6 Companies That Could Revolutionize Medicine -- And Portfolios

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Includes: CASC, CLDX, GALE, KERX, OCAT, OPXA
by: Michael J. Ray

In this article, as the title suggests, we are trying to isolate biotech companies who have products in development that will actually change the face of medicine for certain ailments and diseases. That being the case, the companies in question must have products or technologies that address diseases and ailments that are severe in nature and that address unmet needs. There are a multitude of companies working on numerous new drugs and ideas, but for this article we want to only focus on those that will have the biggest impact for the patient, and at the same time, the investor. Needless to say, these companies will carry a much higher level of risk. That being said, they also carry a huge potential for rewards if they prove to be successful.

Opexa Therapeutics, Inc. (NASDAQ:OPXA): Opexa is a biotechnology company dedicated to the development of patient-specific cellular therapies for the treatment of autoimmune diseases. The company's leading product is one that is to be used to address the unmet needs of Multiple Sclerosis patients. The product is Tovaxin, a cellular immunotherapy that has completed a Phase IIb clinical study for the treatment of Multiple Sclerosis.

What is interesting is that Tovaxin is specifically tailored to each patient's disease profile, so it is not a one-size-fits-all approach. Tovaxin is designed to reduce the number of T-cells known to attack myelin. The treatment will consist of donating blood and creating a vaccine using the patient’s own cells. The vaccine cells will be irradiated to render them unable to divide, but able to evoke an immune response. The vaccines will be administered in the doctor’s office as a subcutaneous injection in the arm, given five times a year. The first four injections are administered a month apart, with the fifth and final injection administered two months after the fourth.

Now take a minute to think about what this company might have. If successful, they might be able to address MS. If a patient was diagnosed early on, a treatment with OPAX’s therapy could bring the disease to a grinding halt and let the individual live out his life basically unaffected. No matter who you are, that kind of treatment would be a gift from above for lots of families throughout the world.

For the investor, consider that the number of MS patients in North America and Canada are 500,000 to 550,000, and worldwide at 2.5 million. It is estimated that approximately 800 new cases are diagnosed each month, which primarily effect adults between the ages of 20 and 60. Lastly, the MS market is estimated to be worth almost $9 billion.

OPAX reported a net loss for the three months ended June 30, 2011, of $1.49 million, or $0.06 per share, and a net loss for the six months ended June 30, 2011, of $2.79 million, or $0.13 per share. For the same three-month and six-month periods ending June 30, 2010, Opexa reported a net loss of $1.82 million, or ($0.12) per share, and $3.24 million, or ($0.21) per share, respectively. Cash and cash equivalents were $9,876,675 as of June 30, 2011, compared to $5,874,614 as of June 30, 2010. The current monthly burn rate was approximately $470,000, which means the company should have sufficient capital to last beyond 2011. The Phase III clinical trials for Tovaxin are scheduled to start later in 2011. There is obviously lots of risk here, but lots of reward to be had as well.

RXi Pharmaceuticals (NASDAQ:RXII): RXII is yet another biotechnology company that has the ability to really make a difference in the world of medicine. The company was formerly known as Argonaut Pharmaceuticals, Inc., and changed its name to RXi Pharmaceuticals Corporation in November 2006. RXII’s lead product candidate is NeuVax, which stimulates T cells in a highly specific manner to target cells associated with breast cancer.

Breast cancer is a very big issue; according to the National Cancer Institute, over 200,000 women in the U.S. are diagnosed with breast cancer annually. Of these women, about 75% test positive for Human Epidermal growth factor Receptor 2 (IHC 1+, 2+ or 3+). Only 25% of all breast cancer patients, those with HER2 3+, are eligible for a drug called Herceptin (Trastuzumab) which is a Roche-Genentech product. NeuVax targets the remaining 50% of HER2 positive patients (HER2 1+ and 2+), who achieve remission with current standard of care, but have no available HER2 targeted adjuvant treatment options to maintain their disease-free status with low to intermediate HER2.

What this boils down to is that the market for their product would be big. The key to RXII’s future is the recent results from the latest trials where NeuVax was given to intermediate HER2 positive patients. Results were spectacular as the recurrence rate for the control group was 22.2% while the recurrence rate for the NeuVax + Trastuzumab group was 0% for a 36-month period. That is quite an impressive result. Based on a successful Phase II trial, which achieved the primary endpoint of disease-free survival, the FDA granted a Special Protocol Assessment for its Phase III study. This Phase III multicenter trial is expected to commence in the first half of 2012.

As of June 30, 2011, cash, cash equivalents and short-term investments totaled $17.9 million, compared with cash and cash equivalents of $6.9 million at December 31, 2010. This $11.0 million increase is attributable to the closing of two underwritten public offerings that provided net cash proceeds of $18.2 million after fees, offset by net cash used in operating activities of $7.2 million for the six months ended June 30, 2011.

Research and development expenses increased to $2.7 million in the second quarter of 2011 from $2.3 million in the second quarter of 2010, and increased to $4.8 million for the first six months of 2011 from $4.2 million for the first six months of 2010. The increase in research and development expenses for the second quarter of 2011 compared with the second quarter of 2010 was primarily due to an increase in research and development cash expenses due to a ramp-up in NeuVax. The question will be if RXII will have enough cash to burn through as they plow through the Phase III trials. In the end, though, if their product can help fight against breast cancer on the level they predict, it should be a winner for investors.

Celldex (NASDAQ:CLDX): Celldex is a biotechnology company focused on the discovery, development and commercialization of targeted immunotherapies. The core focus for the company will be these immunotherapies and their ability to treat cancer. CLDX will attempt to change the world of medicine with its vaccine, Rindopepimut, which is being tested against the most common and aggressive form of brain cancer. If successful, the vaccine also has the potential be to used in other types of cancer, including breast, ovarian, metastatic prostate, colorectal, and head & neck.

These cancer vaccines are the new and upcoming treatments, and hopefully will provide a new standard of care for patients. The Phase II studies provided good results, and the company is preparing to enter a Phase III clinical trial. If CLDX is finally successful, the vaccine Rindopepimut could easily be used as the new treatment for all types of cancer.

At June 30, 2011, the company had cash, cash equivalents and marketable securities of $71.2 million. The Company incurred a loss of $20.3 million for the six months ended June 30, 2011. The net cash used in operations for the six months ended June 30, 2011 was $18.2 million. CLDX believes that the cash, cash equivalents, and cost control will be sufficient to fund the estimated working capital requirements and planned operations for at least the next 12 months.

The company raised net proceeds of $35.9 million from the sale of its common stock during the three months ended June 30, 2011. During the next 12 months, the company expects to take further steps to raise additional capital to meet its long-term liquidity needs. The issue is that the company is not quite sure how they will complete this. The will try to license their technology or find a business partner to help absorb some of the cost, but what often times happens is the issuance of new stock which will dilute the existing shareholders. So once again we see a high risk and possible high reward scenario developing with this stock as they move into Phase III.

If one is going to discuss cancer vaccines and groundbreaking treatments, then you have to also consider Oncothyreon (ONTY). ONTY is a biotechnology company dedicated to the development of oncology products for cancer patients. The company is focusing on the non-small-cell lung cancer vaccine (Stimuvax). ONTY has partnered with Merck KGaA of Darmstadt, Germany, who is developing Stimuvax under a license agreement. There are two Phase III trials of Stimuvax underway, and interim results are due by the end of this year.

Excitement for ONTY comes from many aspects of the company, but one particular event dealt with the clinical data relating to long-term treatment with Stimuvax. The data was presented at the International Association for the Study of Lung Cancer's 13th World Conference on Lung Cancer in San Francisco on August 1, 2009. This study involved 16 patients who received treatment with Stimuvax between 2 and 8.2 years as part of the Phase IIb trial in patients with Stage IIIb and Stage IV non-small-cell lung cancer. Results were that 10 of the 16 patients were alive without evidence of disease progression, of whom eight continued to receive therapy with Stimuvax after 6.3 to 8.2 years. To add to this, the remaining two patients discontinued Stimuvax therapy after 2.4 and 5.8 years, and were also without evidence of disease progression. Though it was not a 100% success rate, the results were positive.

Earlier in the year the company raised $43 million at a public offering of 11.5 million shares of stock at $4 per share. As of August 1, 2011, the shares traded as high as $8.36, and in mid-July where trading in the $10 range, so there is some excitement building in ONTY. As of June 30, 2011, the company incurred a net loss of $41.1 million for the six months ended June 30, 2011, compared to a net loss of $5.1 million for the same period in 2010. The increase in net loss was primarily due to the increase in fair value of warrant liability, which was primarily attributable to the increase in the price of their common stock. Needless to say, the introduction of cancer vaccines can easily change the way medicine is practiced when dealing with deadly cancers.

Keryx Biopharmaceuticals, Inc (NASDAQ:KERX) is a biopharmaceutical company focused on the acquisition, development and commercialization of medically important pharmaceutical products for the treatment of life-threatening diseases, including cancer and renal disease. KERX’s product that may have a major impact in the world of medicine is their drug Perifosine, which is their oral anti-cancer drug. The drug is designed to treat advanced colorectal cancer. KERX secured Perifosine via a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEterna Zentaris Inc.

It should be stated that, according to the American Cancer Society, colorectal cancer is the third most common form of cancer diagnosed in the United States. It is estimated that over 141,000 people will be diagnosed with some form of colorectal cancer in the United States, with over 49,000 patients dying from colorectal cancer in 2011. Surgery is often the main treatment for early-stage colorectal cancer.

If KERX can bring their drug to market with successful testing, it could easily become a very popular treatment in helping the fight against colon cancer. Recently the company stated that they made significant progress in their Phase III programs and they had completed the enrollment of Perifosine's Phase III program in advanced refractory colorectal cancer. More exciting news is that if the trials are successful, Perifosine may be used on several different types of cancer other than colorectal.

At June 30, 2011, the company had cash equivalents, interest receivable and investment securities of $52.5 million, as compared to $28.5 million at December 31, 2010. In May 2011, the company completed an underwritten registered offering of common stock, which provided proceeds to the company of approximately $30.8 million. The net loss for the second quarter ended June 30, 2011, was $3.1 million, compared to a net loss of $5.2 million for the second quarter in 2010, representing a decrease in net loss of $2.1 million. The three months ended June 30, 2011 included license revenue of $5.0 million, related to a milestone payment from the company's Japanese partner for Zerenex (ferric citrate), Japan Tobacco Inc. and Torii Pharmaceutical Co., Ltd., for their commencement of a Phase III clinical program of ferric citrate in Japan. Management also stated that since the solidifying of the balance sheet with the $33 million registered offering, they believe they are well capitalized to execute on their business plan. It will be an exciting time for KERX as the future unfolds.

The last company represents the new wave of regenerative medicine via stem cells. This company is Advanced Cell Technology (ACTC), and has some exciting technologies lined up. ACTC is a biotechnology company that specializes in the development of cellular therapies based on stem cell technologies (both adult and human embryonic). The company has developed and holds patents on the first-ever proven alternative method for successful stem cell generation without harm to the embryo, called the “single-cell blastomere” technique. Add to this there are three cellular product platforms based on groundbreaking stem cell technology which are as follows:

  • The company is focused on commercializing its human embryonic stem cell (hESC)-based Retinal Pigment Epithelial (RPE) therapy for degenerative retinal disease, for which it has recently secured two FDA clearances for Phase 1/2 clinical trials for which it recently initiated two Phase 1 clinical trials.
  • The company is also developing its human embryonic stem cell (hESC)-basedHemangioblast (HG) platform for the treatment of blood and cardiovascular diseases. The company is developing this program in partnership with CHA Biotech of Korea.
  • The company is focused on advancing its Phase II-approved Myoblast autologous adult stem cell therapy for the treatment of chronic heart failure, advanced cardiac disease, myocardial infarction, and ischemia.

For the period ended June 30, 2011, the company had revenue of approximately $0.2 million which was generated through license fees and royalty payments. Research and Development expenses for the three months ended June 30, 2011, and 2010 were $1.53 million and $1.48 million. The company reported a loss from operations of $(3.6) million, compared to a loss from operations of $(1.1) million in the 2010 second quarter.

Net cash used in operations for the 2011 second quarter was $3.2 million, compared to net cash used in operations of $1.8 million in the same period in 2010. The net cash used in operations increased as a result of the company preparing for, and commencing, its clinical trials. The company ended the 2011 second quarter with cash and cash equivalents of $16.1 million, compared to $13.7 million as of March 31, 2011 after drawing down approximately $4 million from its available equity commitment.

If the company can successfully execute on any one of the three platforms, it will definitely be a game-changer in the world of medicine. The risk is if the company will have enough cash to see the trials through to the end, as any further dilution to the large number of outstanding shares will be seen as a big negative.

In conclusion, the above companies all have drugs and technologies that could truly change the world of medicine. The risks are high, and any failure or misstep could easily lead to catastrophic losses for anyone holding the shares. On the other hand, success by the company could generate returns that most investors can only dream about. Obviously this article was only able to focus on a select few companies, and there are many more out there to look at. Before investing, make sure to complete all the necessary research as these companies can -- and will -- be volatile.

Disclosure: I am long KERX, RXII.