I previously published Part 1 of a two-piece interview with Dr. Rahul Jasuja, an analyst with Noble Financial. Dr. Jasuja's insight is unique because of his educational background - he is trained in immunology. In a sense, he's not a "Wall Street guy", but rather a medical professional that happens to cover biotechnology. Therefore, I give such a person's opinion a large amount of weight relative to other individuals who cover the space. Because after all, biotechnology is a space to itself, night and day from other industries in the market due to what drives the valuation. In my experience, it's by far the most controversial industry in the market, and in this second part of our interview, Dr. Jasuja is here to look at the industry's future, from a clinical perspective, with a Wall Street twist.
Part 2 begins where Part 1 ends; Dr. Jasuja was discussing the importance, or lack thereof, in interim results for immunotherapy-based endpoints. In Part 2 we begin with company analysis and outlooks for 2013.
Brian Nichols (BN) - You cover Galena Biopharma (GALE) and issued a price target of $3.50, what do you think differentiates Galena from other immunotherapy companies? How did you arrive at your price target?
Dr. Rahul Jasuja (RJ) - Galena is targeting a disease stage where cancer vaccines may work best-where the cancer is at its lowest burden or least aggressive, or earlier stages or after primary therapy/surgery. Patients with breast cancer undergo surgery; they are then in remission so to speak, there is no evidence of disease. Galena's vaccine is used in this setting to prevent disease recurrence. Note that the vaccine is not applicable to all patients afflicted with breast cancer - it only works in a subset. This disease setting is very different from Dendreon (DNDN) or ImmunoCellular Therapeutics' (IMUC) approach.
DNDN and IMUC are attacking cancer in the later stage, metastatic disease with high tumor burden. Prostate cancer is a slow growing cancer, so even if in later stage disease the immune response may have the ability to develop. Ideally immunotherapy is best administered at the earliest stages of cancer, like with Galena. Galena is treating patients who are in a "wait-and-watch" period, and there is nothing approved for many of these patients that addresses HER2 low expression. Only if patients are HER3+ can they receive Herceptin, but for those who are HER2 1+ or 2+ no therapy is approved, nothing targeting HER2. Since Galena's approach is in a minimal disease setting, an interim analysis makes more sense-that's when the immune response can develop and be effective. Phase 2 studies also showed efficacy at the interim analysis timeline.
BN - The price target of $3.50 you set is lower than that of other analysts covering the stock; how do you see risk/reward for Galena?
RJ - The reason I may have a lower rating on GALE (which is a "Buy") is described in the risk section of my report. Even though the Phase 2 trials make a compelling case and were controlled, the study was not randomized and blinded. So other analysts who have it at $8.00 may have not have accounted for that or are less conservative - every analyst has his or her rationale. I may be more conservative; that's why my target is at $3.50.
BN - A $3.50 price target would represent a market cap near $250 million, almost double its current price. If data is positive then how much is the company worth?
RJ - I have a one-year $3.50 target based on rNPV (risk-adjusted net present value). If the 36-month data is positive then the company is worth several times more.
BN - Assuming that NeuVax data is positive at 36 months and the company goes on to earn an FDA approval, what is its peak sales both used alone and used in conjunction with Herceptin?
RJ - I have only looked at NeuVax alone as adjuvant therapy. If it makes it to market it could have peak sales of about $1.2 billion worldwide in the adjuvant setting based on my model.
BN - Last year when I spoke with Dr. George Peoples, he explained that because the Phase 3 trial will be using proper dosing levels, all patients will be receiving booster shots, having the right and same patient population, and because the Phase 3 plan was created based on the strengths of the Phase 2 trial, that the current study results could be better than the Phase 2 results. All of the factors noted were inconsistent during the Phase 2 trial, what are your thoughts?
RJ - He makes an important point, but generally speaking one wants the Phase 2 trial design to reflect the Phase 3 trial design-except with a larger patient size. I can add to what Peoples may be referring to: One of the issues in breast cancer is that patients who are estrogen receptor negative are the tougher to treat. They are not responsive to most therapies. In the Phase 2 studies it was shown that the vaccine group included significantly more estrogen receptor negative patients. Therefore, more of this tough-to-treat population was in the vaccinated group versus the control arm-and by a statistically significant difference. In the Phase 3 trial this balance could make a large difference in the outcome of the trial.
BN - I appreciate your thoughts on GALE, a stock that I cover, but right now I'd like to get your thoughts on some other developmental drugs. Earlier (Part 1) we essentially discussed the big name immunotherapies and the outlooks going forward. You seem excited about current and future development, but one negative has been Stimuvax. Why do you think that Oncothyreon's (ONTY) drug failed in Phase 3 trials?
RJ - I didn't cover Stimuvax or the stock. I anticipated that Stimuvax was likely to fail. The reason that I thought it was going to fail is because the clinical trial started back in the early days of immunotherapy, back when our understanding of immunotherapy drug development was less mature. George Peoples' drug, NeuVax, also began development over a decade ago, but they learned along the way and it was developed adaptively for the right population, optimizing dosing and its booster etc. Stimuvax's approach was based on an older understanding of immunotherapy. Though I recall Merck KGA came in backed with good Phase 2 data. It seems like the Stimuvax approach lacked robust immune stimulation and Oncothyreon may be planning the next version of it with the addition of a potent immune modulator - though I have not followed it closely.
BN - What would you say are the top catalysts for the early part of this year in immunotherapy? What are a couple of things that investors and the market will be watching?
RJ - There is the GSK data in lung cancer with the MAGE- A3 vaccine that could be huge if positive. Just as big as Yervoy was. The development of PD-1 based approaches as we saw at ASCO are also important and very promising. I think Vical's (VICL) has a low probability of success, but I hope I am wrong. Vical uses naked DNA, and I am not sure there is enough cellular uptake. I am not too confident about Vical's prospects, but it would help immunotherapy if it did succeed.
I think it will be interesting to watch NewLink Genetics (NLNK). I have more confidence in Newlink's success, as their Phase 2 data looked robust. I would also look at Argos, which is a Phase 3 private company with a dendritic cell approach. Argos is starting a Phase 3 trial, tried to IPO last year. They have a sound scientific approach and a much-improved dendritic cell processing system compared to Dendreon. Also watch for ImmunoCellular Therapeutics and Galena. All different approaches.
Now, I do cover some other immunotherapy smaller cap companies such as Inovio (INO) and OncoSec Medical (ONCS.OB) that have a crucial year ahead. Both are not yet in Phase 3, but I think that in the next year we could see immune-based surrogate markers in their Phase 2 studies that equate with clinical benefit, Inovio for HPV and OncoSec for metastatic melanoma and Merkel cell carcinoma. These will be meaningful for immunotherapy.
BN - What is the most important catalyst that we need from immunotherapy in 2013?
RJ - In general we want more predictable markers and endpoints for immunotherapy. If risk can be mitigated in predicting clinical success based on immune-based mechanisms, then Big Pharma and investors will be attracted. It would be nice to see Newlink succeed with its distinct approach using the allogeneic off-the-shelf tumor cells modified to induce a hyperacute immune response that connects innate with adaptive immunity. It would also be nice to see success in the autologous cellular-based immunotherapy space that beats Dendreon's less-than-fantastic commercial success. Autologous cell therapy approaches like Dendreon's may be less attractive to Big Pharma. This is due in part because of Dendreon's trouble and because the immunotherapy harvesting/cell culture drug approach doesn't really fit into many of Big Pharma's commercial business models at this time. If we see good efficacy coming from either Argos or ImmunoCellular Therapeutics it would make a huge difference for investor interest, and Big Pharma would start to pay closer attention.
BN - You have talked about immunotherapy, both first and second generations. But what is something innovating right now that investors could maybe catch in its infancy? What is a third generation immunotherapy approach?
RJ - I cover a few early-stage riskier immunotherapy companies that are promising and represent the next generation-OncoSec and Inovio for example. OncoSec Medical is developing a product that uses a well-known immunotherapy candidate, IL-12 protein, but it is too toxic to be given systemically. OncoSec delivers IL-12 DNA instead via electroporation. IL-12 DNA delivered locally in this manner for skin cancers is not toxic and its immune-modulatory potential in fighting tumors can be harnessed. When I was in academia I worked in a lab where I would collect blood samples from patients who had been given IL-12 systemically and the treatment would have modest efficacy, but was extremely harsh and toxic as it was given systemically -it would make patients weak, tired, sick, and would create the worst flu-like symptoms. So the quality of life is lousy. Thus, the potential to deliver IL-12 locally has major implications if it shows efficacy and safety in current studies. Unlike Vical, OncoSec uses electroporation to deliver a plasmid DNA, IL-12 in this case. The electroporation enhances cellular uptake that can lead to improved efficacy.
BN - So in a sense it gives the positive effects of IL-12 without the negative side effects?
RJ - Yes
BN - Do you have peak sales expectations for this product? Why is it such a cheap stock if it's so good?
RJ - In a rough sense, peak sales for OncoSec could be in the range of what they are for Yervoy (over $1 billion as cited in Part 1) in the best-case scenario. That's a fair way to look at it. My analysis, in my report, is more conservative at this stage because it's still a novel technology. The stock is low because the technology is novel and riskier. The data is exciting, but we don't have a randomized controlled blinded large study that proves clinical effect. Early data in immunotherapy with novel technologies will always face this problem.
BN - I thank you greatly for taking this time to speak with me about immunotherapy, is there anything else you would like to add in closing?
RJ - There are many innovative approaches to immunotherapy that stretch beyond just dendritic cells or peptide vaccines or DNA-based plasmid for immune modulation. It's evolving quickly. We are learning more every day.
BN - So what would be the key takeaway for someone interested in investing in this space?
RJ - There will be failures before there is sustained success, as happens in any innovative drug development life cycle. In innovative drug development we "fail forward towards success". Immunotherapy is risky, but the returns can be rewarding. Understand that cancer works very hard to mute the immune system. You may ask, "Why does it do that?" The answer is because the cancer "knows" that if the immune system works than cancer growth is aborted. Cancer uses a significant amount of energy to beat the immune system, and it uses several tricks to keep the immune system mute so that it can survive. This is why approaches using immunotherapy will be the ultimate Holy Grail for conquering cancer.
You may not agree with all of Dr. Jasuja's outlooks and opinions, but hopefully you now understand how the immune system works and why immunotherapy is being used to treat cancer. Dr. Jasuja states very clearly that we are learning more every day and the space is evolving steadily. Whether you're bearish or bullish in your outlook, a company with a new approach might just have the key and succeed with a breakthrough in the space…or the opposite can happen. Therefore, I suggest using your own due diligence, assessing the space now that you know more, and continue to learn more about a space that is constantly evolving.