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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

While stage IV melanoma used to be a death sentence-- no cure and very short survival-- new cancer advancements are changing that rapidly. Oncology continues to be a major value driver in the biotechnology sector, and this article focuses on some of the reasons why investors should pay close attention to this field. Specifically in melanoma, Bristol-Myers Squibb (NYSE:BMY), Merck (NYSE:MRK), Roche (OTCQX:RHHBY), Amgen (NASDAQ:AMGN) and Lion Biotechnologies (GNBPD.OB) have products in Phase II/III trials that are expected to be on the market in this decade-- and these therapies could be game changers. Decades of melanoma research are finally yielding products that actually have true potential to cure late stage terminal patients.

Oncology Companies: Hot Acquisition Targets

Cancer companies continue to be attractive targets for acquisitions and can generate handsome returns for investors. Earlier this year Gilead (NASDAQ:GILD) purchased YM Biosciences for $510 million (at a premium of over 80%). In August, Amgen announced a $10.4 billion acquisition of Onyx Pharmaceuticals (NASDAQ:ONXX) to get rights to the multiple myeloma drug, Kyprolis; the acquisition price was over 40% of ONXX's share price at the time. Shortly after, AstraZeneca (NYSE:AZN) announced the acquisition of privately held Amplimmune for up to $500 million. As discussed in The Economist, oncology companies are very attractive targets for a variety of reasons: an aging baby-boomer population, technological advances, willingness of FDA to approve new drugs, and pricing power. According to IMS Health, oncology drug revenue exceeded $60 billion in 2012-- more than any other therapeutic category.

Melanoma: Background and Standard of Care

Melanoma of the skin, in particular, is one type of cancer that is an attractive area of investment. Increasing incidence and technological advancesin immunotherapy are expected to drive market growth. Since 1975, the incidence of melanoma has more than tripled, and the patient population is expected to continue to grow; the National Cancer Institute (NYSE:NCI) anticipates about 76,690 people in the U.S. will be diagnosed with melanoma in 2013. While the prognosis is pretty good for patients who are diagnosed early, only 16% of patients with stage IV melanoma survive more than five years. Until a couple of years ago, the treatment options for patients with metastatic melanoma were pretty limited. Then in 2011, the FDA approved an immunotherapy called Yervoy (ipilimumab) from Bristol-Myers Squibb. Yervoy was the first drug to show a survival benefit in metastatic melanoma.

A clinical study published in the New England Journal of Medicine showed that Yervoy significantly improved the survival of patients with stage III-IV melanoma. While the overall response rate was only 11%, in patients who did respond the impact was long-lasting: 18% of Yervoy-treated patients survived more than two years (compared to only 5% of patients in the control group). As a result of the clinical results, some analysts forecast peak sales of Yervoy could be higher than $1 billion.

Bristol originally licensed Yervoy from Medarex in 2005 for an initial payment of $50 million and up to $480 million in regulatory and sales related milestones. At the time, Yervoy was already in a Phase III clinical trial. Bristol eventually acquired Medarex in 2009 for $2.4 billion, at a premium of 90% to Medarex's market cap prior to the acquisition announcement, and two years before Yervoy was approved. Clearly, melanoma assets can be valuable to strategic partners; and not surprisingly, many new melanoma immunotherapies are in development.

Immunotherapy Leading the Way

Nivolumab is another immunotherapy antibody being developed by Bristol-Myers, and was also acquired from the purchase of Medarex. Promising results from a Phase I clinical study showed that melanoma patients treated with nivolumab had an objective response rate of 31%. Patients treated with nivolumab in combination with Yervoy had a response rate of 53%. Nivolumab is currently in three Phase III clinical trials for melanoma: NCT01844505, NCT01721772, and NCT01721746. FDA approval could occur as early as 2016, and sales could be in the multi-billions.

MK-3475 is an immunotherapy antibody being developed by Merck that works the same way as nivolumab. Results from a Phase I study showed that patients with metastatic melanoma had a response rate of 38% when treated with MK-3475. Merck is currently sponsoring a Phase III clinical trial (NCT01866319) to evaluate the efficacy of MK-3475 in patients with advanced melanoma; results should be available in 2015, which will also be a major catalyst for the stock.

MPDL3280A (aka RG7446) is another immunotherapy antibody being developed by Genentech/Roche. An early study showed that MPDL3280A had a 21% response rate in patients with advanced or metastatic tumors. Genentech is sponsoring a Phase Ib study (NCT01656642) to determine the safety and efficacy of MPDL3280A in combination with Zelboraf (vemurafenib) in metastatic melanoma patients.

TVEC (talimogene laherparepvec) is an oncolytic virus being developed by Amgen. Preliminary results from a Phase III study (NCT00769704) in patients with unresected melanoma with regional or distant metastases showed that the response rate was 26% vs. 6% for the control arm. The complete response rate was 11% compared to only 1% in the control group. Amgen acquired privately-held BioVex back in 2011 for $425 million in cash and up to $575 million in additional payments upon the achievement of regulatory and sales milestones. TVEC (formerly called OncoVEX) was already in a Phase III clinical trial at the time of the acquisition. Analysts project peak sales over $1 billion for this drug.

Lion Biotechnologies is developing tumor infiltrating lymphocytes (TILs) to treat metastatic melanoma. Results from early Phase I and II clinical trials showed unprecedented results: objective response rates as high as 72% with a median duration of response of about 14 months and a complete response rate of 22% when TILs were combined with total body irradiation. The most impressive thing about this trial was 19/93 patients treated continue to be disease free over 7 years, which would be considered a cure by any measure. There are currently two ongoing NCI-sponsored Phase II clinical trials (NCT01468818 and NCT01319565) to further evaluate the efficacy of TILs in treating metastatic melanoma. The company intends to initiate a Phase III registration trial in 2015. In addition, a number of combination trials using the company's technology are currently underway at major medical centers such as NCI, MD Anderson Center, and Moffitt Cancer Center. In 2014 trial data from the two sponsored trial will be a major catalyst; if positive Lion will likely see its $100 million market cap appreciate in a large way.

Conclusion

DataMonitor.com predicts that the melanoma market will more than double to over $2 billion by 2021. Yet with five candidates noted, not all will be a commercial success even if all are proven effective in clinical trials. For example, there are four stages of melanoma, and these candidates are being developed to treat stages III and IV, but then there are variations of each stage, such as IIIB and IIIC. With Roche, Merck, and Bristol-Myers, each company has produced good data; each company is targeting melanoma in the exact same manner, using the same approach.

This means that once these drugs are available in the market, it is possible that they cross each other out, meaning the most successful might be the company that markets best. The real upside lies in development, as these particular drugs are also being tested to treat breast cancer, ovarian cancer, lung cancer, and a host of other cancers. Each company is combining its product with other drugs, and developing the product in secondary trials. This suggests that melanoma is an open door for these three companies; the mere beginning of development for this particular class.

Chances are, Roche, Merck, and Bristol-Myers will succeed with their "Anti-PD1" drugs; these drugs can be combined with other drugs. But when it comes to TVEC or TILs, only the best will be a blockbuster. For TVEC the expectations are greater. If TILs are successful and generate $300 million then it would be considered a win, and would produce large stock gains. Right now, it is hard to compare the two drugs: TVEC has been tested on 436 patients while TILs have been tested on 136 patients. TVEC was split into four small groups in its clinical trial, different sets of stage III and IV, while TILs were tested solely on stage IV. The median complete response was 11% then 22% for TILs; TILs also had a higher objective response.

In the end, whichever product has the best data will win the race to cure melanoma; TILs look to be winning right now as a single treatment outside of PD1s. However, emerging clinical data regarding immunotherapies to treat melanoma are generating an enormous amount of excitement. While some melanoma therapies in development have already been partnered or purchased by major biopharmaceutical companies, investors should anticipate continued acquisition interest as more clinical results are announced in the upcoming years; investors should also anticipate the emergence of clear leaders, which will drive stock prices greatly higher throughout the course of this melanoma development race.

Source: 5 Companies Race To Develop The Next Great Melanoma Product