPulse has produced promising clinical data in a phase I trial involving 24 patients with malignant melanoma, 19 of who had metastatic disease. The locally injected lesions had a complete response rate of 34% and an objective response rate of 76% with duration of response in excess of six months. Very importantly, the complete response in distant uninjected lesions was 16% and the objective response was 58%. The one year survival rate for the 19 metastatic patients was 67% which compares favorably to 42% for Bristol-Myers Squibb's Yervoy in 251 patients in its phase III trials. A recent interim look at an ongoing phase II trial of ImmunoPulse in malignant melanoma supports key findings from the Phase I trial.

OncoSec is also conducting a phase II trial in Merkel cell carcinoma, a skin cancer that is much more deadly and difficult to treat than malignant melanoma, which is one of the deadliest cancers. This trial will enroll 15 patients and so far five of these patients are evaluable. Of these patients, three have shown a response to ImmunoPulse and one patient has experienced a near complete response. This is not a cancer in which spontaneous remissions occur and although the numbers are small, this is a noteworthy result and has caught my attention.

A trial of ImmunoPulse in cutaneous T cell lymphoma is also underway. However, interim data will not be available until 2Q, 2013 or later.

Clinical Trials with NeoPulse

NeoPulse has a much more extensive clinical data base. Two phase III randomized trials of 189 head and neck cancer patients showed no difference between the NeoPulse treated patients and surgery. Because of its tissue sparing effect, NeoPulse had no effect on quality of life in contrast to a surgery which decreases quality of life.

Another open label trial in primary and recurrent head and neck cancer reported on an additional 92 patients. The primary endpoint of local control of the tumor at 8 months post treatment was achieved. After eight months of treatment, 95% of patients were still alive and at twenty four months 86% were alive. In addition, 83% of patients with primary tumors treated with NeoPulse alone at 8 months were disease free. The principal investigator concluded that NeoPulse demonstrated promising safety and efficacy results in this patient population, in addition to providing superior functional and cosmetic outcomes for patients.

Another open label trial of 88 patients with basal cell carcinoma, squamous cell carcinoma and melanoma was also conducted. Based on an interim analysis of 69 patients, the complete response rate in basal cell carcinoma was 93% and 70% in squamous cell carcinoma. This is comparable to historical results with surgery.

ImmunoPulse Compared to Amgen's T-Vec and Vical's

Allovectin-7

The clinical data for ImmunoPulse is promising, but enthusiasm must be tempered by the very small number of patients involved in the trials. My next step was to look for validation of ImmunoPulse from products that use a similar therapeutic approach that uses local injections to produce a systemic effect. The two products that caught my attention were T-Vec which Amgen (NASDAQ:AMGN) obtained with the recent acquisition of Biovex and Vical's (NASDAQ:VICL) Allovectin-7.

T-Vec is an oncolytic virus vaccine, which like ImmunoPulse is injected directly into a lesion. Certain viruses such as herpes simplex preferentially infect and kill cancer cells and consequently are called oncolytic viruses. T-Vec is comprised of the herpes simplex virus linked to a plasmid that expresses GM-CSF once herpes simplex infects the cancer cell. GM-CSF is an adjuvant for vaccine therapy that stimulates the immune system to fight cancer.

BioVex started a phase III pivotal trial in metastatic melanoma in April of 2009 and a phase III trial in head and neck cancer in December of 2009. For the malignant melanoma trial, the FDA has agreed to an endpoint that is based on complete or partial response with six months, or greater, duration of response. T-Vec is being compared to GM-CSF administered systemically. The FDA agreed to a Special Protocol Assessment based on this endpoint.

In a conference call after the Biovex acquisition, the then head of R&D at Amgen Roger Perlmutter had some interesting comments. He said that he believed that there is both a local and distant effect on lesions with OncoVex. This substantiates the hypothesis underlying ImmunoPulse that injection in a local tumor lesion will result in a systemic effect. He also said that he was impressed by the complete and partial responses in malignant melanoma as these are not tumors that go away by themselves. The responses seen with ImmunoPulse in phase I and II trials for malignant melanoma and Merkel cell carcinoma become more meaningful when viewed against his comments.

Vical should be announcing phase III results of Allovetin-7 for treating malignant melanoma in the first half of 2013. Like ImmunoPulse, it is injected directly into a tumor. Allovectin-7 is based on a plasmid that expresses proteins from two genes, HLA-B7 and β2 microglobulin; these form an MHC-1 complex that activates both innate and adaptive immune responses. ImmunoPulse and Allvectin-7 are similar in that they use plasmid constructs, but Allovectin-7 does not use electroporation.

Both Allovectin-7 and OncoVex have conducted more extensive studies in malignant melanoma involving many more patients than the phase I and II trials of ImmunoPulse. Comparing results of these three drugs may ultimately prove to be misleading as results of large phase III trials are completed. Still, a comparison of response rates of ImmunoPulse against these drugs in both locally treated lesions and untreated distant lesions is pretty impressive.

Comparing Response of ImmunoPulse to Other Interlesional Therapies Under Development

 

Local Response

Distant Response

Allovectin-7

19%

21%

OncoVex

26%

18%

ImmunoPulse

76%

53%

   

Thoughts on the Current Market Value of OncoSec

Amgen acquired BioVex Group in January 2011 for $425 million plus the potential for another $575 million contingent on meeting certain sales and regulatory milestones. Vical has a current market capitalization of $242 million. The obvious question of investors is why is OncoSec selling at a micro-cap valuation of $37million? (In my calculation of market capitalization, I assume include all shares outstanding and both in and out of the money options. Using GAAP Accounting the market capitalization is about $30 million.) There is no one issue that explains this but there are a number of factors involved.

By coming public through a reverse merger, OncoSec never went through the initial public offering process which introduces a company broadly to the investment community. Moreover, the two or three investment banking firms that are usually involved in an IPO as part of their service offer analyst coverage on an ongoing basis that keeps investors informed on the progress of a company. The reverse merger is a cheaper way of coming public, but comes at the expense of reduced investor awareness.

There is also intensive competition in cancer drug development. This means that investors are bombarded with the investment stories of hundreds of different companies. It is intellectually challenging or more aptly impossible to fully assess the competitive advantages of innumerable cancer drugs in development. As a result investors focus on technologies that are well understood; electroporation is not well understood. It is not necessarily the case that the best understood and most closely followed technologies are indeed the best.

As I have previously pointed out, the data available on ImmunoPulse is based on a small number of patients. Despite encouraging data, biotechnology investors are extremely skeptical about phase I data. All too often, these results are not replicated in broader phase III trials. The NeoPulse clinical data is broader and more convincing, but the patient sample size is still small and I think that few investors have focused on it. The lack of partnering deals, so far, does not provide the validation of a sophisticated third party. The company also has a strained cash position as its $4 million of cash can fund operations only through nine months.

Key Upcoming Stock Catalysts

OncoSec has received a CE Mark for its OMS electroporation device in Europe. This means that NeoPulse using bleomycin as the active drug now can be commercially introduced in Europe and marketed in accordance with the existing label for bleomycin. Reference can be made to the positive clinical studies conducted by OncoSec in head and neck, basal cell and squamous cell carcinoma. Management has made the decision to focus all of its resources on ImmunoPulse and only pursue development of NeoPulse with a partner. The data created on NeoPulse is quite encouraging and warrants a broad development effort, but trying to fund both ImmunoPulse and NeoPulse is not possible given the financial constraints of the company.

Given the limited data, the European launch of NeoPulse will likely start narrowly by marketing first to investigators familiar with the product to build awareness and create additional clinical data; it will then gradually be rolled out to a broader audience. I think that it will take about a half year from the signing of a partnering deal to begin marketing NeoPulse in Europe. I think that first year sales will be minimal and could build to perhaps $10 million in two to three years or so. Over a longer period of time with consistent marketing and more clinical data, I could see sales in excess of $100 million in Europe. The FDA will require a new phase III trial in the US for approval and potential marketing in the US before 2017 is doubtful.

Management has been engaged in NeoPulse partnering discussions and is finding the going slower than expected. Big pharma partners are approached constantly with licensing opportunities in oncology and electroporation is not a technology that they are familiar with. I think that a deal may be done, but it will take time. I think that the deal is likely to be backend loaded with significant milestone payments based on regulatory and sales milestones. The upfront payment could only be a few million dollars.

Th year 2013 will be a critical year for ImmunoPulse as OncoSec awaits data from its clinical trials that will determine partnering and financing decisions.

· The phase II trial for metastatic melanoma will complete enrollment in 1Q, 2013 and data will be released at ASCO in May 2013 and other conferences throughout the year. An end of phase II meeting with the FDA could take place in 2Q, 2013 and a potential pivotal trial could start in 4Q, 2013.

· The trial in Merkel cell trial carcinoma could complete enrollment in 1Q, 2013. The end of phase II meeting with the FDA could take place in 3Q, 2013 and a pivotal phase III trial could begin in 4Q, 2013.

· The trial in cutaneous T cell lymphoma started in July 2012. It could report interim data in 2013, but it is unlikely to be an investor focus until 2014.

If the final data on ImmunoPulse in malignant melanoma is as positive as the phase I data and the interim results for phase II, it could be the basis for a pivotal phase III trial starting in 4Q, 2013. However, the landscape in metastatic melanoma is becoming congested. Bristol-Myers Squibb's Yervoy and Roche's Zelboraf, which were introduced in 2011, were the first new approved products in 30 years. Yervoy is an anti-CTLA-4 monoclonal antibody and Zelboraf is a small molecule that is only effective in patients with the BRAF V660E mutation.

There are a number of other promising new products in development. These include the PD1 inhibitors, Celgene's Abraxane and Glaxo's MAGE-A3. Many key opinion leaders consider new monoclonal antibodies that target and block PD-1 as being the most promising anti-cancer drugs in development. They don't directly kill cancer cells, but block a biological pathway that cancers use to shield themselves from the action of the immune system. By blocking this effect, the ability of the immune system to fight the cancer is significantly enhanced.

Cancers express two proteins called programmed death-1 and programmed death-2 or PD-1 and PD-2. When they join together, they form a biological shield that protects cancer cells from the immune system response. These are prime targets to address with monoclonal antibodies as are other proteins involved in this pathway: the programmed death ligands PD-L1, PD-L2 and PD-L3

Bristol-Myers Squibb, Merck, Teva and Roche have monoclonal antibodies that target and block PD-1. BMY's BMS-936558 is the current leader as it is in phase III trials in melanoma, non-small cell lung cancer and kidney cancer. Merck's MK-3475 is also close to phase III trials; Teva and Roche have product candidates that are somewhat behind as their products are in phase II and phase I respectively.

The Bristol-Myers and Merck products have produced durable responses in patients who have exhausted currently available therapeutic options in phase I and II trials. Topline results from the phase III trial of BMS-936558 in non-small cell lung cancer is expected in 2014, melanoma in 2015 and kidney cancer in 2016. Bristol-Myers also has a monoclonal antibody against PD-L2 in development. It is also doing studies with BMS-936558 in combination with Yervoy.

The decision on how to pursue clinical development of ImmunoPulse in malignant melanoma will be made in late 2013. It is complicated by the need to judge how ImmunoPulse may fit with current therapies and those in late stage development. Clinical trials will have to address at what stage of the cancer ImmunoPulse should be given and whether it should be used sequentially or in combination with existing and new therapies. Its phase III development will be an expensive and lengthy undertaking that might cost hundreds of millions of dollars and could lead to approval in 2017. I think that this can only go forward with a large partner.

The road to development in Merkel cell carcinoma is much clearer as there are no approved products and there is limited new product activity. Based on an analysis of the first five patients in the phase II trial, OncoSec has seen a strong clinical response in one patient that is classified as a partial response, but is tracking toward a complete response. This type of response is extraordinary in this cancer, which is more deadly than malignant melanoma.

Based on conversations with key opinion leaders, OncoSec believes that one more strong response comparable to the one already seen could warrant the start of a pivotal phase IIb/III trial. This might be a 150 patient single arm, multi-site study. Key opinion leaders believe that a response rate of 25% to 30% might be an approvable endpoint that this would qualify ImmunoPulse for accelerated approval. This phase III trial could start in 4Q, 2013. It would take about two years to complete and would lead to possible approval in 2016. The cost of the trial would be about $15 million and might be within reach of the company to conduct on its own. Alternatively, it might partner all indications of ImmunoPulse: malignant melanoma, Merkel cell carcinoma and cutaneous T cell lymphoma

There is no interim data on cutaneous T cell lymphoma, but it has a significant unmet medical need for milder forms of CTCL which are now treated with photodynamic therapy. Management thinks that a pivotal trial could be started by 4Q, 2013. It is possible that it could be developed as a monotherapy or in combination with photodynamic therapy.

Investment Thesis

The year 2013 will be a pivotal one for OncoSec as topline data on the three phase II trials of ImmunoPulse will read out. Critical decisions on the development pathway for ImmunoPulse and resultant decisions on financing will be dependent on the power of the data. Also, partnering discussions for NeoPulse are now underway and the outcome could be known in 1H, 2013.

If the data on ImmunoPulse is promising, there are a large number of potential scenarios, but I believe they can be lumped into three possible outcomes. The company could be sold outright, ImmunoPulse could be licensed for worldwide development or OncoSec might elect to develop ImmunoPulse on its own. I think that given the stage of development of ImmunoPulse that a significant percentage of the deal terms in an acquisition or licensing deal would be delayed and dependent on hitting clinical, regulatory and sales milestones as in the case of Amgen's acquisition of Biovex. Still, either of these outcomes would almost certainly be rewarding for shareholders.

Taking a product into commercial development produces much greater rewards and greater risks for shareholders. I think that if OncoSec decides to go forward with ImmunoPulse on its own, it will likely be in Merkel cell carcinoma or possibly cutaneous T-cell lymphoma. These are small orphan indications with less competitive activity than malignant melanoma. The company believes a single-arm, phase IIb/III trial in Merkel cell that produces a 25% to 30% response rate might be sufficient for approval. So far, the company in its phase II trial has seen a very strong response in one of five patients treated and evaluated. Management thinks that this trial might cost on the order of $15 million to conduct and could lead to commercialization in late 2016 or early 2017, assuming success in the trial.

The Merkel cell opportunity could be very meaningful. While there are only 2,500 newly diagnosed patients each year, the price of treatment could be substantial. Yervoy is priced at $100,000 per year for malignant melanoma and management of its side effects adds as much as $50,000 to its cost. The side effects with ImmunoPulse are minimal and easy to manage. I think that ImmunoPulse, if successfully developed could be priced at $150,000 per annum. This suggests an addressable market of $430 million in the US and sales potential in the international market, as a rule of thumb, usually approaches the US market. International rights would almost certainly be partnered.

If ImmunoPulse is introduced in 2016, it is possible that the desperate need for effective treatment could result in its quickly penetrating 50% of the market by 2018; this would result in US sales of $215 million and perhaps the same amount internationally. The number of cancer treating sites with Merkel cell expertise is small and OncoSec might be able to reach targeted groups with a small sales force. This would require additional capital and based on experience with other small companies that have followed such a strategy, this might require $30 million in costs for the sale reps and launch expenses. Approval of the product likely would make raising this capital an easy undertaking.

OncoSec Medical needs to strengthen its financial position. I estimate that it will end the first quarter of fiscal 2013 (period ended September 2012) with about $4 million of cash. It is burning about $450,000 per month at the current burn rate so that this cash will last about 9 months or until mid-2013. A NeoPulse partnering deal might bring in $2 to $4 million in that time frame, but this remains to be seen. In the going it alone scenario, OncoSec would need to fund the burn rate for the company plus the expense for beginning the Merkel cell trial. This could lead to an equity offering of $15 million or so in mid to late 2013.

So much depends on the upcoming data. The interim data on the phase II trial of ImmunoPulse in malignant melanoma validates the signal from the phase I study and getting a strong response in one of five Merkel cell patients is quite encouraging. I earlier quoted Roger Perlmutter as saying in regards to Amgen's decision to acquire Biovex that spontaneous remissions in cancers as aggressive as these just don't occur spontaneously. There is a good reason to believe that ImmunoPulse has meaningful activity in these disease states.

A decision to buy OncoSec is dependent on the risk appetite of the investor. There is still meaningful uncertainty on the outcome for clinical trials data, partnering and financing decisions. The stock is priced like a venture capital investment with a market capitalization of $37 million; as previously noted this includes all shares and both in and out of the money warrants and options. Based on GAPP accounting the market capitalization is $30 million. I see the risk in investing prior to knowing the outcome of the phase II trials as significant, but less than that usually assumed in a venture capital investment; there is encouraging phase I and interim data on phase II trials.

I am obviously interested in OncoSec's immunotherapy as is borne witness by the extent of this report. I think that this stock might be appropriate for investors who are willing to risk the loss of most of their investment in return for some chance of realizing outsize returns. However, many investors will want to see the clinical data and gain some insight into the potential outcomes for financing and partnering before deciding to invest in OncoSec. I put myself in this "wait and see" camp.

ImmunoPulse Looked at in More Depth

Overview of ImmunoPulse's Mechanism of Action

ImmunoPulse is an immunotherapy that uses the body's immune system to destroy cancer cells; it is a combination of a drug and a medical device. The drug component is a DNA plasmid into which a gene that expresses cytokine Interleukin-12 or IL-12 has been genetically engineered. A syringe containing plasmids is injected into a tumor lesion. Then OncoSec's OMS pulse generator applies electrical impulses through an applicator into the same lesion. Oncosec believes that this electroporation can increase the amount of the DNA plasmid taken up by the tumor and the resultant production of IL-12 by 100 to 1000 times as compared to administering the plasmid without electroporation or just injecting IL-12 alone.

IL-12 is naturally produced in the body by antigen presenting cells such as dendritic cells, macrophages and B- cells that are integral to the process of presenting tumor antigens to the body's immune system and mounting an immune response. IL-12 can mobilize antigen presenting cells that activate killer T- cells and antibodies which are integral to adaptive immune response against cancer. It also enhances the effect of natural killer cells of the innate immune system. IL-12 also has an anti-angiogenic effect, which blocks the formation of new blood vessels which the tumor needs for nourishment.

These biologic properties of IL-12 have created interest in its use as an anti-cancer agent. However, it has not been shown to be an effective anti-cancer therapy because the amount of injected IL-12 needed for a therapeutic effect has produced unacceptable toxicity. ImmunoPulse allows effective amounts of IL-12 to be introduced into the tumor microenvironment without significant side effects.

There are two immunotherapy drugs that have been approved, Dendreon's Provenge and Bristol-Myers Squibb's Yervoy, and immunotherapy is an area on intense research interest by the biotechnology industry. Both of these drugs enhance the ability of the immune system to respond to cancer. The anti-angiogenic effect is the mechanism of action for Genentech's monoclonal antibody Avastin. ImmunoPulse combines immunotherapy and anti-angiogenesis, which are both proven methods for fighting cancer.

Phase I Study of ImmunoPulse in Malignant Melanoma

The first trial that was conducted with ImmunoPulse was a phase I trial involving 24 patients with melanoma was completed in a physician sponsored trial at University of California at San Francisco. Investigators selected up to four lesions for injection and injections were given in each lesion at days 1, 5 and 8. The primary goals of the study were to determine that ImmunoPulse was safe, that results were reproducible and that the dose could be titrated.

One measure of the efficacy of a drug treating a solid tumor is its effect on the size and growth of the tumor. In a partial response, the tumor mass shrinks by 50% or more and in a complete response the tumor mass disappears (100% shrinkage) leaving only scar tissue. The sum of the percentage of partial and complete responses is called the objective response. If the tumor mass is stable, a patients is said to have stable disease and it continues to grow it is progressive disease. In the case of malignant melanoma and other skin cancers, there is no single site of the tumor as there are multiple lesions on the face, arms, legs and trunk. To measure tumor response, a physician identifies a number of lesions and measures the summed shrinkage of those lesions.

The secondary endpoints in this phase I study looked at response rates, duration of response and survival. At the same time as lesions were selected for injection, investigators also identified other distant lesions that were not to be injected to determine if ImmunoPulse could reduce the tumor size of distant lesions that were not injected which would be evidence that it is producing a systemic effect on the cancer as well as a local effect in the tumor lesions. The primary endpoints were reached but the more important results were in the secondary endpoints.

There were 24 melanoma patients treated in the phase I trial of which 19 had metastatic disease. The locally injected lesions had a complete response rate of 34% and an objective response rate of 76% with duration of response in excess of six months. Very importantly, the complete response in distant un-injected lesions was 16% and the objective response was 58%

The one year survival rate for the 19 metastatic patients was 67% which compares to 42% for Yervoy in 251 patients in its phase III trials.

ImmunoPulse does not produce the severe side effects stemming from immune suppression that is seen with chemotherapy. The side effects were quite mild such as fatigue, fever, chills, injection site reactions, erythema and rash and were classified as stage 1 or 2 which were likely attributable to the IL-12.

There are short term side effects associated with electroporation that can be unpleasant. It delivers 1300 volts of electricity at low amperage creating a shock that lasts about two seconds. One patient described the effect as comparable to being stuck a blow on the side of his head. However, the pain was tolerable and short lived. Treatment can be given on an outpatient basis, with the process taking just a few minutes to treat each lesion.

The results of this phase I study encouraged OncoSec to begin separate phase II trials in malignant melanoma and two other skin cancers: Merkel cell carcinoma and cutaneous T-cell lymphoma or CTCL. Each of these cancers has skin lesions that can be readily addressed with ImmunoPulse, but they are very different diseases. The design of each trial builds on the phase I trial design in which up to four lesions are injected on days 1, 5 and 8. In the malignant melanoma and cutaneous T-cell lymphoma trials, if there is no disease progression after 90 days, patients can be retreated at three month intervals with a limit of four cycles. In the case of Merkel cell carcinoma, the interval between cycles is 3 to 4 weeks if there is no progression.

The primary endpoint of the malignant melanoma and CTCL trials is to determine if both locally injected and untreated distant lesions regress or stabilize twenty four weeks after the last injection. The secondary endpoints are

• Progression free survival

• Overall survival

• Duration of distant response

• Time to objective response

• Safety of intra-tumoral IL-12 in vivo electroporation

The primary endpoint of the Merkel cell carcinoma trial is an increase in the level of IL-12 expression. The secondary endpoints are the response rates in distant and local lesions as well as those for the malignant melanoma and CTCL trials.

Interim Analysis of Phase II Malignant Melanoma Trial

Interim results the phase II trial in malignant melanoma was presented on November 16, 2012. Biopsies and peripheral blood samples were taken before treatment and after treatment to determine IL-12 and gamma interferon levels to gage immune response. Response of the locally treated lesions was assessed at days 39, 90, and 180. Objective response of distant untreated lesions was assessed at day 180.

At the time of the interim analysis, two patients had reached the 180 day primary analysis time point. One of these patients had a complete response in locally treated lesions and stable disease in distant lesions; the investigator rated the overall response as stable disease. The second patient had a partial response in locally treated lesions and a complete response in distant lesions; the overall response was rated as a complete response.

There were two patients evaluated at 90 days. Both were judged as having a complete response in locally treated lesions and per the trial design there was no evaluation of distant lesions. In four patients evaluated at 60 days for local lesions, there was one complete response, three partial responses and one stable disease. Four patients dropped out of the trial due to progressive disease. These results are shown in the following table.

Interim Results of Malignant Melanoma Trial

    
 

Local lesions

Distant lesions

Overall response

Days Post Treatment

   

180 days

   

Patient 1

CR

SD

SD

Patient 2

PR

CR

CR

    

120 Days

   

Patient 3

CR

  

Patient 4

CR

  
    

90 Days

   

Patient 5

CR

  

Patient 6

PR

  

Patient 7

PR

  

Patient 8

PR

  

Patient 9

SD

  
    

Dropped Out

   

Patient 10

PD

  

Patient 11

PD

  

Patient 12

PD

  

Patient 13

PD

  

The side effect profile was mild as in the phase I trial as only grade 1 or 2 side effects reported. There were two reports of fatigue, anxiety, and erythema and macropapular rash out of 18 total side effect reports. There were no reports of side effects related to immune suppression which is so common with chemotherapy.

Of the 13 patients treated 11 had stage III metastatic melanoma and two had stage IV. Each patient was treated in two to four lesions. Three of the 10 patients received more than one cycle of therapy.

The authors offered the following conclusions

• Plasmid IL-12 with in vivo electroporation shows significant activity on local lesions, and can trigger responses on distant untreated lesions

• Preliminary analysis reveals a favorable safety profile.

• An interesting event was the development of a transient neutrophilic dermatitis in two patients who benefited from treatment,.

• In a complete responder, treatment transiently increased activated CD69+ CD8 T effector cells and reduced proportions of circulating T regs and PD1+ CD8 T effector cells in peripheral blood.

• This Phase II interim analysis supports key findings from the Phase I trial. Enrollment is on-going and long-term follow-up will assess durability of response.

Phase II Trial Results of ImmunoPulse in Merkel Cell Carcinoma

Merkel cell carcinoma is a rare skin cancer that affects about 2,500 people annually in the US. With a one year mortality rate of approximately 33%, it is even more deadly than malignant melanoma. No current therapies are approved for Merkel cell carcinoma. In January of 2012 the first patient was enrolled in a single-arm, open-label multi-center phase II trial evaluating ImmunoPulse for the treatment of Merkel cell carcinoma. OncoSec believes that this is the only phase II program under development for this specific cancer.

The study plan calls for the enrollment of about 15 patients and enrollment is expected to be completed in 1Q, 2013. The primary endpoints are IL-12 gene expression in tumor tissue at three to four weeks post-treatment and objective response rates (in both locally injected and distant non-injected lesions) six months after treatment. Secondary endpoints evaluate time to relapse and overall survival.

Interim results were announced in October of 2012 from this trial as the company reported on the first five patients treated. All five had distant metastatic disease, and were eligible to receive up to two treatment cycles. As in malignant melanoma, a cycle consists of injections in the tumor on days 1, 5 and 8. Two subjects withdrew from the study after one cycle because their disease progressed, leaving three patients who completed the study and received two treatment cycles.

Out of five patients, there was conclusive data on IL-12 expression in only three patients. The original protocol design was to obtain tumor samples using fine needle aspiration instead of tumor biopsy, with the intention of trying to maintain tumor integrity. However, after using the fine needle aspiration samples for analysis, it was determined that these samples were not reliable and insufficient to obtain consistent results. The protocol has since been changed to only obtain punch biopsies for the purposes of IL-12 analysis.

One patient achieved a complete response in local lesions and a 70% partial response in distant lesions; he received a third cycle of therapy. This is an extremely encouraging result as spontaneous remissions in this aggressive cancer are just not seen. This is highly suggestive that ImmunoPulse has a therapeutic effect in this disease. This patient had been heavily pretreated with systemic chemotherapy, surgery, radiation and interferon, but the cancer continued to progress. Two patients experienced partial responses at local tumors but not at distant sites; they went on to receive a second cycle of therapy. These and two other patients were considered to have progressive disease

In this difficult to treat tumor these are encouraging results, especially the near complete response. However, the small number of patients treated has to temper one's enthusiasm. The side effect profile was benign with low level pain in all five patients as a result of the electroporation and an injection site reaction in one patient. No systemic or persistent side effects were seen.

There are 15 patients scheduled for enrollment in the Merkel cell study and enrollment should be completed by 1Q, 2013. The protocol has been amended to allow for up to four cycles of therapy. Investigators have learned this is a very different disease than malignant melanoma and are considering using new and more aggressive dosing techniques

Going Forward with ImmunoPulse Development

The decision on how to pursue clinical development of ImmunoPulse will be made in late 2013. They will be careful about charging into the malignant melanoma market until they have a sense of how ImmunoPulse fits in with the anti-PD-1 and anti-PDL-1 monoclonal antibodies. It may be the case that they initially focus all of their resources on Merkel cell carcinoma or cutaneous T cell lymphoma.

The company might choose to focus on Merkel cell carcinoma, depending on data coming out in 2013. Management believes that one more strong PR/CR response would provide the basis for going into a phase III trial. This would be a 150 patient open armed, multi-site study. Key opinion leaders have indicated to management that an objective response rate of 25% to 30% might be an approvable endpoint that would qualify them for accelerated approval. This is similar to the regulatory strategy that Genentech took with the Curis hedgehog drug. This phase III trial could start in 4Q, 2013. It would take about two years to complete and would lead to possible approval in 2016.

Phase II Trial of ImmunoPulse in Cutaneous T-Cell Lymphoma

Cutaneous T-cell lymphoma or CTCL is another rare skin cancer that affects about 3000 patients annually in the US. It is a disease that requires life-long treatment of symptoms; there are no curative therapies. Earlier stage disease is treated with photodynamic therapy and late stage disease with chemotherapy.

The most recent approvals for CTCL have been histone deacetylase or HDAC inhibitors: Merck's Zolinza (vorinostat) and Celgene's Istodax (romidepsin) which have modest efficacy and side effect issues. These are small molecule drugs that are not immunotherapy drugs like ImmunoPulse. There remains a significant unmet need in both the early and late stage patient settings for a safe, effective therapy.

The first patient in the cutaneous T-cell lymphoma trial was enrolled in July 2012. The plan is to enroll about 27 patients in a phase II single-arm, open-label multi-center study. The primary endpoint is to assess responses in locally treated and distant lesions. One treatment cycle will consist of three treatments applied to up to four lesions on days one, five and eight. Patients with stable or reduced disease at three months will be eligible to receive a second treatment cycle. Additional treatment cycles at six, nine and 12 months can be applied if there is no disease progression or tolerability issues. The maximum number of cycles allowed is four. The first interim reports on this trial should be sometime in 2013

NeoPulse in More Depth

Mechanism of Action

NeoPulse is based on the injection of the widely used chemotherapeutic agent bleomycin into tumor lesions accompanied by electroporation. The potential therapeutic setting for this product is the same as surgery or radiation, i.e. when the tumor is localized. If a cancer is confined to a single location, surgery and/or radiation are usually used to reduce or eliminate the tumor mass. This procedure is also used in some cancers when they recur.

Bleomycin is highly effective cancer drug, but also highly toxic. The advantage offered by NeoPulse is that it improves the therapeutic ratio of the drug. Traditionally, bleomycin has been administered by intravenous infusion. Because this method targets cancer cells inefficiently, high doses must be used and significant side effects are common. Oncosec believes that NeoPulse given as an intra-tumoral injection at only 1/20th of the normal IV dose can enhance the tumor killing effect by a factor of 4000.

The potential advantage of NeoPulse is that it does not destroy normal tissue surrounding the tumor as do surgery and radiation which remove eradicate the entire tumor, but also impact normal tissue around the margin of the tumor. The hope is that NeoPulse may provide comparable efficacy to surgery and radiation while improving the quality of life for cancer patients who would otherwise face significant effects on appearance and tissue function.

The setting for NeoPulse is in the local setting to treat local lesions and also as an adjuvant to surgery or radiation. Cancers targeted are solid tumors and so far it has been clinically tested in head and neck and breast, basal cell carcinoma. These tumors have in common that they can be accessed relatively easily with the syringe used to deliver NeoPulse and the electroporation generator. NeoPulse appears to provide a potentially important treatment alternative to surgery that may address hard-to-treat tumors and where there exists a particular need to preserve function and quality of life.

There is a significant amount of clinical data on NeoPulse that is quite encouraging. There is data from two randomized phase III trials in recurrent head and neck cancer that involved 214 patients. There is additional data from phase IV open label trials

Phase III Trial Results of NeoPulse in Head and Neck Cancer

Inovio began two open label phase III trials in 2004 for recurrent head and neck cancer, which were conducted at 22 clinical sites in the United States, Canada, Eastern and Western Europe. The intention of the two trials was to enroll 400 patients who were candidates for surgical resection. Half were to be randomized to NeoPulse and half to placebo. The primary endpoint was to assess quality of life as determined by factors such as the ability to swallow, being able to have a normal diet and ability to eat in public. These were assessed by using the Performance Status Scale for Head and Neck Cancer or PSSHN. Secondary endpoints were safety, local disease control eight months after treatment and survival.

At an interim look when the company had enrolled 214 patients, the data safety monitoring board recommended that the study be ended as it appeared to be futile that it would reach its endpoint and there was a slight trend toward greater mortality in the NeoPulse group. Inovio decided to stop enrollment in the trial, but those patients who had already been treated were followed over the subsequent years to see how they fared.

Data was reported in 189 evaluable patients in July 2012 of whom 98 patients were on NeoPulse and 91 were treated with surgery. The data showed that the data safety monitoring board had made a mistake in recommending that the trial be stopped. There were no statistically significant differences between time to death or local disease control rate at eight months between the surgery and NeoPulse groups. Median time to death was statistically indistinguishable between surgery at 209 days versus 231 days for NeoPulse (p=0.55). Local tumor control at eight months was achieved in 92% of surgery patients versus 90% of NeoPulse patients. All of these parameters indicate that NeoPulse is as effective as surgery.

As expected, NeoPulse improved quality of life when compared to surgery as measured by the PSSHN score. The PSSHN score for patients started on NeoPulse was 257 and eight months later was measured at 248, from a statistical standpoint there was no difference. The surgery group showed a deterioration from 269 at the start of the study to 248 eight months later. For surgery, this was a statistically significant reduction in quality of (p=0.036), relative to control. The maintenance in quality of life for NeoPulse was due to its being able to spare vital tissue surrounding the tumor.

Phase IV Study in Skin Cancers

OncoSec has done additional studies in Europe which it calls phase IV studies. These were done to provide additional data on efficacy and pharmacokinetics. OncoSec reported on one such trial in November 2012. A total of 88 patients were enrolled in patients with skin cancers: basal cell carcinoma, squamous cell carcinoma and melanoma. The study was conducted at 15 clinical centers across Western Europe. The primary goal was to assess the ability of NeoPulse to control growth or recurrence of the cancer six months following treatment. This was compared to historical results with surgery.

At the time of analysis, 69 of 88 patients were evaluable at the six-month follow-up. The complete response rate at six months among basal cell carcinomas was 92.8 percent and 70.0% among squamous cell carcinomas. The response rate of melanoma was not calculated since multiple tumors were treated with concomitant therapy. The treatment was well-tolerated. The most frequent treatment-related adverse events were pain, infection and insomnia; all were transient and manageable.

Investigators concluded that NeoPulse appears to be well-tolerated and able to achieve local control comparable to that of surgical resection. The potential advantage of the therapy lies with the preservation of normal tissue with improved cosmesis, avoiding the need for reconstruction in difficult-to-treat sites or those with significant innervation. Together with the possible reduction in cost associated with hospitalization for procedures involving extensive reconstruction, the approach warrants further exploration as an alternative in select cases of skin cancer.

Phase IV Study in Head and Neck Cancer

OncoSec reported in September of 2011, the results of a phase IV registration trial carried out in Europe for head and neck cancer. It enrolled 92 patients (53 males and 39 females) with 66 patients followed for up to two years. Seventy-six percent of tumors treated were primary cancers and 23% were recurrent cancers.

Patient survival following treatment at 8 months was 95% (87/92) and 86% (79/92) at 24 months. In addition, 83% (19/23) of patients with primary tumors treated with NeoPulse alone at 8 months were disease free. The mean time to onset of recurrence was 379 days for primary disease and 276 days for recurrent disease. Preliminary analysis of this data demonstrates that the primary endpoint, local control of the tumor at 8 months, was achieved.

The principal investigator of the study stated that NeoPulse demonstrated promising safety and efficacy results in this patient population, in addition to providing superior functional and cosmetic outcomes for those patients with recurrent or otherwise complicated and difficult to treat skin cancers. This simple and novel delivery of bleomycin, an approved chemotherapeutic agent, through reversible electroporation has shown a marked improvement in potency, while delivering a much lower and safer concentration of the drug.

Phase I Study in Recurrent Breast Cancer

OncoSec announced preliminary results from a phase I study in 13 patients with recurrent breast cancer treated with NeoPulse. This demonstrated that the therapy was safe, well-tolerated, and achieved a complete response rate of 77% (10/13) for all patients treated in this study.

The open-label, single-treatment trial in patients with recurrent breast cancer following partial or complete mastectomy used intratumoral administration of bleomycin followed by electroporation. Excluding one patient lost to follow-up, 10 of the 12 evaluable patients (83%) met the criteria for Complete Response (NYSE:CR) at 24 weeks.

The result of this Phase I trial indicates the potential for this local treatment of recurrent breast cancer following partial or complete mastectomy.

Going Forward with NeoPulse

The company is finding the partnering process with NeoPulse slow going and a bit frustrating. The potential big and medium sized pharmaceutical partners are overwhelmed with product licensing opportunities and with internal research opportunities. They are also notorious for their deliberate evaluation pace. And, electroporation is unfamiliar to them as a drug delivery technique. Ideally, OncoSec would like a partner with global reach, but it would also consider a regional partner network. I am uncertain as to how long it may take OncoSec to find a good partner for NeoPulse. Management is cautious on its guidance.

OncoSec's strategy which its partner will probably adopt is to get registration quality studies underway with the goal of obtaining registration in the US. This would also help with gaining reimbursement in Europe. In Europe, they can immediately go after the recurrent head and neck market based on the data they have generated. They would then use studies like the recently reported phase IV study in basal cell and squamous cell carcinoma to expand reimbursement into other areas.

The technology may not be partnered because of other reasons. They could have done a smaller deal, but this would have interfered with their ability to partner NeoPulse on a broader regional basis in a larger deal. They have approached 25 to 30 companies and made a presentation to about half of these and of these 12 or so companies, 6 signed a confidentiality agreement. Only one moved to term sheet.

If a NeoPulse deal were signed immediately, there would likely be an initial soft launch in six months at one or two centers. This would be followed in another six months with a broader launch. During the first year, sales would be minimal. They would be looking to expand indications if they are successful in finding a partner.

The potential for NeoPulse is big, but they need much more extensive safety and efficacy data. The greatest opportunity for NeoPulse is in late stage disease. This is where responses have been most meaningful. NeoPulse would be used as an adjuvant to surgery or radiation. There is a lot of interest in the technology, but partners are moving slowly and OncoSec has been cautious in its guidance.

Competition to NeoPulse in Europe

There is a small company in Europe which has pretty much followed the pioneering efforts of OncoSec in electroporation. This is the privately owned Italian company, Igea. It has essentially used the groundwork laid by OncoSec and the data it has generated to educate physicians. They have taken advantage of the work done by Inovio with key opinion leaders to build awareness of electroporation prior to pulling out of the market.

Igea has a CE Mark for their generator and this allows them to use bleomycin in conjunction with their generator. Igea has a similar but somewhat different administration system. It has a different needle configuration and pulse generator that is less user friendly in the estimation of OncoSec. There is less potential for error with the OncoSec generator and it is simpler to use. Sales started off slowly for Igea but within four years had reached nearly $10 million. There was a good deal of off-label marketing however.

Source: OncoSec Medical: 2013 Will Be A Year Of Crucial Events