Hitting The Jackpot With Small-Cap Bio Pharma Investment, Part 3: The Immune System

In the final part of my three part series on "Hitting The Jackpot With Small Cap Bio Pharma Investment," I shift the focus to the what looks like the future of cancer treatment therapy. What if cancer could be arrested, forced into remission, and even cured by simply manipulating one's own immune system to do the job it normally could not do on its own accord?

ImmunoCellular (IMUC.OB) 5/16/12 pps: $2.70, market cap: $107.48M, is one such company that could be on the way to achieving this.

IMUC is a clinical-stage biotech company based in Los Angeles. The company focuses on the development of new immune-based products in the treatment and diagnosis of brain and other cancers.

After a successful phase I trial was finished, a new phase II trial recently started on the company's lead product candidate, ICT-107, a dendritic cell-based vaccine that targets multiple tumor-associated antigens for glioblastoma, an aggressive form of brain cancer.

This is done by removing dendritic cells from a patient, loading them with the tumor-related antigens, and re-injecting them back into the patient's body to trigger an immune response against cancer cells exhibiting these antigens. An antigen is any substance that causes your immune system to produce antibodies against it.

This is truly cutting edge stuff we are talking about here. Rather than simply targeting a single tumor-specific antigen, IMUC's vaccine tracks multiple different antigens found on cancer stem cells.

Cancer stem cells are thought to be the originators of common tumor cells, and lead to cancer's re-growth after chemotherapy. It is believed that destroying the cancer stem cells will allow for longer survival, without relapse.

In a recent interview with another Seeking Alpha author, IMUC CEO Dr. Manish Singh had this to say regarding how they compare to Dendreon's (NASDAQ:DNDN) Provenge.

Let's start with Dendreon's early problems - cost of goods sold, marginal efficacy of its lead product and a very competitive environment in prostate cancer with approval of other drugs. I truly believe Dendreon was instrumental in opening the doors for small companies like us to build the next generation of immunotherapy product by building on its success. We have tackled all these issues for the success of ICT-107 if approved for brain tumors.

First, with regard to cost of goods, our cost per shot of vaccine will be under $1,000 while their cost is 15-20 times higher at this point. Second, our phase I data has demonstrated a survival improvement of about 24 months over the standard of care while Provenge increases survival by only four months. Lastly, in glioblastoma the best standard of care drug, Temodar, increases life by only 10 weeks. If the survival benefit holds longer than 6-9 months in late stage trials, I think it is very likely to become standard of care irrespective of the cost.

There are essentially two pieces to this puzzle: antigen delivery system, which is dendritic cells in our case, and antigens themselves. The dendritic cells we are using are the most potent DCs in the field as these are third generation product, without going into specific technical details, compared to Provenge which is a first generation product. We have been in-licensing multiple antigens from various academic and research centers such as Johns Hopkins and the University of Pittsburgh to build a larger repertoire of antigens to create a patent portfolio that would allow us to target these antigens on an exclusive basis.

IMUC is moving quickly, signing the agreements with these two prestigious colleges very recently in February and March. What I found the most interesting about Dr. Singh's comments in his recent interview is how he would not reveal anything coming up related to the ASCO meeting. When asked what they would be presenting, he simply said, "We plan to have two posters at ASCO this year. Let me hold the content until we announce it in a press release in the next few weeks."

I take what the CEO said above to be bullish. In my years of market experience and especially trading small cap bio pharmas, when a CEO wishes to "wait to reveal something," it normally means the news will be positive. Positive news on a phase II clinical of a drug of this potential magnitude should drive the stock price up significantly.

From time to time, a doctor messages me (we shall call him Dr. B) about new cancer treatments and therapies he thinks I should look into. He first contacted me when I wrote what some people took as a very negative outlook on Ariad Pharma's (NASDAQ:ARIA) ponatinib, an investigational pan BCR-ABL inhibitor, which is being studied in Phase II clinical trials in patients with hematologic cancers, including chronic myeloid leukemia and Philadelphia positive acute lymphoblastic leukemia. Dr. B stated to me that he feels ponatinib, while certainly beneficial for those patients who are terminal, potentially giving them a little bit more time to live, is nothing really new and is based on older technology which he feels has a certain degree of toxicity. He remarked that I should look into IMUC because he said, "these guys represent the future in cancer treatment and therapy, not Ariad." Granted, I am by no means a medical expert, but I do understand different technologies being applied in the onological segment. (Ariad longs questioned my knowledge because I did not share their same bullish sentiment on ponatinib.)

What IMUC is doing here could actually result in a type of an arrest of cancer, real remission, and potentially a cure. Let me stress that we are early in the immune therapy segment, and this is a new technology being applied here, but phase clinical testing has been confirming this technology appears to work as intended; so far.

Potential near/short term catalyst: The ASCO General Poster Session abstract data presentation of a randomized, double blind, controlled phase IIb study of the safety and efficacy of ICT 107 in newly diagnosed patients with glioblastoma multiforme following resection and chemoradiation.

Presentation time: Sat, Jun 2 1:15 PM - 5:15 PM

Short term pps target opinion: $3.25 Long term price target opinion: $10

Celldex (CLDX) 5/15/12 pps: $4.34, market cap: $254.91M, is another company that is using a similar technology that IMUC is using.

Celldex's lead drug candidate, rindopepimut (CDX-110), is an immunotherapy that targets the tumor specific oncogene called EGFRvIII, a functional and permanently activated mutation of the epidermal growth factor receptor (EGFR), a protein that has been well validated as a target for cancer therapy. Unlike EGFR, EGFRvIII has not been detected at a significant level in normal tissues, but has been identified in multiple cancer types; therefore, targeting of this tumor-specific molecule is not likely to impact healthy tissues, EGFRvIII can turn normal cells into malignant cells through its well documented oncogenic properties, providing a constant growth signal to tumor cells which express it. Consequently, cells producing EGFRvIII have an enhanced capacity for unregulated growth. Rindopepimut is designed to activate the patient's own immune system against tumor cells expressing the EGFRvIII mutation. For information related to rindopepimut, including the recently reported results on the Phase 2 multicenter clinical trial (ACT III), click here.

I recently remarked in another article that Celldex had a potential near term catalyst trade associated with the American Society of Clinical Oncology (ASCO) and should have seen a run up near $5.50. However, the company made a clerical error and lost its chance to present at ASCO; instead, the company will release its data on CDX-011 May 23rd.

For me, this is an exciting time to be researching these new developmental bio pharmas, not to mention that these small-cap companies provide us investors and traders at a real shot of making some serious money investing and trading them.

As I remarked in part one of this three part article, these smaller cap companies such as Antares Pharma (AIS) are very promising, and can reward the patient long term investor willing to make a big bet, with a large "jackpot."

I have made a big long term 'bet' on Antares because I feel it has the absolute best chance at producing a real long term winning business model, with minimal risk of worrying about the FDA denying a potentially new technological break-through drug. Antares addresses a real need in the segment of self injectable drugs that is sorely lacking. By providing an easy and cost effective way for patients to self-inject without the fear and hassle of using a standard needle, Antares is setting itself up as an industry leader and a likely shot at becoming a multi billion dollar market cap company in the future. In the stock market, when all the hype settles down, and all the dust clears, investors care about one thing over everything else; making money. As with any business, it will always come down to revenue, earnings and profits, period. This is why my bet is on Antares, and any investor who invests in small cap companies for future growth for the long term, should really only be focused on this.

It has been a pleasant surprise to me that the FDA has recently been a lot kinder to traditional small cap, new drug creating bio pharmas, recently recommending Arena Pharma's (NASDAQ:ARNA) weight loss drug lorcaserin for approval. I waffled back and forth on that one, before predicting on the day before the drug gained the confidence of an advisory committee, that it would indeed be recommended for approval, and predicted a stock price afterwards of over $6 a share, possibly $7. Arena's stock price hit a pre market high of $7.89 the morning after the approval recommendation. I was very pleased to see long time Arena stock holders hit the small cap bio pharma jackpot, with many becoming instant millionaires overnight. You guys and gals took huge risks, and you have been rewarded, well done.

However, I do want to caution that the decision could have easily gone the other way, and lorcaserin has not yet been approved, and there is no guarantee it will be approved by the FDA regulatory body. Arena has also indicated that it wants to engage in a secondary offering, which might not be the best course of action at this exact moment. I believe the company should wait a bit longer to see if the FDA will request a REM from the company, as they did with Vivus (NASDAQ:VVUS) concerning its weight loss drug Qnexa, also recommended by an advisory panel for approval.

It is my strong opinion that Arena longs sitting on massive profit should give serious consideration to selling at least half of their positions, perhaps let the other half ride, and/or buy back at a lower price, because I do think the stock price will retrace back to around $4.50 before the final decision is rendered on lorcaserin. However, you might still feel like taking an even bigger risk; it's your money, do with it as you please. If it was me in the position of many Arena longs, I would be looking for a long term growth investment to put a good amount of my new found wealth in.

In this three-part series, I have tried to cover a few angles with investment into small cap bio pharmas. I hope I have given many of you some new ideas and stocks to take a closer look at. Please feel free to contact me here on Seeking Alpha if you have an unknown company that you believe will "hit the small cap bio pharma jackpot."

Disclosure: I am long AIS.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.