3 Cutting Edge Cancer Therapies May Target Investor Portfolios To Yield Gains

Includes: DNDN, ONCS, SGEN
by: Amy Baldwin

Immunotherapy utilizes the body's own immune system to battle cancer by using specific medical interventions to stimulate and re-educate the patients' own immune systems to combat the disease. Antibody-Drug Conjugate technology ((NYSE:ADC)) uses antibodies with a linking agent to transport a cytotoxic agent directly to cancer cells to release the cancer-killing medicine inside or at the targeted cells. Below are three companies utilizing ADC technology or immunotherapy to deliver cancer-fighting drugs, and may also deliver financial gains in 2013.

Earlier this month, SEATTLE GENETICS (NASDAQ:SGEN)-- the biotechnology leader in ADC technology-- received approval from Health Canada for its targeted oncology drug, Adcetris, for the treatment of Hodgkin's lymphoma (HL). The approval extends Adcetris' market, as the FDA earlier approved the drug in August 2011 and by the EU in October 2012 for the treatment of HL when autologous stem cell transplant has failed, or two prior multi-agent chemotherapy regimens have failed. In addition, SGEN is currently enrolling patients for two phase III studies evaluating Adcetris for the front-line treatment of HL and mature T-cell lymphoma (MTCL), including systemic anaplastic large cell lymphoma (sALCL). Last month, in an effort to expand the treatment opportunity, the company began a global phase III study teaming Adcetris with a chemotherapy for front-line treatment of CD30-positive MTCL including patients with sALCL and other types of peripheral T-cell lymphomas.

SGEN is also developing a proprietary Sugar Engineered Antibody (SEA) technology to increase the potency of monoclonal antibodies, which are used in fighting certain cancers. A major advantage of using monoclonal antibodies is that these drugs are so specific, they generally have only mild side effects-- unlike many other cancer treatments. This technology comprises modified sugars that inhibit the incorporation of fucose into the carbohydrate chains of monoclonal antibodies, and the result is an enhanced antibody-dependent cellular cytotoxicity (OTCPK:ADCC), one of the critical mechanisms underlying the clinical efficacy of therapeutic antibodies. SGEN believes its SEA technology is simpler and less expensive compared to existing technologies for enhancing antibody effector function because it can be applied to existing cell lines without cell line re-engineering, and can be applied across a range of antibodies and antibody-producing cell lines. SGEN has filed a patent application and intends to employ the SEA technology in its internal early-stage pipeline as well as looking for collaboration with other companies.

Collaborating with other companies is something that SGEN has done well. The company has licensing agreements of its ADC technology with numerous companies such as Abbott Laboratories (NYSE:ABT), Bayer (OTCPK:BAYRY), Roche Holding (OTCQX:RHHBY), and PFIZER (NYSE:PFE) to name a few. According to the company, these licensing agreements have the potential for SGEN to receive more than $3 billion in future milestone payments. To date, SGEN has 25 collaborative and/or co-development drug trials in various stages of testing with some of these industry giants, and has generated over $200 million in revenue from these collaborative efforts.

SGEN shares have enjoyed an excellent run year to year - up 52%, with almost half of that run coming in 2013. Toward the end of last year, SGEN announced its expected revenue for 2012 to only reach between $132 and $137 million, well below the $209.03 million that analysts were projecting. Add to that the company has a hefty market capitalization of $3.5 billion for a company that has shown a loss for the past five years. Many analysts lowered their ratings and expected the stock to fall, but it did the opposite - the stock rose.

I think there is good reason that the stock has risen despite its negatives. I think the rise can be attributed to its collaboration with other companies. Though none of the drugs have gained approval, they have such potential for future profits that it too has been factored into the price of the stock. SGEN is hovering just under its 52-week high. Though I like what the company is developing, and I think SGEN is pursuing the proper path through collaborative efforts with other companies, I think a pullback is coming, and I would wait for that pullback before buying.

One company I expect to make some noise this year is OncoSec Medical Inc. (NASDAQ:ONCS), a small development-phase biopharmaceutical company out of San Diego, CA. ONCS is developing a proprietary gene and drug delivery system that allows for a more targeted and effective treatment for the most common form of cancer - skin cancer, including basal cell carcinoma, squamous cell carcinoma, and melanoma. ONCS is able to deliver its treatments using a significantly lower drug dose and, according to President and CEO, Punit Dhillon, at a significantly lower cost. The delivery system uses its proprietary electroporation therapy, named the OncoSec Medical System (OMS), which uses pulses of electricity to increase cell membrane porosity, to enable more of the preinjected agent or drug to enter the targeted cells' interiors.

ONCS is testing two therapies using its OMS system. The first is an immunotherapy called ImmunoPulse, which utilizes an FDA-approved engineered DNA plasmid containing the gene interleukin-12 (IL-12). Once the plasmid is administered, six needles hooked up to a generator are inserted into the skin around the tumor. Then 1,300 volts are zapped into the tumor, which causes the pores of the melanoma cell membranes to open and absorb the IL-12 plasmid. Once the electric field is turned off, the cell pores close, trapping the IL-12 plasmid inside, allowing the medicine to work by making the cancer cells or tumor a target for the immune system.

One of the limitations mentioned about the treatment is that the therapy is centralized to the targeted area, therefore limiting its applications. However, tests are indicating that is not necessarily the case. Researchers have found that the treatment also attacks cancer cells that were not treated with the OMS technology, meaning ImmunoPulse gene therapy has the potential to kill cancer cells not just in the target area, but also trigger immune responses affecting remote cancer cells outside the target area, including distant lesions. The company has seen positive results in a phase II trial for metastatic melanoma supporting key findings from a phase I trial suggesting that ImmunoPulse is able to induce regression or stabilization of distant untreated metastases following a single cycle of treatment.

The other therapy that ONCS is developing is NeoPulse, which is used in conjunction with the chemotherapeutical drug bleomycin. The chemotherapy drug is traditionally delivered intravenously and requires high toxic levels to be effective. Using the OMS system that directly targets the cancer tumors, NeoPulse was able to have effective results with 1/20th of a traditional bleomycin dose as it enhanced the medicine's effectiveness in destroying tumor cells by a factor of up to 4,000, without destroying surrounding healthy tissues. NeoPulse is in phase IV trials targeting early stage skin cancer tumors, to assess the ability to control the growth or recurrence of the cancer. The data has shown a complete response in greater than 90% in basal cell carcinoma patients and 70% in squamous cell carcinoma patients at six months.

Considering that the OMS System has shown positive results in early tests, I see ONCS as an undervalued company. Its market capitalization is $19.98 million and closed Friday, February 8th at $0.227 per share. The stock was working its way upward, but lost momentum in mid-December when the company announced it entered into agreements with institutional investors to purchase approximately $7.2 million of securities in a registered public offering at $0.25 per share. What might propel the stock forward is if there is positive news on ImmunoPulse from Mr. Dhillon, when he presents his company's findings at the 15th Annual BIO CEO & Investor Conference on February 12th.

A company that already has shown positive gains in 2013 after a disastrous 2012 is Dendreon Corp. (NASDAQ:DNDN). DNDN is now a leaner, more focused company, having recently sold its Morris Plains, NJ immunotherapy manufacturing facility to Novartis Pharmaceuticals (NYSE:NVS) for $43 million in cash. The move further cut employee and operating expenses, which lowered DNDN's break-even point to $400 million in annual sales, -20% less than previously needed to break even. That $400 million in sales will have to come from the company's one product - Provenge, an autologous cellular immunotherapy prostate drug. The challenge for the company will be to raise sales. Fourth quarter sales are expected to come in around $85.5 million, higher than the third quarter sales of $77.9 million, but $14.5 million shy of what would be needed to break-even per quarter. Even though selling the manufacturing facility saved considerable money, the company is still running at a loss, though not as large as before.

Second only to skin cancer, prostate cancer, is the most common cancer in American men: about 1 out of 6 will be diagnosed in their lifetime, and 29,720 will die of the disease this year, making it the second leading cause of cancer deaths in men behind lung cancer. Roughly 238,590 new cases of prostate cancer will be diagnosed this year. At one point the market saw Provenge as a blockbuster - a billion-dollar drug. But demand has not come close to expectations. Some of the reasons given for low sales included poor reimbursement from Medicare and insurers, trouble with the marketing, and sales force issues. The main reason might just be that the drug itself is seen as an expensive gamble for insurance companies; it costs about $93,000 for the treatment. Provenge is a new therapy, the first of its kind, and is expensive and time-consuming to produce. Roughly 25 billion white blood cells are taken from the patient, altered to make them produce immune cells that target prostate cancer, and then are infused back into the body.

DNDN stock is up over 25% YTD, thanks in part to its cost-cutting efforts and a much lower market capitalization, now sitting at $1 billion, making it more attractive to investors. DNDN appears confident that sales of Provenge will continue to rise and will-- at some point in the future-- become profitable. There are reasons for optimism; in the fourth quarter the company added 61 new accounts raising total number of accounts to 802. There is also a possibility that, while the drug itself might be limited, the technology might be used to fight other cancers, which may have led to many of the buyout rumors that have popped up over the past few years. On Wednesday, February 6th the stock continued its 2013 rally closing up 7.95% to $6.65 per share. While I do think that the Provenge technology will continue to grow, I think the stock is priced near its high for the short term. And considering how the stock has bounced back strongly from its 52-week low of $3.69, I would wait for a dip before buying.

Immunotherapies and ADC therapies, though in their early stages, are clearly part of the future in battling cancer. However, the costs to produce and deliver the products are still very expensive. But as more companies develop new therapies and drugs using less costly delivery systems, like OncoSec's electroporation device, prices could drop as well. All three companies profiled in the article appear to be poised to have good runs in 2013.

My concern with both SGEN and DNDN is that both companies have seen their stocks run up over 25% YTD, and though I believe in the long run they will continue to rise, I see the possibility of a pullback due to profit-taking. ONCS, on the other hand, has pretty much idled in neutral YTD, up just over 1%. I think the secondary offering in late December slowed its momentum, but if positive news on the company's progress comes out on February 12th, I would look for ONCS to have solid gains in 2013. ONCS likely has the higher upside of the three companies presented, while it does have downside risk, like the others should it run into any clinical issues. All three companies have various degrees of risk, and one should read further about each before investing.

Disclosure: I am long ONCS. 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.

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