Stocks Could Rise For Companies Investing In Immunotherapy Treatments

by: William Sterling

Immunotherapy, also called biologic therapy or biotherapy, utilizes the body's immune system to fight diseases such as cancer. A number of biopharmaceutical companies, large and small, are developing targeted immunotherapies to stimulate the body's immune system to work harder and smarter, with the goal to destroy certain cancers. Below are three companies, of various sizes and stages of development, that have developed, or are developing, some of the most advanced immunotherapies today in the fight against cancer.

As expected Celgene (NASDAQ:CELG), on February 8th, received approval, from the FDA, for its new immunomodulatory drug Pomalidomide, designed to treat multiple myeloma when Celgene's own drug Revlimid or Takeda Pharmaceuticals' Velcade have failed. Marketed under the name Pomalyst, the drug is taken in pill form, and is designed to bolster the body's immune system to destroy cancerous cells and inhibit cancer cell growth. Multiple myeloma, a form of blood cancer that originates from plasma cells in the bone marrow, generally affects older adults. Globally, approximately 1,000 new cases of multiple myeloma are diagnosed every day. In the U.S, there are roughly 75,000 to 100,000 multiple myeloma suffers. The median survival rate is three to five years following a diagnosis.

The approval of Pomalyst should be an excellent addition to Celgene's successful line of myeloma drugs. Revlimid, the company's flagship and highly successful multiple myeloma drug, accounts for almost 66% of the company's revenues. In 2012 sales of the drug were roughly $4.2 billion. However, 66% is a high percentage for one drug for a company the size of Celgene to rely on, especially when its next highest percentage drug, Vidaza, with sales in 2012 of $838 million, accounts for roughly 15% of the company's revenues. Also to be considered is that sales of Vidaza could drop, as it went off patent in the U.S. in May 2011. Add to that, sales of Revlimid could find some competition from Onyx Pharmaceutical's (NASDAQ:ONXX) multiple myeloma drug Kyprolis, which was granted FDA approval earlier in 2012. Revlimid is projected to grow 9% to 12% over the next year. Sales of Pomalyst, which in a Bloomberg report sees annual sales could climb to $1 billion by 2017, could not only offset revenues from lost sales to Kyprolis, but it could lower that high percentage of sales that the company relies on with Revlimid.

CELG, which has a market cap of $41.8 billion, has seen its stock rise 25.8% YTD. The company generates strong cash flow, and is expected to grow 20% compounded per year, and projects to see revenue climb to $12 billion a year by 2017. Additionally, the company has high hopes for its new drug Apremilast, for the treatment of Psoriasis. CLGN is expected to file a New Drug Application for Apremilast with the FDA and the EU in the first quarter of 2013. Psoriasis, an autoimmune disease, affects 125 million people worldwide, and care costs are approximately $11.25 billion annually, though work loss accounts for 40% of the costs.

The question is, will Celgene continue it strong growth in 2013? Though I don't expect the stock to double, as it almost did over the past year from its lows in late June of 2012, I do believe, with the products it has on the market and the pipeline of new drugs in late stage tests, the stock has plenty of growth over the next few years. Celgene has eased off its Feb 1st high of $102.23 per share; on Friday February 15th the stock closed at $98.77. Though not a bargain price, I think if the pullback continues Celgene becomes an even stronger buy.

A small company out of San Diego, CA, Vical (NASDAQ:VICL) is developing a promising immunotherapy drug, Allovectin, for late stage melanoma. Allovectin, which is being evaluated in phase III testing, is a plasmid based DNA therapy expressing two genes (HLA-B7 and β2 microglobulin) that together form an MHC class 1 complex. Allovectin is injected directly into the melanoma cancer tumor via syringe, and is designed to teach the body's immune system to recognize and kill cancer cells through an allogeneic anti-tumor response. The drug also restores tumor-associated antigen presentation, and gives a boost to the immune response through a lipid/DNA-induced danger signal.

Allovectin may have some advantages over another targeted immunotherapy drug that has shown success in battling late stage melanoma, Bristol Myers Squibb's (NYSE:BMY), Yervoy. Unlike Yervoy, which must be administered via infusion and requires monitoring following the treatment, Allovectin can be given in an outpatient basis requiring little monitoring afterwards. Also, in the phase II study no patients who took Allovectin experienced severe adverse side effects that sometimes occurred with patients taking Yervoy. Yervoy, the first new drug in over 14 years to be approved for Melanoma, generated sales in 2012 of $706 million, up 96% over 2011, and annual sales are forecasted to rise to over $1 billion by 2021. It is estimated that the branded melanoma market in the U.S. and the EU markets will increase from $1.1 billion in 2012 to just under $2.4 billion by 2021.

Vical, which earlier obtained Orphan Drug and Fast Track designations in the U.S. for Allovectin, expects to announce phase III results mid-2013. If successful with the trials, and given that the drug is not melanoma-specific, Allovectin has the potential to be used in treating other types of solid tumors including breast cancer, prostate cancer, and head and neck cancer. Vical is taking a business smart approach with its products; the company knows its strong points are R&D, so it is seeking commercialization partners for Allovectin in the major markets including the U.S. and Europe. Vical has already received $22.6 million from AnGes MG, Inc., for the licensing rights to commercialize Allovectin in Japan and other specified Asian countries. AnGes MG is primarily interested in developing the drug as a treatment for head and neck cancer, which presents a significant unmet medical need in Asia.

Vical, which has a market cap of $289 million, has seen its stock rise over 15% year to date, primarily due to positive comments on the Allovectin trial. The stock closed Friday, January 15th at $3.38 per share. What I like about Vical is the company is not a one product house; it has several therapies in various stages of development, including TransVax, a first-in-class DNA vaccine, which is in phase III trials for hematopoietic stem cell transplant recipients. In the first half of 2013 the company will begin a phase II trial of TransVax for solid organ transplant recipients. In a deal that will give Vical up to $130 million in total upfront and milestone payments the company has already licensed TransVax to Astellas Pharma Inc. (OTCPK:ALPMF), granting Astellas an exclusive, worldwide, royalty-bearing license to develop and commercialize TransVax.

Vical has approximately $86 million in cash and investments, and the company is projecting net cash burn for the first half of 2013, excluding cash from financing activities, of between $18 million and $20 million. Revenues for 2012 were $17.5 million, down 41.7% YTD due to lower payments from Astellas. The company showed a net loss of $0.27 per share, almost three times greater than in 2011. However, this is a research and development company on the forefront of gene based immunotherapy, and the company should not be evaluated on its current sales alone; its pipeline what could become a billion dollar drug therapy. If the news on Allovectin continues to be positive I can see Vical breaking new highs, and though I still see the stock has its risks, I think the stock has a strong potential for gains this year.

While I am long on Vical and its drug Allovectin there is another company in its early stages of developing a similar DNA plasmid based melanoma treatment, except it has what might be a superior method of administering its medicine directly into the tumors. The company is called OncoSec Medical (NASDAQ:ONCS), and the therapy is called ImmunoPulse. Like Allovectin, ImmunoPulse utilizes a DNA plasmid to help the body's immune system to seek out and destroy cancer cells, in ONCS's case - the ones coerced to express the interleukin-12 (IL-12) protein. And like Allovectin, the treatment is injected directly to the tumor site. However, that's where the comparison ends. ImmunoPulse then utilizes the propriety OncoSec Medical System (OMS), which is an electroporation platform. Once the plasmid is injected intratumorally, six needles, hooked up to a generator, are inserted into the skin around the tumor; it is then given short pulses of 1,300 volts. The electric field causes the pores of the melanoma cells' membranes to open, thus delivering the DNA medicine directly into the open pores. The electric field is turned off, the cells' pores close, and the plasmid DNA is trapped inside the tumor cells for a more effective treatment. The treated cells begin expressing IL-12, which in turn triggers an immune response against those cells with that expression.

The benefits of the OMS appear to reach father than previously expected. Not only is the agent trapped inside the cancer cells themselves that causes a local response against the electroporated tumors, but also the process has shown to affect a much larger area than just the cells targeted by the OMS. Researchers have found that the patients' immune systems were attacking cancer cells that were outside the direct treatment areas, including distant lesions. ONCS has been pleased with the positive interim results of its ImmunoPulse phase II trial for metastatic melanoma that has supported the key findings from the phase I trial. This interim data indicates that ImmunoPulse is able to induce regression or stabilization of local and distant untreated metastases following a single cycle of treatment.

ONCS has a second electroporation based therapy, NeoPulse, which uses a chemotherapeutic based drug, bleomycin. NeoPulse has been evaluated in two phase III trials in Europe for skin cancer and for head and neck cancer, and is planning to advance to the registration trial. In an earlier interview with ONCS CEO Punit Dhillon, he commented on the future of NeoStem:

Our focus for the NeoPulse program is to present the data to a number of specifically targeted potential partners for their evaluation as a license opportunity. If we can land a partner for this program, which we see as a near-term commercial opportunity, then we feel that this would be a significant validation of our data and the NeoPulse program.

Finding a partner for NeoPulse could be a significant move for ONCS, first it could bring in some much needed cash to help sustain the company, secondly, as Mr. Dhillon commented the company has "only so many resources," and he wants his company to focus its efforts on ImmunoPulse.

ONCS is a nano cap company; it has a market cap just over $19 million, and closed on Friday, January 15th at $0.20 per share. I think the stock is selling below value. I came to this conclusion for a number of reasons: the positive data from the trials for both ImmunoPulse and NeoPulse; last year both ImmunoPulse and NeoPulse received the CE mark for use in the European Economic Area; there are more than 2 million cases of skin cancer diagnosed in the U.S. each year; and, as noted earlier, the projected melanoma market in the US and the EU could reach just under $2.4 billion by 2021. For those reasons alone I believe that ONCS may well be an undervalued stock, and although investing in any nano cap development company carries a high risk I am long on ONCS.

Immunotherapy is still a new approach for the treatment of cancer, but trials have thus far indicated that it is clearly a viable form of treatment, and as more Immunotherapies continue to be researched, tested and come to market, companies who have developed these treatments should see great financial rewards. I like Celgene as a safe and solid investment for the future. However, for a more risky investment that has the potential for higher rewards I would look at Vical or OncoSec Medical.

Disclosure: I am long VICL, 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.