Companies Focused On Cancers Of The Epidermal Layers May Yield Profits

| About: OncoSec Medical (ONCS)

When surgery is not an option with cancer doctors must turn to targeted delivery platforms to deliver the much needed cancer drugs. With cancer continuing to be one of the leading causes of death in the U.S., the need for novel cancer therapies will only increase. In this article I am going to look at two companies that focus on skin cancer (melanoma) and cancers of the head and neck. The reason for the focus on these two indications together is that both typically are found just under the skin; so companies concentrating on melanoma also naturally target these cancers. Both of the following stocks carries a high level of risk, but these low valuations could also provide an opportunity for investors looking to invest in a potentially large market.

According to the National Cancer Institute Cancers that are known collectively as head and neck cancers usually begin in the squamous cells that line the moist, mucosal surfaces inside the head and neck (for example, inside the mouth, the nose, and the throat). These squamous cell cancers are often referred to as squamous cell carcinomas of the head and neck. Head and neck cancers can also begin in the salivary glands, but salivary gland cancers are relatively uncommon. In 2012, it is estimated that more than 52,000 new cases of head and neck cancer will have been diagnosed in the United States

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Melanoma is a form of cancer that begins in melanocytes (cells that make the pigment melanin). It may begin in a mole (skin melanoma), but can also begin in other pigmented tissues, such as in the eye or in the intestines.

Estimated new cases and deaths from melanoma in the United States in 2013:

  • New cases: 76,690
  • Deaths: 9,480

Vical Incorporated (VICL) engages in the research and development of products based on its DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases. Its products include Allovectin, a Phase III clinical trial product to treat metastatic melanoma. VICL currently has ten clinical trials ongoing, three of those independent and the rest in collaboration. In this article I am focused on their melanoma trial, their most advanced.

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Allovectin is a first-in-class DNA-based immunotherapeutic designed to stimulate both innate and adaptive immune responses in local tumors and distal metastases. In the most recent pipeline update the company gave positive data on its Phase III trial of Allovevtin versus chemotherapy in patients with metastatic melanoma. The company announced that the data sweep had not yet met the target number of events but it confirmed a steady progress towards the goal. The primary endpoint is a response rate at 24 weeks or more after randomization. The company expects to report top-line results for both end-points in the next several weeks. This expectation of more positive results should start to bring investor attention to the stock. The fact that the company is waiting for trial participants to die is a positive in my opinion. The trial participants are considered "last resort" (stage IV). The FDA would only allow the drug to be used in these patients for the trial.

Allovectin is also applicable to cancers other than melanoma, and VICL has conducted early-stage clinical trials of Allovectin in patients with chronic lymphocytic leukemia, or squamous cell cancer of the head and neck.

With $86m in cash and a very healthy pipeline VICL is an attractive stock for investors to consider. Looking at the financials of VICL we can see that they have ample funding to forward their clinical trials for the coming year. The company is projecting net cash burn for the first half of 2013 of between $18 million and $20 million. A look at the cash flow statement shows that VICL has a propensity to dilute shareholders every two years, with the last financing coming last March. VICL did report earnings of $17.5m for the most recent quarter but that is revenue is mostly from payments from Astellas Pharma Inc. (OTCPK:ALPMY) under an exclusive worldwide license of TransVax, Vical's therapeutic vaccine designed to control cytomegalovirus (CMV) reactivation in transplant recipients.

A big risk with Allovectin is that the drug is expected to be a costly, much like Dendreon's (NASDAQ:DNDN) prostate cancer drug Provenge. Costliness adds an added difficulty to an investor's calculations, as it is less clear whether consumers and, more importantly, insurers, will pay up for the treatment. This has been a major reason for the extremely slow adoption rate of DNDN's Provenge and the reason the stock has shed over 50% of its valuation in the last year. In this article I have only focused on Vical's cancer pipeline. The company is also a vaccine play that should warrant attention with the current bird flu scare in China.

The next stock I want to present is OncoSec Medical Incorporated, (NASDAQ:ONCS), a very small cancer focused biotech that you may never have heard of. It develops cancer products that combine electroporation (a process that opens temporary pores in the cell membrane of infected cells through which an anti-cancer drug can be transmitted more effectively) with a chemotherapeutic or novel DNA-based immunotherapeutics, known as OMS ElectroOncology. The company’ uses the OncoSec Medical System to deliver treatment to cancer areas. Using brief electrical pulses, ONCS targets tumor cells. This allows treatment of cancerous cells while leaving healthy tissue intact and could be a major selling point for patients once approved. Currently ONSC has an advanced pipeline with six clinical trials, four in Phase II and two in Phase III.

In March ONCS updated its Phase II metastatic melanoma trial and they were quite good. Sixty-eight percent and forty-five percent of treated lesions demonstrated a durable response at three and six months, respectively. This data showed that ImmunoPulse can effectively eliminate tumors and can also have a lasting effect on those tumors.

ONCS is also working on Head and Neck cancer with its NeoPulse system. NeoPulse uses the OMS system to destroy cancer cells using less harmful doses of bleomycin, a highly effective but also highly toxic anti-cancer drug. Usually bleomycin is administered by intravenous infusion. However, because this method targets cancer cells inefficiently, high doses must be used and significant side effects are common. Using NeoPulse to electroporate and directly target cancerous cells with bleomycin, an effective result can be achieved with a much lower chemotherapy dose. This system has a 90% success rate and patients that received it in the U.S. Phase III trial lived, on average, for 8 additional months.

ONCS currently has approximately $9m in cash after recently completing a $7.3m financing. Over the last year ONCS has averaged an approximate quarterly cash burn of $1.4m. With the recent financing the company appears to be fully funded for the next several quarters. Given the six clinical trials ongoing this cash burn appears to be relatively low compared to other biotech stocks I have researched, a positive for investors as it reduces the risk of dilution. ONCS has a market cap that is under $30m with two cancer drugs already in Phase III trials. In comparison, VICL is trading with a market cap of $340m.

Like all bio stocks ONCS carries risk: Risk that the trials will fail down the road and risk of dilution. But I will also say that with that risk the rewards, if the trials are successful, can be very nice. With an extremely low market valuation and two Phase III cancer trials ongoing, the stock appears cheap. If the Phase III results do not come out positive then the stock could see a return to its lows. However, given the strong results already seen in the current trials that risk seems greatly diminished.

In this article I looked at VICL and ONCS. Immunotherapies are still in their early stages, but are clearly part of the future in battling cancer. As more companies develop innovative therapies and drugs using new delivery systems, like OncoSec's electroporation device, and Vical's Allovectin, prices for treatment should drop and adoption should increase. These two companies profiled in the article appear to be solid stocks to invest in, or at a minimum to conduct more research on.

Disclosure: I am long ONCS, VICL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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