In part one of this piece I summarized performances for my small pharma investment choices in my January 11th, 2012 piece on "Top of the Class Biotechs for 2012". Of the four companies presented about a year ago, two choices pretty much had a disastrous year in 2012 while the other two had an outstanding year. Although my choices were 50-50, money invested evenly among the four picks for the year at the date of publication yielded a net gain of over 100% for the year, returns that I would be more than content with for my 2013 choices. In part one, I delved into AcelRx Pharmaceuticals (ACRX), Advanced Medical Isotope Corp (ADMD.OB), and Apricus Biosciences (APRI) and their promise for the year ahead. Following are some additional choices for consideration that will wrap up my choices of class-leading small pharmaceuticals that could lead their respective sectors for 2013. I do not claim that these will necessarily be sector leaders for clinical data, sales or future promise, but rather that these, per my research, could lead their respective sectors in terms of stock gains for the year. Once again, I do not count on phenomenal gains for each of these choices. However, I do believe the net gain for the choices combined with funds evenly distributed among them could again offer solid gains for the year ahead. Most of the following companies should be construed as development-phase entities, so there is an elevated level of risk due to reduced or nonexistent revenue streams and regulatory paths that still must be successfully navigated before their respective clinical candidates can be marketed. Investors should also consider the nature of the small pharmaceutical sector and the implied volatility among its companies with frequent wild share price swings both upward and downward; so these investments may not be for the faint of heart or for those that desire more conservative investments for their portfolios.
Small Capitalization Revenue Leader in the Stem Cell Sector
In a sector that has just last year had its first regulatory approval via Osiris Therapeutics' Prochymal for GvHD in Canada in May and then New Zealand in June, much hope is beginning to emerge in stem cell treatment for many diseases and injuries. However, despite its newfound successes, the sector still suffers from a lack of revenue generation with only Osiris even having a marketable product, albeit for a small indication. Due to the revenue generation issues in this largely development-phase sector, one small pharmaceutical rises to the top not by having the most promising therapeutic product in its pipeline but by being the most solid revenue generator of the sector. NeoStem (NBS) has a revenue-generating division described as a contract development and manufacturing organization (CDMO). The division's name is Progenitor Cell Therapy (PCT), a cell therapy manufacturing and storage facility. PCT provides cell therapy products for both the immunotherapy and stem cell sectors of biotech, and has had a number of new clients added to its customer base in 2012 alone. These clients include: Baxter International (BAX), to produce a phase 3 CD34+ stem cell therapy to target chronic myocardial ischemia, an expanded partnership with ImmunoCellular Therapeutics (IMUC), to produce ICT-107 for its phase 2 trial to treat the brain cancer GBM, and on July 16th it announced an agreement to produce cells for a pivotal phase 3 trial with SOTIO, LLC, for its dendritic cell prostate cancer vaccine.
With its ongoing successes via obtaining new clients as well as the possibility of producing products for marketing rather than just for clinicals, 2013 could be an exciting year for PCT. To add a speculative nature to an investment in NeoStem, it does have its own stem cell product candidate that is now in phase 2 clinicals in the form of AMR-001, to prevent major adverse cardiac events following acute myocardial infarction (AMI). Enrollment completion is expected in early 2013 with interim data sometime in 2H 2013. Although the company's current revenue generation is a growing and increasingly successful reality, a stem cell therapy that could address the large market potential of AMI with over 800,000 cases annually could be a significant and share-price moving event for the company. NeoStem estimates an approximately $1.2 billion target market for AMR-001 in AMI, if clinical trials prove to be successful. Interested investors should perform research into the company, starting with the company's Q3 2012 earnings and then evaluating revenue growth via PCT over the last couple of years. Please note that NeoStem should still be construed as a development-phase company as it has no clinical products marketed, and the company is still operating at a loss, although I expect it to reach profitability soon based on its PCT customer base growth. The revenue is highly significant as it leads the sector and helps to fund company's clinical candidates, thereby reducing the need for investor funding. One of my favorite sectors to invest in and write on, please perform additional research on this company and the rest of the sector to more fully realize the possibilities of not only this dynamic company, but others in various stages of clinicals with multiple indications targeted. The stem cell sector is exciting and full of promise. It continues to validate itself with clinical data and patients' stories of success past, present and likely future. I anticipate more regulatory approvals coming soon and look forward to seeing the first U.S. marketing approval in the near future.
As a picture is worth a thousand words, so is a chart. Following is a brief comparison of the stem cell sector's constituent's market capitalizations and share prices as of markets close on January 15th relative to Q3 earnings from 2012.
Share Price 01/10/13
$2.2 Million for Q3 2012 from Biosurgery products, Grafix and Ovation. No mention of revenue from Prochymal as of yet.
$0.0 for Q3 2012, $2.0 million for 9 months ending September 30th.
$4.4 Million for Q3 2012. $11.6 Million for 9 months ending September 30th.
$171,000 for Q3 2012, $302,000 for 9 months ending September 30th.
$68,184 for Q3 2012
$1.0 Million for Q3 2012, $6.4 Million for 9 months ending September 30th.
$1.7 Million for Q3 2012, $1.9 Million for the 9 months ending September 30th.
$264,000 for Q3 2012, $3.6 Million for the 9 months ending September 30th.
$195,000 for Q3 2012
$1.3 Million for Q3 2012, $4.7 Million in product revenue for 9 months ending September 30th, $2.4 Million in milestone-related revenue.
Small Pharma Leader in Small Molecule Approach to Fighting Cancer
Cellceutix Corporation (CTIX.OB) long time investors have enjoyed a solid stock run up in the last month, with shares reaching 52-week highs of $2.47 after the company traded below a dollar as recently as late November. The share price increase has come as a result of promising news on its lead drug candidate, Kevetrin™, a small molecule drug that reactivates tumor suppressor protein p53. Once reactivated (cancer cells have a way of inhibiting p53), p53 induces the expressions of p21 and PUMA (p53 up-regulated modulator of apoptosis). This reactivation inhibits cancer cell growth and causes tumor cell apoptosis (programmed cell death).
Volume and share price interest for the company's common shares started to pick up after the company's December 3rd announcement that the phase 1 Kevetrin™ dose escalation trial was progressing well with 84 blood samples from the patients being been sent to a laboratory for pharmacokinetics analysis (an evaluation of how the drug is absorbed, distributed, metabolized, and excreted from the body). A follow up December 14th announcement from the company confirmed that it was allowed to continue with the next higher dose of Kevetrin™, with dosing to begin on December 16th. Shares continued to climb to the $2.50 resistance mark on December 26-27th after a December 24th response by CEO, Leo Ehrlich, to a December 23rd story in the New York Times titled "Genetic Gamble; New Approaches to Fighting Cancer" and its focus on p53. The New York Times story went on to discuss p53 as the "Guardian Angel Gene" and mentioned work by Merck (MRK), Roche Holding Ltd. (RHHBY.PK) and Sanofi SA (SNY) in "racing to develop their own versions of a drug they hope will restore a mechanism that normally makes badly damaged cells self-destruct and could potentially be used against half of all cancers." Although obviously disappointed that Cellceutix was not mentioned in the piece, I'm certain Mr. Ehrlich appreciated the exposure for the novel approach to the publication's large readership. Important for interested shareholders going forward was a statement by Mr. Ehrlich in his response noting "I believe that a discerning examination of the article and publicly available information shows that we are not only ahead of these larger companies, but we have a better mechanism which is more likely to function against most cancers. Our research to date shows that Kevetrin™ affects both wild and mutant types of p53, a claim that to the best of our understanding, the other companies cannot make." If clinicals underway confirm this statement, the company's common shares as well as the targeted patient groups (not yet to be determined) could each benefit.
A December 31st company update gives much information that should be considered as the company heads into 2013 with a now $2.00 share price and $186 million market capitalization. With Kevetrin™ in multiple trials, Mr. Ehrlich gave indications of multiple catalysts ahead for the company in 2013 with trial updates and data presentations likely. Company-sponsored clinical trials at Harvard University's Dana-Farber Cancer Center and Beth Israel Deaconess Medical Center, which began in November, are evaluating the drug's safety with pharmacokinetics from the early cohort expected in the short-term. Trials evaluating Kevetrin™ for Acute Myelogenous Leukemia (AML) and sponsored by "a leading European university" are expected to being in 1H 2013. Data presentations by the company as well as its partners will be significant although these are early stage clinicals. With Merck, Roche, and Sanofi each developing drugs using similar technologies, positive and applicable news from any or each of these companies will also likely have impacts on the company's share price. Additionally, positive Kevetrin™ data could also begin turning large pharmaceutical companies' heads, with licensing or buyout potential also becoming evident for the early-stage company before its valuation starts ramping up under its own merit.
Although beyond the scope of this article, investors should also consider the company's lead product candidate, Plurisol™, with phase 2 trial preparations now underway evaluating the drug's safety/efficacy to treat psoriasis. If the FDA approves the company forgoing early-stage clinicals and allows it to instead start with a phase 2 trial, the company could save much time and money moving forward to its first likely marketable product. Cellceutix is also planning on starting a "proof of concept" trial for Prurisol™ in Q1 2013 in the European Union, which could also affect share price in the coming weeks.
A development-phase company, Cellceutix is still largely dependent on shareholder money to fund its operations with the ever-looming fear of dilution in the thoughts of its investors. However, a December 10th announcement by the company of a $10 million stock purchase agreement with Aspire Capital Fund, LLC gave terms of some of the best financing agreements I have personally ever seen with a small pharmaceutical company. Aspire would buy $10 million of the company's common shares over the next three years at market price with Cellceutix determining the timing and number of shares to purchase. Terms of the deal indicated no restrictions on the funds, financial covenants, restrictions on future financings, rights of first refusal, participation rights, penalties, or liquidated damages per the agreement. Cellceutix did issue 336,625 common shares to Aspire for consideration of the agreement; however, no warrants were part of the agreement. With cash and equivalents of only $125,000 on September 30th, the financing certainly helps to secure the company and its growing pipeline.
Cellceutix common shares are now trading at $2.00 at the time of this composition, above the simple moving average (SMA) with technical support seen at $1.75. Although a "watch and wait" approach may often serve investors better for solid entries, the pharmacokinetics results for Kevetrin™ are still pending and may send share prices upward once again. Alternately, poor or questionable results may also give interested investors a better entry soon thereafter as the data may or may not indicate efficacy or safety accurately. With the company's recent news serving as the major catalyst for recent price increases, interested investors should also consider the risk of downside if clinicals don't yield positive data. Many indications are potentially going to be evaluated, and failure in one indication does not necessarily failure for another. Also consider, the company's Kevetrin™ platform is in early clinicals with marketing potential still years away, but that is typically considered and expected in the small pharma sector and has likely been taken into consideration with the company's $186 million market capitalization.
Small Pharma Class Leader in the Immunotherapy Approach to Treating Cancer
Galena Biopharma (GALE) has had an exciting and catalyst-filled year behind it. Volatility in its common stock tells the story with a 52-week range of $0.40 to $3.54, while trading now at about $1.80. Although its most recent dip can be attributed to a mid-December $24.25 million offering priced at $1.60, most of the stock's volatility is due to varying opinions on the efficacy of its lead product candidate, NeuVax™, for the adjuvant treatment of Human Epidermal growth factor Receptor 2 (HER2) breast cancer, now in a large phase 3 clinical trial. The bulls appear to have won the overall battle with the share price up over 280% since January 1st, 2012.
NeuVax™ is described on the company's website as an E75 peptide derived from the HER2 protein that is combined with the commonly used immune adjuvant granulocyte macrophage colony stimulating factor (GM-CSF). GM-CSF is used in the first immunotherapy agent used to treat cancer, Dendreon Corporation's Provenge® for the treatment of castrate-resistant prostate cancer. In that setting, GM-CSF is linked to prostatic acid phosphatase (PAP), an antigen present in about 95% of prostate cancers to form PAP-GM-CSF. This compound directs T cells to target and attack the PAP-presenting prostate cancer cells. Galena's NeuVax™, with the E75 peptide that is derived from HER2, works on the same type concept by directing CD8+ T cells to target breast cancer cells with the HER2 antigen expression.
The HER2 targeting is significant as the HER2 expression is found in about 75% of all breast cancers. HER2 expression can be broken down into three immunohistochemistry (IHC) subgroups: IHC +1, IHC +2 and IHC +3 (low, intermediate, and high antigen expressions). Roche-Genentech's (RHHBY) blockbuster breast cancer drug, Herceptin®, had over $5 billion in revenue in 2010 as a result of its target patient group, IHC+3 (high expression HER2) breast cancer patients, making up only 25% of all breast cancer cases. If NeuVax™ can successfully navigate the regulatory path, the upside potential could be significant with billions of dollars of potential annual revenue at stake.
To even consider the potential revenue generated by NeuVax™ relative to Herceptin®, we must review the two phase 2 trials, whose primary results were announced by Galena on December 7, 2011. For the combined HER2 breast cancer patient set, recurrence after resection (surgery) or chemotherapy and then adjuvant treatment with NeuVax™ was tracked with a disease-free survival rate of 89.4% in the NeuVax™ group versus 79.7% in the control group for a (p=0.098) correlation. This correlation, although in favor of the NeuVax™ group, was not statistically significant. However, a subset of 53 patients who had received booster injections of the immunotherapy agent once every six months after the initial treatment regimen had a much better response with a statistically significant disease-free survival rate of 95.9% in the optimally-dosed NeuVax™ booster group, versus 79.7% in the control group for a (p=0.016) correlation. This set of patients would be followed for 5 years with final results released on December 7, 2012. The booster injections are described by the company as combating waning efficacy seen in the patients' immune response via its T cell response. The booster injections enabled the patients' immune responses to remain strong against the HER2-expressed cancer cells, better defending against the cancer recurrence after the standard of care resection or chemotherapy.
With sound science behind it as validated by Provenge® from Dendreon (DNDN) and solid phase 2 data evident in the patients receiving the booster injections to combat waning immune response, only one bit of information is out there that is keeping the share price at current levels (with a market capitalization of just over $120 million although possibly targeting a multi-billion dollar indication). Phase 1/2 data, the premise on which the ongoing phase 3 trial is designed, was a bit puzzling when comparing the patient response to NeuVax™ among the HER2 IHC +1, IHC +2, and IHC +3 patient sets. According to the data, each of the three patient sets had an immune response as a result of the treatment regimen. Perplexingly, the higher expression IHC+3 breast cancer patients appeared to benefit the least from the treatment, an unexpected development that the company has not yet been explained. Low-expression (IH+1 & IH+2) patients had stronger immunologic responses compared with IH+3 patients (P = 0.04), and vaccinated IHC 1+ patients had increased long-term immune response (P = 0.08). Relative to controls, low-expression patients had a mortality reduction (P = 0.08) with the largest decrease in mortality seen in IHC 1+ patients (P = 0.05). The correlation was seen across the board, comparing the lower expression patients versus higher expression patients via ex vivo (external to the body; test tube, for example) and in vivo (in the body) comparisons.
So, is this a case of "data mining" in which the company is cherry picking patients and using statistics to prop up trial results? I am not convinced of such, and the 5-year phase 2 results for the targeted patient group is convincing. Can I personally offer a suggestion as to why a vaccine that is designed to target HER2-expressed cells seemingly elicits a stronger immune response for low to medium expressions of the antigen than the higher expression cells? I could, but that would really be beyond my area of expertise and could only be construed as speculative. However, the efficacy on the varying levels of HER2 expression (or lack thereof) is a simple fact, and the FDA does not require a therapy's mechanism of activity for regulatory approval for marketing-only efficacy and safety data.
Regardless of how the company has gotten to this point in the phase 3 PRESENT trial for NeuVax™, 2013 interim data could be the telling sign as to whether the bulls or bears have been correct about its chances for a successful phase 3 trial and subsequent regulatory decision. The trial does seem designed for success with booster doses of the vaccine given every 6 months after the original treatment regimen and with the more positively responding patient subset of IH+1 and IH+2 HER2 expressions. The cancer immunotherapy approach is still somewhat in its infancy with its first FDA approval occurring less than 3 years ago with Provenge® leading the way. There are likely many mechanisms we do not yet fully understand with regard to the treatments. Although the clinical and ex vivo responses to NeuVax™ do not seem to give results as expected with regard to the different HER2 expression levels, I am not overly concerned as a member of the scientific community in which end results are certainly not always what they are expected to be based on conventional wisdom. At this point in its development, all that is left is data to prove-or disprove-success in the company's targeted patient group.
Now trading at $1.80, Galena's common shares are trading at short-term support. Although I cannot discern cash burn rates until perhaps Q1 or Q2 2013 financials are released, the $24.25 million stock offering in early December and recently disclosed cash balance of $15.5 million give the company approximately $40 million; that should provide for funding through 2013 and beyond. If interim data are promising, the downside with regard to additional possible financing, regardless of when it occurs, would be minimal as the targeted market group is substantial for this $122 million market capitalization company. The next in line for Galena's pipeline is an FBP vaccine, E39, under development currently in a phase 1/2 trial for two gynecological cancers: ovarian and endometrial adenocarcinomas. Interested investors are advised to perform their own risk assessments and determine if the upside potential outweighs the downside risks in this promising candidate. There will be many questions answered this year once interim data comes to light. Investors will learn quickly thereafter if the choices they made were the correct ones.
Disclosure: I am long NBS.