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The Unique, Proprietary OncoSec Medical System (OMS)
OncoSec Medical Inc. (OTCQB:ONCS) is an emerging drug delivery company focused on the treatment of solid tumors.
OncoSec's delivery technology is referred to as the OncoSec Medical System (OMS), which is based on the use of an electroporation delivery device in combination with a DNA-based cytokine to treat solid tumors. OMS is designed to increase the permeability of cancer cell membranes and, as a result, increases the intracellular delivery of selected therapeutic agents.
This breakthrough technology hinges on a proprietary process called electroporation, which uses an electrical pulse to create temporary pores in cancer cells. After the electroporation, DNA-encoded cytokines or other immunomodulatory molecules are delivered through these pores, leading to sustained expression of these molecules in the tumor, leading to lower "doses" than what would normally be delivered systemically. The result is a more potentially effective treatment with fewer side effects.
OncoSec's lead candidate is ImmunoPulse, which is based on the use of electroporation to enhance the local delivery of DNA plasmids encoding interleukin-12 (IL-12). Upon uptake into cells, IL-12 will generate a local, regional, and systemic immune response for the treatment of various cancers. OncoSec has built a robust pipeline based on this unique technology.
Source: Company presentation
DNA Delivery With Electroporation - ImmunoPulse
OncoSec's lead candidate based on the electroporation delivery technology is ImmunoPulse, which delivers plasmid DNA encoding immunotherapeutic cytokines (interleukin 12, IL-12) into tumor cells that stimulate the patient's immune system to fight cancer.
The greatest obstacles to making conventional immunotherapy and DNA-based immunotherapies a reality has been the limited data supporting safe, efficient, and economical delivery and expression of plasmid-DNA constructs into the target cells. The ImmunoPulse approach utilizes an optimized electroporation system to deliver plasmid DNA encoding immunotherapeutic cytokines into tumor cells, which in turn, promote anti-cancer responses. The cytokine-encoding plasmid is first injected with a syringe/needle into the selected tumor. Using a remote control, the pulse generator is switched on and electrical pulses are generated and delivered through an attached electrical cord into the injected tissue through an electrode-needle array on the applicator. Studies have shown that when DNA injection is followed by electroporation of the target tissue, transfection is significantly greater, with resultant gene expression generally enhanced from 100 to 1000-fold. This increase makes many DNA-based candidates potentially feasible without unduly compromising safety or cost.
A Phase I clinical trial in metastatic melanoma has been completed using ImmunoPulse to deliver plasmid-DNA encoding for the IL-12 cytokine. The study was designed to assess both the adaptive and innate immunity responses from the targeted delivery of the IL-12 into melanoma tumor cells. The findings demonstrated not only regression of treated melanoma skin lesions, but also regression of distant untreated lesions, suggesting a systemic immune response to the localized treatment. Based on the positive Phase I data, OncoSec is conducting Phase II clinical trials of ImmunoPulse IL-12 for various tumors.
Advantages of OMS
We believe that OncoSec's ImmunoPulse could offer a solution for cancers with an improvement in safety and quality of life for patients over conventional systemic treatments, such as chemotherapy.
OncoSec's ImmunoPulse is an immunotherapy, which may have advantages over surgery, radiation, and chemotherapy. Immunotherapy is a process which uses the patient's own immune system to treat cancer. Many cancers appear to have developed the ability to "hide" from the immune system. A treatment that can augment the immune response against tumor cells by making the cancer more "visible" to the immune system would likely represent a significant improvement in cancer therapy. Immune-enhancing proteins such as interleukin-2 (IL-2) and interferon-alpha (IFN-a) have shown encouraging results. However, these agents often require frequent doses that may result in severe side effects.
ImmunoPulse approach consists of directly injecting solid tumors with a DNA plasmid, which, upon uptake into cells, directs the production of the encoded immunostimulatory cytokine (IL-12) to generate a loco-regional immune response against the tumor, which can potentially induce a systemic immune response. The ease of manufacture, convenience, and ability to repeat administration may offer advantages over current modalities of therapy. In addition, cancer therapies using non-viral DNA delivery may offer an added margin of safety compared with viral-based delivery, as no viral particles or other potentially infectious agents are contained in the formulation.
OncoSec's electroporation technology is a safe, effective, and robust tool for delivering payloads into cells. Because of this, the company is able to deliver potentially toxic payloads, like IL-12, locally into the tumor as a gene, and have it expressed in the tumor microenvironment. The beauty of electroporation is its ability to modify and manipulate the parameters and the payloads to target any indication, thus making it a well-defined, safe, and effective delivery tool.
Another advantage of ImmunoPulse is that this technology has the potential for broad application. The use of electroporation to deliver immune-modulating DNA agents directly and safely into tumors provides for a robust and flexible technology that can be applied towards the treatment of numerous solid tumor indications, either alone or in combination.
ImmunoPulse for Melanoma
OncoSec's ImmunoPulse locally delivers plasmid-DNA encoding IL-12 into tumor cells.
A Phase I clinical trial of ImmunoPulse in metastatic melanoma has been completed. The study was designed to assess the safety of ImmunoPulse and both the adaptive and innate immunity responses from the targeted delivery of the IL-12 into melanoma tumor cells in 24 patients with metastatic melanoma. The Phase I study established safety and tolerability, and suggested a systemic objective response in more than half of the subjects. 15% of patients showed 100% clearance of distant, non-treated tumors. Based on historical data, less than 0.25% of patients would have been expected to see regression in their untreated tumors.
One of the striking findings from the Phase I trial is that ImmunoPulse demonstrated not only regression of treated melanoma skin lesions, but also regression of distant untreated lesions, suggesting a systemic immune response to the localized treatment.
Based on the positive Phase I data, OncoSec initiated a Phase II clinical trial in patients with melanoma in Feb 2012. The Phase II melanoma trial (OMS-I100) is a single-dose trial treating approximately 25 patients. The primary endpoint is objective response rate (local and distant) at six months. Secondary trial endpoints include time to objective response (complete and partial responses), duration of distant response and overall survival.
In December 2013, OncoSec announced positive interim data from the ongoing Phase II trial of OMS-I100.
ImmunoPulse was safe and well-tolerated. Data from the multicenter, open-label, single-arm study confirmed the safety of ImmunoPulse. In Phase I and Phase II studies, a total of 47 melanoma patients have been treated without a single drug-related, serious adverse event. The most often occurred side effect was injection site pain (56.5%), which was only mild and transient.
Patients treated in OMS-I100 also demonstrated positive response rates based on modified RECIST criteria, a standardized measure of solid-tumor response to treatment. Interim efficacy analysis of 21 evaluable patients on Day 180 indicated that 38.1% (8/21) achieved an objective overall response, defined as ≥30% reduction in summed size of lesions. At the time of this interim analysis, six patients (28.6%) had demonstrated a partial response, and two patients (9.5%) had achieved a complete response, lasting at least 6 months. An additional 9.5% (2/21) of patients exhibited clinically beneficial disease stabilization for at least 3 months.
These data strengthen and expand upon previously reported Phase I results, which indicated a complete response in 16% of patients (3/19) and disease stabilization in 38% (7/19). These data were published in Journal of Clinical Oncology in 2008.
Importantly, 61.1% of patients (11/18) with evaluable lesions exhibited systemic antitumor immune responses, as evidenced by objective regression (≥30% reduction in size) in at least one untreated lesion.
Source: Company presentation
The following chart describes an example of one complete responder in the Phase II melanoma trial. At baseline, he had 5 lesions: 4 treated and 1 untreated. The untreated lesion was visible by PET-CT and remained untreated for the duration of the study.
Following the first cycle, 3 of the 4 treated lesions completely responded, including the untreated lesion. Following the second cycle, all treated lesions responded, and by Day 180, this patient was disease-free.
Source: Company presentation
OncoSec has completed enrollment of 25 patients in the Phase II trial, and expects to reach its expanded enrollment target of 30 patients in the near future and report additional data from the trial in mid-2014. The company is also planning to evaluate additional dose-intensified treatment schedules in the current trial and report interim and final analysis later this year.
We are encouraged by the safety and efficacy data of ImmunoPulse in the Phase II study in melanoma patients. The positive Phase II data further validates results from previous Phase I study. We are especially impressed with the response rate of untreated tumors, which suggests an induction of systemic antitumor response, without systemic toxicity.
Systemic response is significant for two main reasons. First, it suggests that unlike most locally administered melanoma treatments, ImmunoPulse may induce antitumor response throughout the entire body, which would have clear benefits in the treatment of metastatic disease. Secondly, the favorable safety profile of ImmunoPulse indicates its potential to deliver systemic benefit without the toxicities associated with many other systemic treatments.
While OncoSec's current Phase II study in metastatic melanoma is coming to a conclusion, the company is preparing for its next phase of development and is setting up for the initiation of a Phase IIb metastatic melanoma study. The Phase IIb study will be a randomized, controlled study providing the company with information for a key inflection point in the development of this program.
If the Phase IIb study can confirm safety and efficacy of ImmunoPulse, pivotal trial could start in 2015. And we estimate approval of ImmunoPulse for the treatment of melanoma may be obtained as early as in late 2017 if the pivotal trial data prove to be positive.
Great Potential of ImmunoPulse in Combination with Checkpoint Inhibitors for Melanoma
OncoSec is conducting a research study with Old Dominion University to evaluate the effects of ImmunoPulse in combination with anti-CTLA-4, Anti-PD-1, and Anti-PDL-1 in a melanoma mouse model.
Studies have demonstrated that tumors (specifically melanoma) can be divided into a high and low TIL (tumor-infiltrating lymphocyte) phenotype. Tumors with high TIL are referred to as immunogenic, while tumors with low TIL are referred to non-immunogenic. Ongoing clinical trials of PD1/PDL1 inhibitors suggest that response correlates with high TIL phenotype. Tumors with low TIL have low response rate to PD-1/PDL-1 inhibitors.
Recent melanoma studies have reported response rates in the range of 20%-40% using anti-PD-1 or anti-PDL-1, and the argument is that the majority of the responders are the high-TIL population. If this is the case, then the question becomes how to make those non-immunogenic tumors into immunogenic tumors so that they can respond to PD-1/PDL-1 or similarly effective T-cell checkpoint agents.
The therapeutic concept is that ImmunoPulse with IL-12 will convert low-TIL tumors into high-TIL ones, thus allowing an anti-PD1/PDL1 therapy to work in patients, who would otherwise be PD-1 unresponsive.
The potential ability of ImmunoPulse to convert the non- or weakly immune-responsive cancer into strongly immune-responsive cancer may represent a paradigm shift in cancer therapy. This area is an enormous unmet medical need and represents a huge market for OncoSec. It is estimated that about 50% to 80% cancer patients will not have TIL infiltrate at baseline or even after PD-1/PDL-1 treatment. This is where OncoSec's ImmunoPulse can get in and convert those non-immunogenic tumors into immunogenic tumors. In addition to melanoma, ImmunoPulse can virtually target any solid tumors, which represents a multi-billion dollar market for OncoSec.
Source: Company presentation
There is a huge unmet medical need for OncoSec's ImmunoPulse in combination with checkpoint inhibitors. If we look at the melanoma indication alone, this is a disease that has the highest response rates with PD-1 inhibitor monotherapy. But still, there are about 60% to 80% of patients who will not respond to PD-1 checkpoint inhibitors.
In other solid tumors, the percentage of PD-1 non-responders/non-immunogenic tumors is likely to be even greater. Thus, there is a tremendous unmet medical need across many solid tumors.
We estimate the market for the combination therapy will be a multi-billion business.
In order to accelerate the development of the combination study, OncoSec recently hired industry veteran Dr. Robert H. Pierce as the company's chief medical officer. Dr. Pierce was a key member of the global development team behind Merck's anti-PD-1 program (MK-3475) before joining OncoSec. We believe the addition of Dr. Pierce will accelerate the combination development of ImmunoPulse with PD-1/PDL-1 inhibitors.
Market Opportunity for ImmunoPulse
The initial indication for ImmunoPulse therapy will be for the treatment of melanoma. Melanoma is one of the most common skin cancers, with around 80,000 new diagnoses each year in the US, and leads to around 10,000 deaths each year, accounting for 75% of all deaths related to skin cancer. While survival rates have increased markedly in recent years, primarily due to early diagnosis, incidence rates have also tripled in the last 30 years, from 8 cases per 100,000 persons to 24 per 100,000, according to National Cancer Institute. The number of melanoma patients suitable for ImmunoPulse therapy outside the U.S. is approximately twice that of the U.S.
When diagnosed early, almost all localized melanoma can be safely treated by surgical removal of the tumor. However, in about 20% of the cases, the tumor is metastatic and inoperable, and can spread to the brain, liver, bones, abdomen, or lymph nodes, with far lower chances of survival. Patients with metastatic melanoma have a poor prognosis, with a 5-year survival rate of 5%. Two commonly used therapeutic agents for metastatic melanoma are dacarbazine and interleukin-2. Dacarbazine has an objective response rate of approximately 12%, with 2%-3% complete response rate that are often transient. Interleukin-2 has an objective response rate of approximately 16%, with 4%-6% durable complete response rate.
The US FDA recently approved a few agents for the treatment of metastatic melanoma.
In March 2011, the FDA approved YERVOY (ipilimumab) from Bristol-Myers Squibb for the treatment of unresectable or metastatic melanoma. Ipilimumab is a human cytotoxic T-lymphocyte antigen 4 (CTLA-4) antibody. CTLA-4 is expressed on activated T-cells, and is a negative regulator of T-cell activation. Ipilimumab binds to CTLA-4 and blocks the interaction of CTLA-4 with its ligands, CD80/CD86. By binding CTLA4, ipilimumab enhances T-cell activation.
In a Phase III trial of 676 patients, overall survival was longer with ipilimumab alone compared with tumor vaccine gp100. Patients treated with ipilimumab alone had a median OS of 10 months. Patients treated with gp100 had a median overall survival of 6 months. Patients who received ipilimumab plus gp100 had a median OS of 10 months. Patients treated with ipilimumab alone also had the best overall response rate (investigator assessed) of 10.9 percent. Patients treated with the combination of ipilimumab plus vaccine arm had an overall response rate of 5.7 percent. The patients treated with vaccine gp100 alone had an overall response rate of 1.5 percent.
In August 17, 2011, the FDA approved vemurafenib tablets (ZELBORAF, made by Hoffmann-La Roche Inc.) for the treatment of patients with unresectable or metastatic melanoma with the BRAFV600E mutation. ZELBORAF is a kinase inhibitor indicated for the treatment of patients with unresectable or metastatic melanoma with BRAFV600E mutation.
The confirmed, investigator-assessed best overall response rate was 48.4% for ZELBORAF. There were 2 complete responses (0.9%) and 104 partial responses (47.4%).
On May 29, 2013, the FDA approved dabrafenib (Tafinlar™ capsule) and trametinib (Mekinist tablet), from GlaxoSmithKline for the treatment of patients with unresectable or metastatic melanoma. Dabrafenib is approved for BRAFV600E mutation, while trametinib is approved for BRAFV600E or V600K mutation.
The investigator-assessed objective response rates were 52 percent for patients treated with dabrafenib, which included a 3 percent complete response rate. The objective response rates were 22 percent for patients treated with trametinib. None of the 40 patients achieved a confirmed complete response.
The very small number of durable complete response rate makes it unlikely that many patients with metastatic melanoma will be cured utilizing any of these approaches. Also, all these drugs are associated with significant side effects, and long-term use may lead to drug resistance by tumor cells.
OncoSec's ImmunoPulse therapy is a totally different treatment approach for melanoma. ImmunoPulse clinical-stage approach consists of directly injecting solid tumors with a DNA plasmid which, upon uptake into cells, directs the production of the encoded IL-12 to generate a loco-regional immune response against the tumor. Both Phase I and Phase II data demonstrated not only regression of treated melanoma skin lesions, but also regression of distant untreated lesions, suggesting a systemic immune response to the localized treatment.
Melanoma is a huge market. Sales of YERVOY reached $706 million in 2012, first full year after launch. In 2013, BMS recorded $960 million in YERVOY sales. Sales of YERVOY are projected to reach $2 billion by 2018.
Considering the huge market for melanoma, we think peak sales of ImmunoPulse, alone and in combination, could reach $500 million for the indication of melanoma alone. In addition to melanoma, OncoSec also plans to develop ImmunoPulse therapy for other tumors. If ImmunoPulse therapy proves to be effective to treat additional indications, the market opportunity will be significantly larger. We see great potential for ImmunoPulse if additional indications are approved. These additional indications include Merkel cell carcinoma (MCC) and cutaneous T-cell lymphoma (CTCL). Both indications are in Phase II clinical trials.
Balance Sheet Boosted by Recent Financing
In September 2013, OncoSec closed a registered public offering of 47,792,000 shares of its common stock at $0.25 per share and warrants to purchase up to 23,896,000 shares of common stock at an exercise price of $0.35 per share for four years.
The gross proceeds of the offering were approximately $12 million. Net proceeds, after deducting the placement agent's fee and other estimated offering expenses payable by OncoSec, was approximately $11.1 million.
As of October 31, 2013, OncoSec had cash and cash equivalents of $15.2 million. The estimated cash burn for 2014 and 2015 will be $5 and $8 million respectively, therefore, this cash balance could last through into fiscal 2016.
OncoSec's Shares Are Undervalued
OncoSec is an emerging biotech company focused on developing and commercializing innovative approaches for the treatment of cancers. OncoSec's key platform technology is its proprietary electroporation delivery system to locally deliver DNA or chemotherapeutics into tumor cells. But what makes the technology unique is that this locally-delivered DNA has demonstrated systemic response for the treatment of melanoma, meaning that the technology can be used to treat metastasis of cancers.
OncoSec's lead candidate ImmunoPulse is a delivery device encoding for IL-12. ImmunoPulse is currently in three Phase II clinical trials for melanoma, Merkel cell carcinoma, and cutaneous T-cell lymphoma respectively. OncoSec already reported positive data from the Phase II melanoma trial, and plans to move to Phase IIb trial for melanoma soon. We estimate pivotal trial for melanoma could start in calendar 2015, and approval of this indication could be obtained as early as in 2017.
One important application of ImmunoPulse is that it can be combined with checkpoint inhibitors such as PD-1/PDL-1 for the treatment of melanoma and other solid tumors. In this case, the combination therapy can convert non-immunogenic cancers into immunogenic cancers, which can be killed by the combination therapy.
The market for ImmunoPulse is huge even for the melanoma indication alone. If we consider other indications for solid tumors such as Merkel cell carcinoma and cutaneous T-cell lymphoma, the market is much bigger.
Based on OncoSec's fundamentals, we think its shares are undervalued at current market price. Currently, OncoSec shares are trading at about $0.70 per share, which values the company at $130 million in market capitalization. This, certainly, is a huge discount compared to its peers. We understand that valuing a development-stage biotech company is always difficult. But if we look at similar companies in the cancer space, the value of a typical development-stage biotech firm with similar fundamentals to OncoSec is usually from $50 million to $1 billion, depending on how advanced the programs are and how big the markets are for its candidates. OncoSec is a mid-stage development biotech company, and is ready to move to pivotal study with its lead candidate. The market of melanoma and/or other solid tumors is huge for its lead candidate, ImmunoPulse.
With the estimated approval of ImmunoPulse in 2017, we model OncoSec will become profitable in fiscal 2018, with earnings per share (EPS) of $0.03 based on ImmunoPulse sales of $50 million. Revenue could double in fiscal 2019 and EPS will grow into $0.10 per share, according to our estimates. If we use the biotech industry average P/E multiple of 35 and 20% discount rate for five years, we arrive at our price target of $1.50 per share for OncoSec, which values the company at $275 million in market cap. This valuation is still conservative in our view, considering the relatively strong fundamentals of the company.
Recent interest in electroporation technology from Big Pharma could serve as a wildcard for OncoSec valuation. In September 2013, Roche entered into collaboration with Inovio Pharmaceuticals, with an over $400 million investment in Inovio's electroporation technology. Also, in Feb 2014, Pfizer entered into a collaboration agreement with Ichor Medical Systems to utilize Ichor's intramuscular electroporation technology. With proven clinical data, OncoSec's ImmunoPulse could be the next target for Big Pharma companies.
Source: Company presentation
But Keep In Mind The Risks
- OncoSec is a development-stage biotech company. Its lead candidate, ImmunoPulse, is in Phase II clinical trials and still needs to navigate through both clinical and regulatory hurdles. Any failure of the clinical studies will have a negative impact on its share price.
- Cash burn is another concern. Like most development-stage, small biotech companies, OncoSec needs to raise funds to advance both its preclinical and clinical programs. While we welcome any non-dilutive financing measures, such as partnership agreement, but there is no guarantee that OncoSec can land a favorable partnership deal. In such a case, equity or convertible debt financing will be the choice. Such financing, we expect to occur by the end of 2015, will dilute existing shareholder base and will negatively impact share price.