With potentially billions on the line and patients' lives at stake, the race to find an effective cancer vaccine has become closely monitored among investors as the company that stands alone could provide once in a lifetime returns. I have found three companies in particular that are small and have been monitored closely due to the innovation of their treatments. Each of these companies has at least a portion of their pipeline focused on fighting cancer stem cells (CSCs) which are thought to be behind the recurrent nature of many cancers. These companies are OncoMed, ImmunoCellular Therapeutics (IMUC), and Verastem (VSTM). The big question is which stock provides the greatest upside? And which has the greatest chance to succeed?
OncoMed is an early clinical stage company that just recently filed for its IPO to raise over $100 million. OncoMed will be one of the most anticipated IPOs in biotechnology of the year due to the level of excitement surrounding this innovative company.
OncoMed first surfaced in 2004 and has since raised nearly $200 million through financing with both private and institutional investors. The company is developing antibodies that target single molecules that are active in cancer stem cells, also known as DLL4-targeting antibody (DLL4 is a protein involved in the formation of blood vessels that often feed tumors). The most recent studies have shown that the company's technology not only inhibited tumor growth, but also reduced the frequency of cancer stem cells (CSCs). The company has several large partnerships with companies such as GlaxoSmithKline (GSK) and Bayer. OncoMed is positioning itself in a situation in which it expects to succeed.
In biotechnology you rarely see this level of excitement for a company with candidates that are at this level of development. As the IPO date approaches, the bears have speculated that if the company were so good then either GSK or Bayer would attempt an acquisition. The bulls argue that OncoMed executives know they have the best treatment in the market and will not settle for millions when it could be worth billions. The OncoMed story should be interesting to watch as it develops and is certainly a stock worth watching. OncoMed could be a high risk/high reward investment. Many questions surrounding clinical trial development remain and investors will have to be patient with the company as the FDA process can be arduous.
Verastem is a one-year old company that is still in its pre-clinical phase but is receiving much attention. The company raised $55 million in its IPO back in January and now trades with a market cap of $200 million. The stock is currently trading with a 17% loss since its IPO, at a price of $9.50, but that hasn't stopped analysts from initiating coverage with bullish outlooks having price targets between $15.00 and $20.00 among five total analysts. Those investing in Verastem that are anticipating the price per share in that range should have a long term horizon for their investment and be able to absorb the risk of the long clinical trial process.
Much of the excitement surrounding this company centers on its founders, who are prominent scientists and advocates for biomedical research. Verastem's approach seems typical for this newest breed of cancer fighting companies with a goal of attacking tumors through the process of targeting cancer stem cells. Once you consider that the company is attempting to develop its vaccine to fight breast cancer, a very large market, it is easy to understand why analysts view the stock so highly, and why it trades with such a large valuation for an early-stage development biotech.
ImmunoCellular Therapeutics has been one of the best performers of the year, beginning 2012 with a market cap of just $54 million, and now trading with a $135 million valuation. To start the year, the company traded on the OTC, but last month the company was uplisted to the NYSE and was just recently added to the Russell 2000, 3000, & Microcap indexes.
The company's phase 2 vaccine, ICT-107, uses the body's own immune system to seek and destroy cancer cells in glioblastoma, one of the most deadly forms of cancer. The technology is often compared to Dendreon's (DNDN) Provenge. However, there are several differences that qualify it for this list of innovative cancer treatments. The therapy's largest difference is that it targets six antigens versus only one (like many clinical trials). The reason investors have been so excited is because the antigens that ICT-107 target are also highly expressed in other cancers, thus making it possible that ICT-107 could become a one treatment approach to fighting several different cancers.
ImmunoCellular is much different from the other two companies on this list because its excitement is developing late. The company didn't begin trading with some massive valuation, but through positive results and the acquisitions of new intellectual property, the stock has developed a following. Obviously it is still early, as ICT-107 is only a phase 2 candidate. However, in early trials 37% of patients with glioblastoma had no signs of recurrence after 44-63 months, and all exceeded one year of life following treatment. When you compare this data to the fact that only 5% of those diagnosed with glioblastoma live three years disease-free then it's easy to see why investors and physicians are so excited about ICT-107.
Back in 2000, the initial clinical results for Provenge were released, and Dendreon was valued over $2.5 billion. Although the book is still being written for Provenge, it turns out that a $2.5 billion valuation was too much for the company. However, transcendent drugs in biotechnology often create bullish investors that are willing to invest in companies with such large valuations, with expectations that are so high that results are almost always considered a disappointment.
It has always been my theory for investing in biotechnology that diamonds in the rough are always plentiful, you just have to know where to look. OncoMed may very well be the greatest thing since sliced bread, but it will begin trading with a social network valuation. For example, with social networking "companies", private investors and venture capitalists invest large sums of money into the companies with the belief that they will become public or be acquired at massive valuations. OncoMed looks similar. It has received nearly $200 million over the last few years and is now preparing for a $115 million IPO. It could begin trading with a valuation of $500 million, despite only having one candidate in phase 1 and the remainder of its pipeline in preclinicals. Obviously, you could argue that investors wouldn't be buying unless it had potential, and although true, potential doesn't always equal approval.
Verastem is a preclinical phase company that hasn't even started Phase 1, which will probably be a trial of only 15-50 patients. The company's value is mostly due to its management, which is a major contributor to a company's valuation. At this point, Verastem is simply an idea, without any solid foundation of data, yet boasts a $200 million price tag. To me this is very expensive and because of its price tag, it could take a while for the investment to return gains to its shareholders.
OncoMed and Verastem are priced like high-profile transcendent technologies; ImmunoCellular is not. The company is cheap and has real data to validate is valuation. Some have pointed to the fact that ICT-107's Phase 1 data was from a single-arm study and conducted in a single hospital, and hence not worth the valuation. Yet when you compare IMUC to the valuations of these other two innovative companies, you can see the obvious value. Although its phase 1 study was a single-arm, this is a disease that you simply cannot manipulate. Glioblastoma has a very simple treatment approach: Those diagnosed have a poor prognosis. Yet with ICT-107, nearly 40% are still alive and well five years later as opposed to 5% with the current standard of care. It's possible OncoMed and Verastem can produce similar results, but at this point they are well behind ICT-107's phase 2 trial progress and the phase 1 data.
Each of the companies discussed present a significant amount of potential and present the likelihood to become the most innovative drugs in cancer treatment. I personally look forward to both the phase 1 trials of OncoMed and Verastem over the next year and believe that both could produce encouraging results. The only problem is the valuation, which I feel is priced to hurt the average retail investor.
At this point, I believe Verastem is worth roughly $100 million, due to being 2-5 years behind IMUC in the approval process. I believe OncoMed is worth nearly $200 million because of its large cash position and the diversity of its pipeline. IMUC, on the other hand, is now entering Phase 2 and has already enrolled over 200 patients in just 15 months. This further reflects the amount of excitement surrounding this company, as history shows that trials for the treatment of glioblastoma can take 2-3 years to enroll 200 patients. This should serve as more evidence of how accepting physicians may be to ICT-107 as an approved treatment.
In all fairness, no one knows how ICT-107 will perform in a larger trial, but then again, no one knows how either Verastem or OncoMed will fare in phase 1 trials. The approach that these companies are taking is relatively new and investors must realize the risks involved in the development and acceptance of new platforms. In biotechnology, we value a company based on what we already know, and then invest as key developments suggest a treatment's chances of being approved. I think we can all agree that ICT-107 will not have a 40% success rate with glioblastoma, when standard care is only 5% in a larger randomized trial.
Though you must remember, cancer is a disease where success is measured in months (especially glioblastoma), and if ICT-107 results from its phase 2 trial are even a fraction of its phase 1 results, then you can rest assured that ICT-107 is on the fast-track for approval and will be warmly welcomed among the medical community.
Disclosure: I am long IMUC.