A Diverse Group Of Pharmaceuticals With Good Upside Potential

by: The Swiss Trader

OncoSec Medical (NASDAQ:ONCS) is a promising biotech company focused on its advanced OMS ElectroOncology therapies to treat solid tumor and metastatic cancers. The platform's objective is to provide treatment options that only attack the cancer cells and minimize damaging healthy cells often impacted by other therapies, like chemotherapy and radiotherapy. The treatments are delivered via a proprietary platform called the OncoSec Medical System (OMS), which substantially improves targeted delivery of immuno-cytokine agents (OMS ElectroImmunotherapy, now ImmunoPulse) or chemotherapeutic agents (OMS ElectroChemotherapy, now NeoPulse) to cancer cells.

OncoSec's methods of delivering anti-cancer agents differ considerably from traditional delivery systems. Its methods use a process called electroporation in which electrical current is applied to the tumor to increase its porosity. This allows more of the pre-injected anti-cancer agent to penetrate the tumor's cells without affecting the surrounding healthy tissue. When the current is removed, the tumor cells reseal rapidly and retain most of the anti-cancer agent. OncoSec's most advanced clinical trials have been conducted on cancers of the head and neck via its NeoPulse therapy. The company licensed the platform from Inovio Pharmaceuticals (NYSEMKT:INO) in March 2011, which had completed two phase 3 trials in the U.S. using electroporation combined with bleomycin as the agent of choice. OncoSec's recent data analysis indicated that the treatment is both safe and effective, and further analytical data should be forthcoming.

ImmunoPulse is the company's second ElectroOncology approach, and uses electroporation to deliver an IL-12 Plasmid DNA Construct to the affected cells. This agent instructs the cells to produce IL-12, a protein that triggers an immune response against the cells expressing the IL-12 protein. The company's research shows that DNA IL-12 and electroporation efficacy equals -- and in some cases exceeds -- the other approved treatments for melanoma, such as Bristol-Myers Squibb's (NYSE:BMY) Yervoy and Genentech's (OTCQX:RHHBY) Zelboraf. Interim data from two phase 2 clinical trials for ImmunoPulse should become available by the end of the year.

Drug delivery systems have not got the attention they deserve from biotech investors because they are not as glamorous as new drugs being developed. But they can contribute a great deal to health care simply by improving the efficiency of existing approved anti-cancer agents. Furthermore, they do not present as high of a risk as drugs being developed, where the regulatory process can often be extremely long and difficult. OncoSec also has the ability to potentially shorten the lead-time for FDA approval by achieving Orphan Drug status for their head and neck cancer and other indications. The company has dealt with FDA approval risk by hedging its bets in developing two different delivery systems. This is a development phase company, and it currently doesn't have a marketed product, so this narrows its choice as an investment down to those willing to tolerate both the additional risk implied and the additional timeframe to marketable product as well. OncoSec Medical's treatment approaches look promising, and I urge investors to research the company further and consider an investment if it fits their portfolio goals and risk tolerance.

Another biotech company that is showing a lot of promise is Medgenics (MDGN). The company has reported a string of positive news recently. Medgenics is at a more advanced stage of development than OncoSec Medical, which puts it in a different risk category. The company was granted approval from the FDA to commence clinical trials for its anemia treatment, Epodure, which has market potential estimated at $11 billion. The company also built its first U.S. manufacturing facility for its patented Biopump. It followed this news up with an announcement that it had received an FDA Orphan Drug Designation for its hepatitis D treatment, Infradure Biopump. Hepatitis, in its various forms, is now a worldwide epidemic, affecting nearly 8% of the global population. The market potential for hepatitis treatments is currently estimated at $20 billion. Both Gilead Sciences (NASDAQ:GILD) and Bristol-Myers Squibb have recently paid huge premiums to acquire companies developing new hepatitis drugs. An Orphan Drug Designation means that the regulatory process can be expedited, and other benefits include the availability of grants, seven years of market exclusivity, and tax credits.

Some biotech analysts feel that Medgenics' Biopump protein delivery technology may be more efficient and cause fewer side effects than traditional injections. The possibility of using too little or too much liquid is minimized, and the management of chronic diseases that require repeated injections is made easier. This technology is unconventional and game-changing because it utilizes slivers of the patient's skin, about the size of a toothpick, and when combined with specially engineered genes, it produces therapeutic proteins on a regular and continuous basis.

Medgenic's stock price has already moved up considerably on this positive news, but I feel that there is still considerable upside potential here. Medgenics is trading at the relatively low market capitalization of around $70 million, whereas other comparable biotech companies are trading at much higher figures. Hepatitis drugs are hot, and I also believe that this company has become a prime acquisition candidate for a pharmaceutical company or another large biotech. Recent acquisitions in this field include those made by Gilead Sciences , which paid an 89% premium for Pharmasset, and Bristol-Myers Squibb , which paid a 163% premium for Inhibitex. I also believe that Medgenics will extend its treatment platform to hepatitis C, which affects 180 million people worldwide, compared to 15 million people worldwide for hepatitis D.

To truly gain from Medgenics as an investment, you must be prepared to live with the risk of biotech investing and a long-term investment timeframe. If you are looking for exposure in the biotech sector, I recommend this company as a potential investment candidate.

Amgen (NASDAQ:AMGN) is one of the largest and most successful biotech companies in the world, and should now be viewed as a major pharmaceutical company. Small biotech companies in the drug development stage cannot be viewed in terms of conventional financial metrics, but Amgen has now reached the stage where an analysis of financial data is useful for making an investment decision. The company has reported its results for the second quarter, and profit exceeded the consensus estimates primarily due to the increased sales of rheumatoid arthritis drugs. Net income rose 8% to $1.27 billion (earnings per share of $1.61 a share). Earnings, inclusive of one-time gains, came in at $1.83 per share, which was $0.29 per share higher than the consensus estimate. Total revenues were $4.5 billion, and the company has raised its EPS forecast for this year to the range of $6.20 to $6.35 from the earlier figure of $5.90 to $6.15. The company has also considerably enhanced shareholder value with a cleverly executed buyback program that has boosted its EPS.

The company is working on two new drugs that could have a major impact on its future results. AMG 145 targets the PCSK9 gene to lower cholesterol levels and reduce the risk of heart attacks. Amgen is competing with major pharmaceutical companies as well as its partner, Regeneron Pharmaceuticals (NASDAQ:REGN), for entry into a market that is estimated to be worth nearly $40 billion in 2013. Romosozumab, another drug, promotes new bone growth, compared to current therapies that prevent bones from fracturing. Amgen and its partner, Brussels-based UCB SA (OTCPK:UCBJF), are testing the therapy in post- menopausal osteoporosis patients in a phase 3 trial.

Amgen continues on an acquisition spree, and all its recent deals make sense for long-term growth. Its Micromet and BioVex acquisitions added innovative oncology drugs to the pipeline to augment Vectibix and quasi-cancer drug Xgeva. In the case of KAI, the acquisition of KAI-4169 brings a drug that stands a good chance of succeeding Sensipar when its patent expires in a few years. Two other acquisitions, Bergamo in Brazil, and Turkey's MN Pharmaceuticals, considerably and cost effectively expand the company's geographical reach. The licensing deal with AstraZeneca (NYSE:AZN) will go a long way toward reducing the costs for Amgen while reducing the risk for its drugs development pipeline. Additionally, AstraZeneca will get some much needed new drugs in its pipeline.

I believe the financials alone justify an investment in Amgen, but there is a lot more going on here. Despite its successful track record and excellent management, there is relatively little value being placed on Amgen's drug development pipeline. Because of this, I regard the stock as undervalued and believe that there is considerable upside potential when this is factored in. I urge investors to consider buying Amgen as a long-term investment.

Gilead Sciences is another large cap biotech that is well worth examining. The company focuses on the treatment of HIV/AIDS, liver diseases like hepatitis B and C, and cardiovascular and respiratory conditions. Gilead currently has 14 products on the market along with a promising drug development pipeline. Results for the second quarter show a 13% increase in revenue to $2.41 billion, and net income was $711.6 million (earnings per share of $0.91 per share). Gilead generated $1.74 billion in operating cash flow during the first half of 2012, including $1.29 billion generated in the second quarter of 2012, primarily due to the collection of $460 million in past due accounts receivable in Spain.

Additionally, Gilead Sciences recently signed an agreement with three leading drug manufacturers in India that will manufacture and distribute low-cost generic versions of its HIV treatment, Emtriva, in developing markets. Nearly 3 million patients living in developing countries are already using the company's drugs. Gilead has an extremely strong product portfolio of 14 drugs, of which two, Atripla and Truvada, account for more than 70% of its sales. HIV drug Atripla is one of the most heavily prescribed drugs in the U.S. today, bringing in 40% of Gilead's total revenue, while Truvada brings in 35% of the company's total revenue.

Gilead Sciences recently received approval for the use of Truvada by heterosexual men in danger of the HIV infection. Truvada is already available in the market, but the new label will help the company reach out to many more customers. There are an estimated 1.5 million people in the U.S. who are affected by HIV, and the new approval should see more physicians recommending the drug, leading to more prescriptions. The company does not plan to increase prices at this time, and insurance normally covers the use of the drug.

Quad is a combination of two existing Gilead drugs: Emtriva and Viread. Gilead Sciences has sought approval for the drug in the U.S. and Europe, and it has already received a favorable recommendation from the FDA committee. If the treatment is approved, it would considerably strengthen the company's already dominant position in the HIV market. The company also has a hepatitis C drug, GS-7977, in phase 3 trials, and experts say that it is a year ahead of the competition, especially since Bristol-Myers Squibb has suspended trials on its own treatment due to safety related issues. This gives Gilead first mover advantage in a market that is currently valued at $2 billion and expected to increase to $9 billion by 2022. If things go as planned, the drug should hit the market in 2014.

Gilead has rewarded investors well so far, and I can see great potential in the stock going forward. Not only does the company have an extremely impressive portfolio of products already in the market, but also it is about to add two new drugs that are potential blockbusters and that would add greatly to revenues and profits. I urge investors looking for exposure in the pharmaceutical sector to consider Gilead Sciences.

Disclosure: I am long ONCS, AMGN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationships with any company whose stock is mentioned in this article.

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