"I always like to say that my job is about three things, to remove obstacles for people, to keep the company moving forward, and to make sure it is funded" Punit Dhillon
Have you ever bought stock in a company prematurely, or purchased a stock that looked promising, only to have advances in the industry cause strategic changes within the company delaying your investment? Chances are if you have not yet experienced this, you will. This has been the case for me with OncoSec Medical (OTCQB: ONCS). Since 2013, when I initially invested in the company, I have been following their progress as they have continued to grow and develop. It has not been a smooth ride, at times appearing to be a mistake, while at other times remaining a promising investment.
When I first invested in OncoSec the share price was at $0.17 ($3.40 post reverse split) and I have held it while it dropped more than 50 percent, falling more than 80 percent from its 52-week high. Everyone who invests knows what it is like to watch a stock take a significant drop. It hits you right in the gut, and makes you question your own judgment. Even though you know that emotions are not supposed to be involved, it is a challenge to detach yourself and remain objective. Buying too early, however does not necessarily mean you bought the wrong stock. It cannot be stressed how important it is to reevaluate a decision before taking action. Rather than simply declaring a stock "junk" and taking the loss, revisit your reason for owning it first. That's where I found myself as last year closed.
When a stock I have invested both time and money in takes that kind of a hit I need to know what happened. Debrief before making a decision. Was I lax in my due diligence? Was the original theory wrong, or was there a disconnect somewhere? Ultimately what I want to know is: Why did the stock drop? What should I have done differently, if anything? Is it still a good investment?
So, as part of my reevaluation I called Punit Dhillon, CEO of OncoSec, with a list of questions I had developed that expressed my concerns, not just about the stock price, but the overall direction of the company, and its management. I wanted to understand the mindset of the company, how they intend to move forward and at what pace. Over the course of two weeks, our conversations helped to reaffirm my confidence in the direction OncoSec is going, but it also made it clear that this will be a longer road than I had anticipated.
Some of the questions I had were not unique:
- Why aren't you starting Phase 3 trials with ImmunoPulse now?
- Is Dr. Robert Pierce (Chief Scientific Officer) going to quit?
- Why is your cash burn rate so high?
- How many more dilutions before we see some value?
- What makes ImmunoPulse valuable? How will you leverage that value?
Mr. Dhillon was familiar with these, having been asked the same things from many investors. What I learned is that few people really seem to understand what OncoSec is focused on, why, and what affect that has on their future potential. In the knee-jerk response to a depressed stock price many are willing to throw the proverbial baby out with the bath water. As an investment OncoSec's potential is impressive, and many investors who either do not understand that potential, or are more concerned with immediate returns, may be missing a great opportunity here.
Why did I choose OncoSec Medical?
Originally I was drawn to invest in OncoSec because of their ImmunoPulse technology, an electroporation platform with the ability to deliver any combination of genes to any location in the body. Using an electric pulse, this technique allows the membranes of cancerous cells at an injection site to be temporarily opened so that gene strands can be introduced directly into those cells. This intratumoral approach coupled with Interleukin-12 (IL-12), a drug proven to increase Tumor Infiltrating Lymphocytes (NASDAQ:TIL), CD8+ and Interferon gamma, has shown great promise. These biomarkers are known to be key indicators for determining who will respond to Anti-PD-1 drugs like Bristol-Meyers Squibb's (NYSE: BMY) Opdivo and Merck's (NYSE: MRK) Keytruda (see article: PD-1 blockade induces responses by inhibiting adaptive immune resistance from nature). An increase in these biomarkers will lead to greater immune response, and thus a higher response rate to treatment. This should lead to effective treatment opportunities across multiple indications. But the timing wasn't quite right.
Nothing has changed in the science, in fact with multiple trials ongoing or completed in five different types of cancer, with all available data showing consistent response to therapy with increases in TIL, the stock is still appealing - perhaps even more so now at this discounted and undervalued price. But why is it undervalued? In my opinion, there are several reasons, some of which are shared by Mr. Dhillon, including: incorrect assumptions by under-informed investors, several changes in development direction, which although positive in the aggregate have slowed the clinical trial process, the company not following a "traditional process" for a biotech company, poor guidance and communication from the company, and external factors that have had a net negative effect on the share price. So let's break some of these down.
A New Direction and its Consequences
"we can move really quickly, and at the same time that has hurt us because of our nimbleness people haven't been able to keep up with our development. Here we went out of the gate with NeoPulse and ImmunoPulse, two different platforms altogether, and two different pipelines and we were out there trying to define ourselves and two years later we are focusing on ImmunoPulse and IL-12, and a year later we are telling people it works well with Anti-PD-1, and now we are waiting for the data. I think we loose our credibility, its a constantly shifting story without the explanation of why. You can keep saying this is the hypothesis, for only so long till someone says hold on you keep shifting and not giving us a reason why." Punit Dhillon
Let me begin by saying that OncoSec is a company that allows the results of their research dictate the direction they go. Unfortunately they are also a company that does not issue a press release for every decision they make.
When I first invested in OncoSec they were pursing a mono-therapy application of IL-12 with ImmunoPulse for three indications, Melanoma, Merkel Cell Carcinoma, and T-Cell Lymphoma. The potential looked good and their was an expectation that the stock price would rise as those trials, then in Phase II, moved forward into Phase III. However, the industry changed and with it the development strategy.
"It would be futile for us to move forward on IL-12 as a mono-therapy in melanoma, maybe its a product in terms of a certain population but its going to take a long time to get approved and take a lot of resources and it doesn't have much chance of success in terms of the overall landscape in melanoma" Punit Dhillon
Changes in the immunotherapy industry, specifically the introduction of Anti-PD-1 drugs, with their impressive results, changed the direction of immunotherapy. OncoSec then found itself faced with a tough decision, it could continue pursuing a mono-therapy with limited market application, or follow the new direction of the industry. Choosing to follow the industry they redirected their limited resources, seeking to develop a new use for their Immunopulse technology, in combination therapies. This required OncoSec to abandon the path they had been pursing mid-stride.
The abruptness of this change in direction, and the lack of clear information, unfortunately left many investors, myself included, unaware that the new combination trials would not be carried out in addition to existing research. When I realized the nature of the changes I did not foresee the delay this would bring to developing a product many investors thought was in the homestretch. The projected timeline released by the company proved overly optimistic. Suddenly expectations about direction, valuation, and expected trial results were no longer valid, leaving many confused disappointed, and angry.
The Phase II trials had become merely the first step in a longer process, and OncoSec was now effectively, a pre-clinical biotechnology company, and it should have been valued as such. The new combination trials required funds, as did continued operations and research, leading to several rounds of dilution. Without a catalyst to support the price, institutional owners chose to sell, holding onto their warrants from the sideline, while the share price dropped.
It then took over 18 months from the first mention of a combination trial to its first patient enrollment. There is a process, and in that process companies do not have control over the timeline. Through poor guidance the expectation was created that the trials would begin in January 2015. They did not start until seven months later, in July. During this time investors speculated that a partnership deal was in the works, one that would include cash to cover expenses for the trial, though there never was such a deal the heightened expectations led to disappointment when the actual details of the trial were finally released. Investors viewed this as a failure.
The trial, a Phase IIb clinical trial on Melanoma, would be designed as an open label Investigator Sponsored Trial (NYSEARCA:IST), a collaborative effort with the University of California, Los Angeles (UCLA), and Merck. This IST was not what was hoped for and had the unfortunate effect of damaging investor confidence. In addition, for the investor the lack of a partnership meant little chance of seeing any return on their investment, instead they had a long wait ahead of them.
For the company the nature of the trial is a boon, allowing OncoSec to retain ownership of their product. In the meantime the company has undergone two more rounds of dilution, as the overall biotech sector has seen deterioration, creating the perfect storm to repress and hold low the company's share price.
All of these concerns, though valid, must be kept in perspective, considering:
- The time frame for the trials is not out of the ordinary.
- Investor expectations were faulty in many ways partly due to poor communication from the company, but primarily due to speculation.
- The frustration with the lack of a partnership is a result of assumptions by investors who expected the company to behave in the predictable manner of other biotech companies, a failure on the part of the investor not the company.
- Deterioration of the market is a byproduct of being listed in an underperforming sector, not necessarily a flaw in the individual stock itself.
It is because I believe these to be for the most part either irrelevant factors, or those based on incorrect assumptions that I believe there is a window of opportunity here for the informed investor.
The Phase IIb Clinical Trial
"the way that our platform is truly differentiated compared to anybody else out there is the fact that you can stack multiple genes and drive an immune response intratumorally and expose the body to those cancer cell antigens faster. I think that is lost on a lot of people and that is why our pipeline is so laser focused on addressing the acute opportunities like IL-12 in Melanoma" Punit Dhillon
This is the make or break trial for OncoSec, and they are very aware of that fact. The design of the IST itself reflects that fact. A combination trial using patients who have been pre-screened, through the use of tumor biopsies, accepting only those who show either no, or low TIL. This is unique in that they are seeking only patients who are expected to have little or no response to Keytruda. The idea being that if these patients respond to the combination of Keytruda and ImmunoPulse IL-12, it will show the ability to turn non-responders into responders - a huge unmet medical need in oncology, as up to eighty percent of the population are non-responders for Anti-PD-1. Because only patients who are the least likely to respond to Keytruda will be enrolled any positive results will be significant.
This is important because there is no other combination trial, that I am aware of, that is weeding out responders of Anti-PD-1 from their enrollment. As a result, OncoSec could wind up with the only FDA approved therapy for patients who test as non-responsive to Anti-PD-1. Keep in mind that an "apple-to-apple" comparison cannot be made between OncoSec's trial and other combination trials (since approx. 20-30% are ineligible). Due to the nature of this a 25-30% response rate here could equate to a 50% response rate in another trial, once adjustments for eligibility are made. This sets the bar high and OncoSec expects to meet the challenge.
As part of all trials PerkinElmer (NYSE: PKI) in collaboration with OncoSec will be testing the effectiveness of their device, the Vectra Quantitative Pathology Imaging System, at differentiating which patients are refractory to Anti-PD-1 therapy. The accuracy of PerkinElmer's device will be established by comparing its results to those obtained by traditional biopsy test results. If this device is determined to be accurate it will provide a faster method for determining if a patient will respond to Anti-PD-1 therapy. This would allow oncologists to make treatment decisions for initial non-responders more quickly in the future decreasing the time from diagnosis to treatment.
Where the development timeline is concerned it is also important to note that the IST need not be completed prior to starting a Phase III Registration trial. In fact, OncoSec is already in the early stages of planning a Registration Trial, with the goal of a start date in the first quarter of 2017. Additional information on this trial is expected later this year after interim results from the IST and performance results of the PerkinElmer device are released.
The Path to Profitability
The Phase IIb Melanoma trial I have just described is not only a proof of concept, but also the path to profitability for the company. It will provide the data OncoSec will need in order to pursue a meaningful partnership and to initiate a Phase III registration trial. Positive results from this trial should stir up interest among other potential partnerships as well, leading to further collaborations - not to mention increased potential for attracting additional institutional investors. It is said of money that "the first million is the hardest" and this is true of partnerships as well, the first partnership with a company willing to put money on the table is always the most difficult to get.
So far the scientific evidence from early trials supports my belief that the combination treatment OncoSec has developed will work, however, until it has been proven it remains theoretical. Solid trial data and concrete results are the path to that first partnership, a path I believe OncoSec is traveling. Time and data will tell.
Currently trading with a market cap below cash on hand, it is no secret that the share price has been in decline and remains unattractive based on past trends. However, I would suggest that upcoming interim results from the Phase IIb trials are likely to provide a strong enough catalyst to reverse those trends and create upward momentum providing significant returns. The obvious questions remain: When will those results be released? And will they be enough?
Attempting an educated guess at answering the first question, I offer the following: The trial itself consists of a treatment regiment of one year, even with complete responders a minimum of six months of treatment is required. As of October 1st, 2015, out of the 42 patient "slots" 8 patients were enrolled, the first in mid-July 2015. Which means that at the earliest data from these eight patients could be available by March; this assumes an astounding complete response from all eight currently enrolled patients. A more realistic view, using the full one-year treatment regiment, is that interim data will be released sometime after July. As for trial completion, final enrollment is projected to occur late in 2016, which means a completion time frame around the third quarter of 2017.
Feeling comfortable with the accuracy of that assessment, I can move on and take a look at where the company is today. Is OncoSec a company I want to stay invested in? If so should I increase my position? Or is it time to take my losses and sell?
If I did not own it already would I buy it now?
This is a question every investor should ask when they are considering dumping a stock. It is the essential question you must answer if you want to know whether or not you remain confident in a particular investment. This is the question I must answer, so let's look at the facts:
- Current Market Cap: $26.22 Million
- Shares Outstanding: 16,971,214
- Warrants: 1,895,102 (many to expire soon)
- Cash on hand: $33 Million (as of Dec 31, 2015)
- Current Burn Rate: $1.6 - $1.8 Million per Month
- Institutional Holdings:Estimated at 20% (not all are required to report)
- Insider holdings: 12%
Current share price aside, what I see is a company that is moving forward in its product development.
Not merely focused on Melanoma, OncoSec has added trials for indications in Triple Negative Breast Cancer (TNBC) as well as Head and Neck Cancer. These will determine whether IL-12 can be used to drive an immune response in cancers beyond Melanoma. These trials should lead to future opportunities, expansion of their clinical pipeline, and increase partnership potential. To this point, OncoSec has already engaged in pre-clinical collaborations with Heat Biologics (NASDAQ: HTBX) and Plexxikon (a member of the Daiichi Sankyo Group [ OTCPK:DSNKY]).
With regard to the Triple Negative Breast Cancer (TNBC) trial, a ten patient clinical trial, OncoSec is simply attempting to show the ability to increase TIL in these patients. This is being done in preparation for a future ImmunoPulse combination trial using what Mr. Dhillon refers to as a "novel gene combination". At this point no details are available about this gene.
During this time the company itself has grown, adding personnel positions in both its administration and research departments. Consolidating its operations into one building, OncoSec negotiated a deal that includes a year of free rent with Alexandria, a Real Estate Investment Trust (REIT), for office and laboratory space. This decision has allowed the company to reduce operating overhead while increasing the square feet of operations.
Finally, where leadership is concerned, although there has been a small amount of turnover, Punit Dhillon CEO, and Dr. Robert Pierce, the Chief Science Officer CSO, remain fully committed to this company. Mr. Dhillon said they are expecting to add additional key personnel in the near future as the company continues to grow.
So What's the Verdict?
After looking over everything that OncoSec has done as a company I still believe they are a good investment, certainly better now than when I first bought. It is obvious that I initially bought in too early, but I believe this company will ultimately be a profitable investment, albeit on a much longer timeline than I had anticipated.
"making sure we are clear on expectations and making sure we get investors for the right reasons" Punit Dhillon
I won't be selling but I don't expect to see immediate profitability either. Market conditions remain bearish and the wait for a substantive catalyst may see further depression of the share price. Overall my greatest complaint, and one that the company can correct fairly easily, is the lack of guidance. I realize the objective is to let the science be its own voice but investors like to know what is happening - especially when the answer is nothing. A commitment from management to develop better communication would go a long way toward repairing the distrust many long-term investors have built up with over the years. Mr. Dhillon understands this and says he is aware of the breakdown and the company is making an effort to correct it going forward.
Funding also remains a concern, and even though Mr. Dhillon told me he believes that the cash on hand can last until the second quarter of 2017, I have some doubts. If the cash burn increases, or there are unforeseen expenses, OncoSec may be forced to undergo another dilution before a substantial catalyst occurs.
Something else I'd like to see is a "guide for the layman" explaining to the investment world (non-scientists) what the data means when it is released. How can I know if the response rate is good, great or a disappointment? How can I compare that to another combination trial (e.g. The Bristol Meyers Squibb trial of Yervoy and Opdivo)? How do I compare it to aspects of other trials like a relatively small study of Durvalumab and Tremelimumab published by THE LANCET Oncology, wherein one small cohort of the study that tested negative for PDL-1 had a twenty-nine percent response rate?
Having reaffirmed my reasons for owning stock in OncoSec Medical I will continue to hold the shares I currently own. Though I have no intention to purchase more in the next 30 days, I expect I will purchase additional shares during the 2nd half of the year.
Ultimately a decision to Buy, Sell, or Hold, is one that each investor has to make on his own. I hope sharing my thought process will help you make your own decision.
Projected Time Line
With the exception of the two noted trials*, which the company has acknowledged, this list is my own creation: It does not reflect, nor should it be assumed to imply knowledge of official plans or timelines by OncoSec Medical, locations listed are based on my assumption that data will be released at the same conferences they have released data at previously. (**These are highly speculative on my part.)
- May 2016: Heat Biologics pre-clinical data at PEGS
- May 2016: Head and Neck Phase II Clinical trial interim data at ASCO**
- May 2016: Expanded Melanoma Phase II Clinical trial interim data at ASCO**
- 3rd Qtr 2016: Plexxikon pre-clinical combination trial data (only if significant)
- Sep 2016: Melanoma Phase IIb interim results from IST - at Second World Congress of Electroporation, or European Cancer Congress
- Dec 2016: Second round of Phase IIb interim results from IST, likely at announcement of final patient enrollment - at Melanoma Global 2016
- Dec 2016: Announcement of Partnership for Phase III Registration Trial at Melanoma Global 2016
- 3rd or 4th Qtr 2016: Triple Negative Breast Cancer enrollment completion
- 4th Qtr 2016: Heat Partnership announcement for Phase I trial (dependent on pre-clinical trial results)
- Late 1st Qtr 2017: Phase III Melanoma Registration trial*
- Late 1st Qtr 2017: Triple Negative Breast Cancer Phase Ib trial* (with IL-12 and Novel drug)
- Plexxikon Partnership for Phase I trial (timeframe remains unclear)
- Announcement of additional key collaborations with academic and industry partners. OncoSec is not discussing this area but I would expect to begin seeing these before the end of 2016 in preparation for future trials.
Disclosure: I am/we are long ONCS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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