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Biotechnology stocks are known for volatility, as many industry executives, investors, and research analysts will attest. Companies can achieve significant valuations long before their products generate revenue or trade below cash value following negative trial results. In addition, biotechnology products may be subject to severe competition and rapid obsolescence, which only adds to the unpredictability.

One recent example of this inherent volatility and achieving a lofty valuation prior to commercialization is Dendreon Corporation (NASDAQ:DNDN). On April 29, 2010, the FDA approved the very first active immunotherapy for the treatment of cancer – Dendreon’s Provenge® [sipuleucel-T] for metastatic castrate-resistant prostate cancer [CRPC]. This event reignited enthusiasm for the field of active immunotherapy for cancer and shares of Dendreon, which traded below $5 in March 2009, subsequently reached an all-time high above $57 and a market capitalization of approximately $7.8 billion.

It has been said that a rising tide raises all boats and Dendreon’s success lifted shares of other companies working in the field of active immunotherapy for the treatment of cancer. Table 1 below depicts the stock price performance of select cancer immunotherapy companies from April 1, 2010 to April 30, 2010, the month Provenge was approved by the FDA.

Table 1: High Tide for Cancer Immunotherapy Around Approval of Provenge

Company

4/1/10 Price

4/30/10 Price

% Change

Agenus Inc (NASDAQ:AGEN)

4.20

6.96

65.71%

Dendreon Corporation (DNDN)

37.02

54.06

46.03%

Celldex Therapeutics (NASDAQ:CLDX)

6.17

8.17

32.41%

Oncothyreon Inc (NASDAQ:ONTY)

3.41

4.04

18.48%

Bavarian Nordic (BNNKF.PK)

232.00

263.50

13.58%

Idera Pharmaceuticals (NASDAQ:IDRA)

5.97

6.26

4.86%

Vical Inc (NASDAQ:VICL)

3.47

3.62

4.32%

On August 3, 2011, however, Dendreon withdrew its previous guidance of $350-400 million in revenue for 2011, with modest quarter over quarter revenue growth expected for the remainder of the year. The news not only caused a dramatic decline in Dendreon’s stock, but also cast a shadow on other companies working in the emerging field of active immunotherapy for cancer. Table 2 below depicts the stock price performance of select cancer immunotherapy companies from August 1, 2011 to August 31, 2011, the month that Dendreon withdrew its revenue guidance. Dendreon’s stock recently traded around $7 per share, down nearly $50 from its all-time high, and the company’s market capitalization is just over $1 billion.

Table 2: Low Tide for Cancer Immunotherapy Around Dendreon’s Withdrawal of Revenue Guidance

Company

8/1/11 Price

8/31/11 Price

% Change

Dendreon Corp (DNDN)

36.35

12.28

-66.22%

Agenus Inc (AGEN)

4.68

3.12

-33.33%

Vical Inc (VICL)

4.89

3.63

-25.77%

Bavarian Nordic (BNNKF.PK)

68.50

54.50

-20.44%

Celldex Therapeutics (CLDX)

3.60

3.12

-13.33%

Idera Pharmaceuticals (IDRA)

1.93

1.72

-10.88%

Oncothyreon Inc (ONTY)

7.75

7.18

-7.35%

While FDA approval of the first active immunotherapy for cancer was a watershed event for the industry, the future for companies working in this emerging area should not be judged solely by the commercial success of this product. Growing evidence indicates that the field of cancer immunotherapy, broadly defined as including passive immunization, active immunization, and immunostimulation, is undergoing a renaissance.

Beyond the approval of Provenge in 2010, the FDA approved Yervoy™ [ipilimumab] by Bristol-Myers Squibb (NYSE:BMY) for the treatment of patients with unresectable or metastatic melanoma on March 25, 2011. With the news, ipilimumab became the eleventh monoclonal antibody [mAb] approved for the treatment of cancer since 1997. Ipilimumab is unique among other mAbs for cancer treatment, as it represents the first immune checkpoint modulator.

In addition, positive results from several randomized studies with active immunotherapies have recently been published in peer-reviewed journals. The first study published in the March 1, 2010, edition of the Journal of Clinical Oncology was a Phase II randomized controlled trial of Bavarian Nordic’s poxviral-based, PSA-targeted immunotherapy [Prostvac®] in metastatic CRPC. Patients receiving Prostvac had an 8.5-month improvement in median overall survival versus control. These provocative data supported initiation of a pivotal Phase 3 trial that began enrolling patients in November 2011.

Another study published in the June 2, 2011, edition of the New England Journal of Medicine, demonstrated that patients with metastatic melanoma receiving high-dose interleukin-2 (IL-2) plus a gp100 peptide vaccine had a significant improvement in centrally verified overall clinical response (16% vs. 6%; P=0.03), as well as longer progression-free survival (2.2 months versus 1.6 months; P=0.008). There was a trend toward longer overall survival in the gp100 vaccine arm (17.8 months versus 11.1 months; P=0.06), although the results were not statistically significant.

As discussed in our report published in June 2011 titled “Cancer Immunotherapy: A Roundtable Discussion,” there are more than 40 unique active cancer immunotherapies currently being tested in over 60 clinical trials, including nearly a dozen that are in pivotal Phase 3 development. With nearly a dozen readouts from randomized Phase 2 or Phase 3 trials expected during the next 12-months, 2012 could be a breakout year for the field [see Table 3 below]. While not all programs will be positive, success with even just one of these key trials could reignite investor interest in the field and demonstrate that the clinical success with Provenge was not a fluke.

Table 3. Expected Active Immunotherapy Catalysts for 2012

Company

Product

Disease

Status/Catalyst*

Amgen (NASDAQ:AMGN)

OncoVEX[GM-CSF]

Melanoma

Phase 3 trial underway; data in 2012

Antigen Express/

Generex (OTCQB:GNBT)

AE37

Breast cancer

Randomized Phase 2 trial underway; data in 2012

Bavarian Nordic (BNNKF.PK)

CV-301, formerly PANVAC

Breast cancer

Randomized Phase 2 trial underway; data in H1 2012

GlaxoSmithKline (NYSE:GSK)/

Agenus, Inc. (AGEN)

MAGE-A3 ASCI

[uses Agenus’ QS-21 adjuvant]

NSCLC and melanoma

Phase 3 trials underway; data in 2012

GlobeImmune Inc/

Celgene Corp (NASDAQ:CELG)

GI-4000

Pancreatic cancer and NSCLC

Randomized Phase 2 trial underway; data in 2012

Idera Pharmaceuticals (IDRA)/

Merck KGaA (OTC:MKGAF)

IMO-2055

Head & neck cancer

Randomized Phase 2 trial underway; data in 2012

Jennerex

JX-594

Liver cancer

Phase 2b underway; data in 2012

NewLink Genetics (NASDAQ:NLNK)

HyperAcute

Pancreatic cancer

Phase 3 trial underway; data in 2012

Oncothyreon (ONTY)/

Merck KGaA (OTC:MKGAF)

Stimuvax®/BLP25 liposome vaccine

NSCLC

Phase 3 trial underway; data in 2012

Transgene (OTC:TRGNF)/

Novartis (NYSE:NVS)

TG4010/MVA-MUC1-IL2

NSCLC

Phase 2b/3 trial underway; data from Phase 2b in 2012

Vical (VICL)/

AnGes

Allovectin-7®

Melanoma

Phase 3 trial underway; data in Q2 2012

* Based on company reports, analyst reports, and/or MD Becker Partners’ projection

It is worth noting that mAbs were hailed as “magic bullets” when they were developed in the 1970s. However, clinical results with these passive immunotherapies were largely disappointing for the first 10 years of development. It wasn’t until November 1997 that the first mAb for cancer therapy, Rituxan® [rituximab], was approved by the FDA for the treatment of non-Hodgkin’s Lymphoma [NHL]. Today, mAbs represent one of the most successful therapeutic classes and eleven such products have been approved for cancer therapy. Three blockbuster products sold by the Roche Group (OTCQX:RHHBY) – Avastin® [bevacizumab], Rituxan, and Herceptin® [trastuzumab] – collectively represented nearly $17 billion in revenue for 2009.

As stated in our firm’s April 2010 report titled “Cancer Vaccine Therapies: Failures and Future Opportunities,” using the history of mAb development as a guide, we expect to see five active cancer immunotherapies approved by 2015 [5x15] that will revolutionize the treatment of cancer owing to their potential to be more targeted, more effective, and less toxic. 2012 represents a period with robust news flow for emerging immuno-oncology companies and while volatility is expected, any good news could serve as a spark to reignite investor enthusiasm for companies working in the area and raise the tide once again. In addition to clinical progress, major licensing and/or merger & acquisition transactions could also serve as catalysts for the sector.

Disclosure: Please click here to view MD Becker Partners' legal disclaimer, which includes among other disclosure, reference to the fact that MD Becker Partners or its affiliates may provide, may have provided, or may seek to provide management and strategy consulting services to companies mentioned in this article and could affect the objectivity of such information. In this regard, clients of MD Becker Partners mentioned in this article include the following: Agenus, Bavarian Nordic, and Antigen Express. MD Becker Partners receives no compensation to write about any specific stock, sector or theme. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 2012 Preview: Cancer Immunotherapy Catalysts