OncoSec Medical Incorporated (ONCS.OB) is a biotech company that develops advanced OMS ElectroOncology therapies for the treatment of solid tumor and metastatic cancers. The aim is to produce minimally invasive and affordable therapies, while avoiding the damaging effects of cancer treatments such as surgery, radiotherapy, and chemotherapy. The treatments are based on a proprietary platform, the OncoSec Medical System (OMS), which substantially enhances the delivery of DNA-based immuno-cytokine (OMS ElectroImmunotherapy) or chemotherapeutic agents (OMS ElectroChemotherapy).
OncoSec's clinical programs targeting deadly skin cancers are well underway with two Phase II clinical trials for OMS ElectroImmunotherapy set to report interim data in Q4 with a third Phase 2 trial initiating on July 9th for cutaneous T-cell lymphoma. It also has an advanced program with clinical data from Phase III and IV studies carried out in the US and Europe, respectively. The company recently announced positive data for both of these studies following the evaluation of the quality of life effects and local control rates of electrochemotherapy.
OncoSec's methods are very different from what has become the norm and add a very special twist to the administration technique of anti-cancer agents. The company uses a process called electroporation, which uses electrical currents to make tumors more porous. The increased porosity of the tumor allows the agent to penetrate more efficiently and also allows for less of the agent to achieve a therapeutic effect, thus improving its efficacy and safety profile as well. When the current is stopped, the tumor cells reseal rapidly, retaining most of the agent in the cellular interior.
The company is using two different variations on its proprietary electroporation system to treat cancer: ElectroImmunotherapy, now renamed ImmunoPulse, and ElectroChemotherapy, now renamed NeoPulse. NeoPulse delivers bleomycin (an already approved chemotherapy drug) into the tumor or cancer location.
Phase 3 data of the formerly ElectroChemotherapy platform for head and neck cancer were presented on July 23rd and included a re-evaluation of the trial data for studies that Inovio Pharmaceuticals (INO) had shutdown in 2007 because of apparent safety concerns. However, data presented by OncoSec clearly demonstrates that NeoPulse is equally safe and efficacious to surgery will being better at maintaining quality of life compared to surgery. Additional analyses of this earlier data should be forthcoming.
The second approach is through ImmunoPulse, which uses electroporation and delivers an IL-12 Plasmid DNA Construct to the cells' interior. Once inside, the cells are instructed to produce IL-12, a protein that the immune system responds to aggressively. Essentially, the cancer cells that were originally fed, protected and treated as friendly are now seen as enemies by the immune system and attacked as such. The company says that it has seen up to a 4,000-fold increase in the uptake of the anti-cancer agent due to the electroporation technique. It also says that DNA IL-12 and electroporation efficacy is comparable to, and in some cases exceeds other approved approachesto treating melanoma, such as Bristol-Myers Squibb's (BMY) Yervoy and Genentech's Zelboraf. The company is new, having formed in March 2011, but initial feedback from reliable scientific sources has so far been positive, and the investment community may very soon follow suit.
The company believes that electroporation increases the absorption of the anti-cancer agents in a procedure that is simple, safe, and targeted. The increased effectiveness of the treatment should also save on costs and require lower dosages, which would reduce the possibility of toxic side effects. The increased effectiveness arises from the fact that the agent targets the tumor itself, instead of being diluted in the bloodstream. One major problem associated with cancer treatment over the last two decades has been balancing effectiveness with safety in order to avoid exposing the patient's body, outside of the tumor, to the often highly toxic anti-cancer drugs. The new breed of companies, such as Celldex (CLDX), are focusing on producing more targeted therapies to increase localized efficacy along with reducing systemic toxicities. The new trend was validated by the FDA approval for Provenge from Dendreon (DNDN) for prostate cancer. OncoSec seems to have potential, especially since its focus is on drug delivery systems and not drug research and development.
Two additional companies are showing much promise, and I believe they should also be evaluated by potential investors. Onyx Pharmaceuticals (ONXX) has recently received FDA approval for Kyprolis, a multiple myeloma treatment. The drug was cleared for use by patients who have undergone two previous therapies. The approval was based on Phase II trial data, which also means that the company can gain from sales immediately instead of having to wait for a confirmatory Phase III trial. Analysts estimate the market potential of the drug at almost $700 million annually by 2016, with peak sales of $1.5 billion. This is a substantial increase from last year's sales of $447 million.
Kyprolis will be used for multiple myeloma patients who have first tried Celgene's (CELG) Revlimid and Takeda Pharmaceutical's Velcade. According to the National Cancer Institute, there are presently around 50,000 people in the U.S. who have the disease. This figure is growing by about 20,000 new cases every year; 11,000 people die of the disease annually. While this is Onyx's first proprietary drug, the company does have one existing approved product on the market. Nexavar, a kidney and liver cancer drug, is marketed in collaboration with Bayer (BAYZF.PK). Global sales of Nexavar reached $1 billion in 2011, of which Onyx's share was $287 million.
Nexavar did fail additional clinical trials, but this was insignificant compared to the importance of the Kyprolis approval. Furthermore, the clinical trial was designed to expand the use of Nexavar in combination with other drugs not manufactured by either Onyx or Bayer. There is no immediate threat to Nexavar's dominant position in the treatment of liver cancer, primarily because of the failure of Bristol-Myers Squibb's brivanib. ArQule's (ARQL) tivantinib will enter a Phase III trial for its oncology drug in second-line liver cancer patients, but Nexavar will continue as a first-line treatment.
Bayer is involved in a major joint venture project with Onyx in the development of regorafenib. Bayer has already filed a new drug application (NDA) for the drug as a treatment for metastatic colorectal cancer, and plans to file for an approval to treat gastrointestinal stromal tumors as well. If approved, Bayer will pay Onyx a 20% royalty, according to an agreement reached earlier this year. With Bayer predicting regorafenib sales topping $1 billion, Onyx could gain substantial revenues.
Onyx also has a strong balance sheet with almost no debt and $685 million in assets, including $133 million in cash. Despite the large hike in research and development expenditure, the company broke even due to revenues from Nexavar. Since costs are covered by these revenues, margins and profits from Kyprolis will be substantial. I also think that Onyx is a prime acquisition target for Bayer. It is unusual to find a biotech company with minimal risk exposure due to having one existing profitable product and another approved potentially lucrative product in addition to the prospects of the Bayer joint venture.
The other company worth considering is Celgene, which excels in the development of cancer and immune-inflammatory treatments. The company's results for the second quarter show an increase of 16% in revenue, of which 14% came from volume growth. EPS was up 37%, and a substantial part of this growth came from growth in earnings from operations. Revenues from Revlimid, the company's flagship drug, grew 17% to $934 million, while revenue growth for Vidaza was also satisfactory. The company has increased its EPS estimate for the full year to the range of $4.80 to $4.85 on revenues in the range of $5.4 billion to $5.6 billion, signaling an increasingly positive outlook for the second half of 2012.
Celgene has a number of highly promising drugs in its pipeline. Pomalidomide is in two Phase III trials for multiple myeloma and myelofibrosis, with data due out in the second half of the year. This drug has the potential to be a blockbuster. The use of Revlimid for the treatment of lymphoma and leukemia is also undergoing Phase III clinical trials. Abraxane is undergoing clinical trials for indication in non-small cell lung cancer, melanoma, and pancreatic cancer. The FDA decision for Abraxane's indication in non-small cell lung cancer is expected by October 2012.
Apremilast is in Phase III clinical trials for the treatment of psoriatic arthritis and psoriasis. An NDA is expected to be filed in the first half of 2013 for the drug's treatment of psoriatic arthritis. Apremilast has entered Phase III for the treatment of ankylosing spondylitis, which is a chronic inflammatory disease of the axial skeleton. The drug is also in Phase II studies for rheumatoid arthritis and Behcet's, with a potential target market of 7 million patients worldwide. This activity is supported by operating cash flow of $1.84 billion and free cash flow of $1.7 billion. In the second quarter, net profit was $367 million versus $279 million in the same quarter of 2011.
Celgene is a strong company on several counts. It has well-established products and the ability to generate strong cash flow. Growth is expected to top 20% per year compounded over the next five years. The company has an unusually rich drug development pipeline and is not overly dependent on one product.
Although it does not have the upside potential of a smaller market capitalization company like OncoSec, the company has much less downside in the event of a product's failure. OncoSec does seem particularly appealing now at its early stage of development with 2H 2012 catalysts of Phase II interim data in its ImmunoPulse platform for metastatic melanoma and Merkel cell carcinoma. Success in either of these trials can be a large share price mover, while failure in both could be catastrophic. But the company does have unusual potential in that the ImmunoPulse and the NeoPulse platforms each are adaptable with many indications possibly being targeted with different cancer agents utilized.
OncoSec's financials, however, should be monitored closely and cash burn rates evaluated to help ascertain entry points and determine downside risks versus upside potential with the cancer indications being targeted. Onyx has grown tremendously over the last couple of years and is a prime example of what a great product and great management can do for a wise or lucky shareholder's portfolio. The company's $4.6 billion market capitalization is growing rapidly, but it is still small enough for merger and acquisition potential; the company also has a rapidly expanding pipeline, increasing revenues almost quarterly.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.