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Once considered biotech's brilliant, but unruly problem children, cancer vaccines have meaningfully grown up in recent years. Following the approvals of Provenge in 2011 and Yervoy in 2012, investors have regained their appetites for immunotherapy and have been searching far and wide for the rising stars of this space.

As second-generation immunotherapies have matured, much attention has been focused on companies running Phase 3 trials that are expected to report final or interim data within the year. But with analysts bullish on several of these companies (GlaxoSmithKline (GSK), NewLink Genetics (NASDAQ:NLNK), Galena (NASDAQ:GALE), and BAVA.CO, to name a few), it's worth considering the effect that a Phase 3 success would have on the immunotherapy field as a whole -- and which companies stand to gain the most from such a boost.

This brings me to two companies that have not yet been in the spotlight, but have significant upside potential: ImmunoCellular Therapeutics (NYSEMKT:IMUC) and OncoSec Medical (OTCQB:ONCS).

Both these companies have been in a slump the last several months, on account of previous periods of overheating, but now appear to be on the rebound. With catalysts on the horizon for both companies, including Phase 2 data readouts by the end of the year, these companies are likely to continue showing gains, while drawing increasing attention as the next next-big-players in immunotherapy.

IMUC

Last summer, Los Angeles-based IMUC reached its 52-week high of $4.00 on the momentum of its jump from the pink sheets to the NYSE AMEX, the presentation of its strong Phase 1 ICT-107 data for glioblastoma at the American Society of Clinical Oncology meeting, and the data's acceptance for publication shortly thereafter.

Also significant, the company expanded its IP and enhanced its manufacturing earlier in the year, and later in the summer announced completed enrollment in its Phase 2 ICT-107 study, and IND acceptance to begin a Phase 1 trial of a new immunotherapy candidate, ICT-121, also for glioblastoma.

The share price took a hit last fall following former CEO Manish Singh's resignation and the announcement of a new public offering, hitting its 52-week low of $1.51 in November. But things have been looking back up: with new CEO, Andrew Gengos, on board and a new IND application to begin clinical trials of yet another vaccine, ICT-140, for ovarian cancer, the stock has been steadily climbing since January, and is now once again trading at the middle of its 52-week range.

Having recently reported strong financial results, the company is well positioned to continue funding its current operations and Phase 2 study, while expanding and diversifying its pipeline with two new clinical programs. These achievements will no doubt strengthen momentum leading up to the announcement of final data from the Phase 2 ICT-107 glioblastoma study, expected by year-end.

In the small Phase 1 study, ICT-107 plus standard-of-care was shown to improve overall survival by a staggering 18 months compared to standard-of-care alone. If the Phase 2 study demonstrates even a fraction of that (in oncology, even a 2-4 month improvement is considered meaningful), then it will be considered a success and likely get the go-ahead to move on to Phase 3.

Positive Phase 2 results alone are enough to send a small company's shares soaring. Throw in the volatility in immunotherapy expected this year as Phase 3 data comes due, and IMUC has nowhere to go but up.

ONCS

Also worth a look is ONCS. Currently trading around $0.25, the stock is well below its October high of $0.45, but that figure reflected hype about R&D activities that got overheated. It's come back down since (which was only natural, given the massive selling activity that typically accompanies such a spike), but recently things have started turning around.

At its current price, the stock is still a bit below the middle of its 52-week range ($.014 - $0.45), but as Small Cap Investor points out, it recently surpassed its 200-day moving average price. Exceeding this major long-term average, combined with the recent rise in volume, seems to indicate big upside for this little company.

ONCS is developing cancer therapeutics based on electroporation, which uses an electric current to make cancer cells more porous and consequently more vulnerable to cancer treatments. Its lead product candidate, ImmunoPulse, is a delivery system utilizing DNA-based immunotherapy that encodes the cytokine IL-12. IL-12 has been shown to be a very powerful anti-cancer agent, but previously it was not thought to be feasible because of its toxicity when used in therapeutic doses. However, ImmunoPulse may enable the safe use of IL-12 by reducing the amount needed to be effective.

Last month, ONCS provided an encouraging update on its lead Phase 2 study of ImmunoPulse in patients with metastatic melanoma: Following complete or partial response to treatment with ImmunoPulse, 68% of lesions showed durable response after 3 months, and 45% after 6 months. According to Adil Daud, MD, the study's principal investigator at UCSF, these data showed that treated lesions are responding well to ImmunoPulse and that the treatment can trigger a lasting immune response.

A company press release states that these interim results reinforce Phase 1 data demonstrating that ImmunoPulse therapy is safe, well tolerated, and producing robust objective response rates in the targeted patient population.

With completion of enrollment expected in Q2 2013 and final analysis anticipated in Q4 2013, this company is not likely to stay off radar for long. Coupled with the extra attention the immunotherapy space will draw this year as more trial results come out, this company is a very promising bet.

Investing in the space could prove to be very fruitful for long-term investors. As with any investment there is a certain level of risk one must take, however based on the two companies' trial data it looks to be a risk well worth taking on these smaller cap stocks, which normally trade with higher volatility on both good and bad news.

Source: 2 Undervalued Immunotherapy Picks