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Brian Nichols, NicholsToday (503 clicks)
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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

In a November article, entitled "Treating Melanoma: Only The Best Shall Survive", I downright broke down all facets of melanoma drugs, both new and those in pipeline development. This seemingly crowded space is large, but is also separated into four different stages, where Stage IV is without question the most crowded. In Stage III, Amgen's (AMGN) TVEC appeared ready for sole ownership, but after Phase II data from OncoSec Medical's (OTCQB:ONCS) ImmunoPulse, the race might now be significantly more interesting.

There For The Taking

Of the 123,000 new cases of melanoma that are diagnosed annually - in the U.S. - most will be treated with surgery or radiation. Those that have spread into internal organs and are at late stages will be treated with newer drugs such as Yervoy, Zelboraf, and eventually the large list of anti-PD-1s that are in late-stage clinical development.

However, Stages categorized as IIIB and IIIC are a bit more open. These melanomas have already reached the lymph nodes but are not aggressive enough for Stage 4 drugs, yet surgery and radiation often don't work alone. Therefore, it is a space within oncology that's there for the taking, and for the last couple years, Amgen has looked like the sole beneficiary.

Amgen's Space to Own

Back in 2011 Amgen acquired a developmental biotechnology company called BioVex for up to $1 billion. The acquisition was essentially to acquire TVEC, which is actually a herpes simplex virus that has been modified to replicate inside of cancer cells until the point of rupture.

In March, TVEC became the first tumor-killing virus to succeed in a late-stage cancer trial. In treating a stage of melanoma where only 2% of (control group) patients saw a significant shrinkage of their tumors, approximately 16% of TVEC patients saw a significant decrease in tumor size.

The TVEC trial studied 400 patients two-thirds were vaccinated with TVEC. Therefore, Amgen had robust data, and its 16% reduction in tumors was definitely statistically significant. As a result, analysts have essentially pegged the Stage III melanoma population, as Amgen's to control. Thus giving TVEC a $1 billion in peak sales estimate.

Another Horse In The Race

In a New York Times article, a melanoma specialist from UCLA, Dr. Antoni Ribas, questioned whether or not TVEC would be a good melanoma treatment; this coming after the company's data. Dr. Ribas questioned TVEC's ability to treat distant tumors as a virus, citing that only one-third of advanced melanoma patients have tumors on or near the skin. Thus implying that TVEC might not stimulate the immune system to treat these distant tumors, which adds to the lingering questions of whether or not TVEC will show a survival benefit. Therefore, while TVEC looks like a lock for sole ownership of this large space, investors should note that TVEC is not yet FDA approved, and there are still hurdles that Amgen must cross.

This brings up OncoSec Medical, which is a small $65 million biotech company that just presented an interim look into its Phase 2 study. In that study, 61.1% of patients exhibited a systematic antitumor immune response, which suggests that OncoSec's drug not only stimulated the immune system, but is working on distant tumors as well.

So, what exactly is OncoSec developing to produce such results? The company's product is called ImmunoPulse, and it is a combination of electroporation and the immunotherapy IL-12.

Essentially, electroporation is the same technology used by Inovio Pharmaceuticals (INO), the technology that Roche is now partnered with Inovio to utilize. It uses electrical currents to create temporary pores in cancer cells. As a result of these created pores, less of an agent is administered directly to the tumor, without any of the agent being lost in the skin or identified as foreign in the body. Hence, electroporation enhances an agent with a more direct delivery, which in turn means fewer side effects.

In my melanoma article I quoted Dr. Rahul Jasuja, who discussed his experiences in academia working with a toxic yet effective IL-12. If electroporation is effective, the effectiveness of IL-12 as a cancer-killing agent provides reason to be optimistic.

With that said, OncoSec is proving ImmunoPulse to be highly effective. Aside from its systematic response, the company observed a 38.1% objective response at 180 days, meaning the percentage of patients who saw 30% or more tumor shrinkage. In other words, 38.1% of patients saw significant shrinkage, which is more than twice as good as Amgen's noted data. Moreover, OncoSec reported a 9.5% complete response, meaning the disappearance of targeted lesions, which is data that Amgen still has to prove for TVEC.

Below shows a few more bullet points from the data that OncoSec presented, all of which I think is important in the comparison of ImmunoPulse versus TVEC:

  • ImmunoPulse was tested in a multi-center trial

  • There were some Stage IVb and IVc patients, which are those whose tumors have spread aggressively, much more so than in Stage III

  • The partial response was 28.6%, meaning a 30% or more reduction in the largest lesion.

  • Stable disease was same as complete response, which is disease stabilization of at least three months.

Given OncoSec's new findings, and the question of survival that Amgen still has to answer with TVEC, it doesn't appear that Stage III is a clear-cut win for Amgen. In fact, it now seems as if there's another horse in this race. Therefore, for those of you, including myself, who originally believed that a billion dollars was a lock for TVEC, it might be time to start thinking of ImmunoPulse in your assessments of TVEC's peak potential, and to consider the impact that a successful Phase 3 trial could have on a $65 million company such as OncoSec.

Author's Thoughts

Now that you have a good idea of the competition and race to develop a successful Stage III melanoma drug, and see the importance of OncoSec's data, there are a few areas I'd like to address, and points that I'd like to discuss.

First, TVEC is not going to make or break Amgen; its success or failure does not solidify Amgen's longevity. Amgen is an $83 billion company with $17.66 billion in trailing 12 month sales. Prior to the company's acquisition of Amgen, its cancer pipeline and fundamental outlook was very dim. With the acquisition of Onyx, Amgen gains three FDA-approved cancer-fighting drugs with peak sales potential near $3 billion combined.

Amgen gained Nexavar, which treats common forms of kidney and liver cancer, with peak sales potential of $1.2 billion -- co-marketed with Bayer. Also co-marketed with Bayer is Stivarga, a colorectal cancer drug with peak sales of $500 million. Then, there's the multiple myeloma drug Kyprolis, a drug solely owned by Amgen with peak sales in excess of $2 billion. Combined, these three drugs obtained by acquiring Onyx not only makes Amgen a diversified company in oncology, but it will also spark company growth and lesson the company's dependence on TVEC to create future growth. While a successful TVEC would make Amgen much stronger, and an even more diversified oncology leader, it doesn't need to produce peak sales for shares of Amgen to trade higher. In many ways, this is a positive, as expectations are high, and if ImmunoPulse is successful, TVEC will unlikely reach $1 billion in sales.

Second, if ImmunoPulse data stands, and it's proven to be a better product, there's still reason to believe that TVEC will be the more commercially successful drug. As of now, OncoSec does not have a marketing or clinical partner. So while OncoSec burns about $6 million a year, Amgen earns nearly $5 billion annually, meaning Amgen has more resources to launch TVEC. Of course, with a successful Phase 3 trial OncoSec would likely find a marketing partner, but as of now, even if ImmunoPulse is superior, investors shouldn't have sales expectations too high, possibly $200-$400 million annually.

In addition, the data speaks for itself. Clearly, OncoSec has produced very impressive date thus far, but it is important for investors to realize that OncoSec's data is less mature than Amgen's with far fewer patients. TVEC has been tested on over 400 patients in its Phase 3 trial alone. OncoSec has given data on just 47 total patients, counting both Phase 1 and the latest interim look at Phase 2. Therefore, investors must allow some room for error, and consider the size difference of the data.

This brings up my final point, and that being the fact that I was never really hopeful or optimistic that ImmunoPulse would prove successful, yet covered the trial because of my melanoma interest. The newest round of data makes me more optimistic, especially with more than half of the patients experiencing an antitumor immune response. Therefore, I give it a 50% shot at clinical success, compared to my prior estimates at 20%.

With that said, OncoSec is still a small company, and with a 50/50 shot of success it might be a good long-term investment opportunity. If the company's successful its $65 million market cap will soar, even if peak sales are only in the $200-$400 million range. Moreover, OncoSec also has other programs using ImmunoPulse, such as for treating Merkel cell carcinoma (MCC), an aggressive orphan disease with no other trials and no FDA approved drug; this program might have an even better chance of FDA approval due to no standard of care.

The MCC indication provides a little more diversification. It shows that OncoSec is not tied to the success of just one indication, but also shows how the company's entire valuation is tied to the success or failure of one platform. Therefore, investors must consider all of these known facts before buying stock, including the risks, and not just the good data. Personally, I now see upside far greater than the downside, but acknowledge the need for more data. Nonetheless, despite all these questions that will soon be answered, the one thing we do know for certain is that the race to treat this unmet medical need (Stage III) just got a lot more interesting with data from OncoSec, and it'll be interesting to follow in the year(s) ahead.

Source: The Race To Treat Stage III Melanoma Just Got A Lot More Interesting