Investing Smart: Biotechs, Effective Therapies And Shareholder-Friendly CEOs

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Includes: DNDN, IMUC, LBIO, MNK, NVS, RHHBY
by: Brian Nichols

There are many ways to invest in the clinical biotechnology space. You can invest in a clinical company during its early stages, while crossing your fingers that it becomes Acadia Pharmaceuticals and not Vical. Yet, my personal preference has always been to invest in such companies that have a good story, investor focused leadership, and are so cheap compared to potential that a pre-data rally is almost certain. Personally, I have executed this strategy successfully with countless biotechs, such as Jazz Pharmaceuticals (NASDAQ:JAZZ), Questcor Pharmaceuticals (QCOR), Spectrum Pharmaceuticals (NASDAQ:SPPI) and, most recently, NeoStem (NBS), NewLink Genetics (NASDAQ:NLNK), Galena Biopharma (NASDAQ:GALE), and ImmunoCellular Therapeutics (NYSEMKT:IMUC).

Now, while I have also had some failures as well, for the most part I have been successful. And the one thing I seek more so than anything else is a shareholder-friendly CEO, although it is arguable as to whether Spectrum's "Raj" would fit in this category. One of my favorites is Dr. Manish Singh, formerly of ImmunoCellular. Singh has a strong scientific background with over 10 patents under his belt, he's someone I've spoken with a half dozen times, and he knows how to create shareholder value.

Abrupt Resignation & New Transition

Dr. Singh's resignation from ImmunoCellular last year was very abrupt and never fully explained publicly. To those such as myself, it appeared that ICT-107 was a homerun. So why would Singh walk away from such a potential success? Seriously, ICT-107 treated a disease in glioblastoma multiforme (GBM) that is considered one of the most deadly to man (late-stage brain cancer). Newly diagnosed patients have a life expectancy of just 15 months (median overall survival) and just 16% of patients live to see three years. Yet, ICT-107 did something that might be considered (dare I say) a CURE! Not only was ICT-107's median overall survival 38 months, but more than half of patients lived three years or beyond.

When we look at the structure of ICT-107, it is easy to see why the therapy was such a success. It is an immunotherapy, very similar to Dendreon's (NASDAQ:DNDN) Provenge, but different at the same time. Provenge and ICT-107 have a near-identical manufacturing process, which includes harvesting monocytes and then maturing those monocytes. However, ICT-107 collects at a much higher purity, can be stored, and can obtain multiple doses with just one blood draw. Then, while Provenge targets one antigen expressed in prostate cancer, ICT-107 targets six that are expressed in GBM. This targeting of antigens is what then allows the immune system to fight the disease.

Personally, I think ICT-107 is a game changer in glioblastoma treatment, and I have been anxious to hear of Dr. Singh's next venture. Because, after all, he did take IMUC from being a $5 million OTC stock to a near $200 million company prior to his departure (if you invested $25,000 in IMUC in January 2009 and sold in July 2012, that investment grew to more than half a million dollars!). People were asking what place he might end up next. Well, that "place" has been identified, and after a merger with Genesis Biopharma, Dr. Singh is now the Chairman and CEO of Lion Biotechnologies (GNBPD.OB).

Lion Biotechnologies currently trades at $6.50 a share with a market cap of $100 million. At first, I was highly skeptical of this company, and did not want to invest solely on the notion that Dr. Singh adds shareholder value. However, as I began to take a closer look, and really digest this company, I now believe it too might be something special.

The Science Behind Singh's New Venture

The way cancer vaccines work is by stimulating immune system to produce T-cells that actually fight off cancer. There has been a resurgence of interest in T-cells in the last few years with very promising data showing potential cures in leukemia and significant interest from large companies such as Novartis (NYSE:NVS) and Celgene (NASDAQ:CELG) to develop this therapeutic modality. Dr. Singh is making his new bet on a new T-cell technology developed at National Cancer Institute.

The technology revolves around Tumor Infiltrating Lymphocytes (TILs), which are found within tumors during their growth, but in very small quantities, giving them very little power to fight large bulky tumors alone. Therefore, Lion is hoping that by taking these TILs, isolating them from tumors, expanding them into billions of T-cells, then re-administering them via IV, these TILs will be able to better fight metastatic solid cancers such as melanoma-- and because they are administered as an IV, the TILS should also kill traces of the disease in other organs. The biggest advantage of TILs is that they target ALL different antigens present on a patient's melanoma, as the treatment is patient specific. So for example, melanoma has over 300 different mutations, and each patient has a different set of mutations. This technology allows production of T-cells for all those different antigens.

Now, two thoughts initially came to my mind when I learned of this process: First, the melanoma market is crowded, and second, what is the data? This is where the company's corporate presentation comes into play; and when you begin reading, you see a longer term plan that involves impressive data and the exciting use of anti-CTLA and anti-PD-1 as combination therapies (among other therapies). Moreover, in treating metastatic patients (meaning that traces of the tumor can be found in every organ), I like the idea of an IV. TILs in conjunction with an IV ensure that TILs are administered throughout the body to help cure the disease.

However, what I "like" about the company's presentation does not answer questions about competition in the melanoma space, nor does it explain how the approach is transcendent. To explain, one must first understand the nature of current metastatic melanoma treatments.

Metastatic Melanoma Treatments: Better Drugs, But No Cures

To start, the typical stage IV metastatic melanoma patients have a median survival of only 6 months on chemotherapy. It is one of the only few diseases with worse prognosis than even glioblastoma. Over the last two years several products have been approved, of which two are most widely used: Zelboraf (BRAF inhibitor) from Roche (OTCQX:RHHBY) and Yervoy (anti-CTLA-4 antibody). For patients who have BRAF mutation, which is about 50% of patients, they are given Zelboraf. Although 50% of these patients respond quickly with tumors disappearing, the response doesn't last long and the disease comes back in 6-9 months. The other 50% patients are given Yervoy, which has an 11% overall response rate (tumors receding by greater than 50%) and increases median survival by about 3.5 months. In either case, majority of patients recur by 9 months and there are no good treatments available that have demonstrated any survival advantage as second line/salvage therapy.

This fact brings us to a very important point in the treatment of cancer, which is the fact that we can delay progression; but there's nothing that's even close to being a cure.

In a Phase II study conducted on TILs at National Cancer Institute, 22% of patients (20/93) had a complete response, which means that all tumors throughout the body were gone! Furthermore, 19 of 20 patients were alive and disease free 6-9 years after treatment according to the most recent company press release. Essentially, this means that patients were (dare I say … again) CURED! Now, none of the FDA approved products for metastatic melanoma even come close in terms of disease free survival. These are patients who are at the salvage stage of their disease, having gone through all other treatments, and have life expectancies of only months. Below, you can see a patient treated with TILs, observing both the severity of the disease and the results of using TILs.

Click to enlarge
(Click to enlarge)

In addition to this very impressive data, TILs reported an objective response (complete plus partial response) of 50%! In comparison, the highly touted Yervoy (Anti-CTLA-4) has only an 11% response based. To me, this is far more impressive than ICT-107's data, and the reason is because of the variables. In the case of ICT-107, there were only 16 patients and all data was collected at one center. For Lion, data was collected at four different centers and there were a total of 136 patients. Therefore, the data is robust, and it seems that Dr. Singh has once more struck gold.

% Patients Achieving Complete Response

% Patients Experiencing an Overall Response

(Partial + Complete Response)

Autologous TILs (ACT)

NCI

MD Anderson

H.L. Moffitt

Sheba Hospital (Israel)

12%

7%

13%

10%

49%

47%

46%

48%

43 Patients

38 Patients

13 Patients

42 Patients

136 Patients

Click to enlarge

All data and information on TILs trial can be found in the "company presentation"

Combining TILs with Next-Gen Technology

With all things considered, nothing I have presented thus far is what caught my attention. In retrospect, this data was present before Singh; it simply flew under-the-radar like many products in biotechnology. If Singh was to develop TILs and create hundreds of millions in annual revenue, it would be impressive, but not a shock. Because after all, Questcor Pharmaceuticals did purchase Acthar Gel for just $100,000 and, in this year alone, has created more than $600 million in sales.

For me, I am more interested in next gen TILs, which are mentioned in the company's presentation, but are a focus of Singh. These are TILs that will be combined with other products/therapeutics, such as Zelboraf, Yervoy, and Anti-PD-1s. Essentially, Anti-PD-1s turn off a cloaking device that keeps immune systems from recognizing tumors. Thus, by turning off such mechanisms, while delivering more of an agent to fight the disease, survival can theoretically increase with TILs.

Then, as we look further down the line, some believe it is possible to alter TILs genetically, combining TILs with anti-PD-1s without the introduction of new therapeutics. These combination strategies could eliminate need for Anti-PD1 or Anti-CTLA-4 antibodies as TILs could be used as a cargo to carry those signals. But clearly, that's further down the line, and is mere speculation. Currently, the company is developing TILs alone and, in conjunction with other therapies, hoping to replicate early results.

Final Thoughts

While it is impossible to know whether or not TILs will be a success in Phase 3 trials, I think Dr. Singh has a good shot to replicate the success experienced at ImmunoCellular Therapeutics. Moreover, with more robust data, and a better-executed Phase 2 study, investors can more accurately assess current data to make a well-informed investment decision.

Like I said, management matters in biotechnology, and while having a CEO who concentrates on science is imperative, a company also needs someone with a "Wall Street edge" to add shareholder value. Dr. Singh, who was a scientist before becoming a venture capitalist and CEO, is simply taking technology that was developed by world-renowned researcher/surgeon, Dr. Steven A. Rosenberg, who is one of the most cited researchers of our generation, and adding his twist of next generation technologies and rapid development to create shareholder value.

Looking at shares of ImmunoCellular both during and after his tenure, the performance speaks for itself. And as of now, with my initial analysis, I think Dr. Singh might just replicate that performance. Now, I am not suggesting that TILs will be a future success, but I do think it has a shot, and what we know now is encouraging. As an investor that seeks deep unknown value in biotechnology, and candidates that have products with big sales potential and the potential for success, I think Lion is interesting, and I am willing to take a small chance on the success of Singh and his new company.

Disclosure: I am long GALE, NBS, QCOR, JAZZ. 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.