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The ongoing war against cancer is showing more hope thanks to the hard work of novel pharmaceuticals and the investment money that make it all possible. Although individual intentions are good with caring and diligent employees within these companies, shareholder funding is a necessity to fund the operations and pay the bills, particularly in early-stage companies not yet generating revenue. Shareholders willing to invest their funds in these risky ventures hope their trust is rewarded with significant gains as the companies' pipelines progress through the regulatory process. For the larger revenue-generating companies, shareholder money is also necessary, with the shareholders' tradeoff of more stability offset by less dramatic upside potential versus lesser downside risk. Depending on investor risk tolerance and investment timeframes, companies in varying stages of development can present significant gains. Following are synopses of three companies that are on the frontlines in the battle against cancer. Listed in order of their various stages of development, the choices start with a biotech without even a clinical trial running yet, then goes onto a promising biotech in a large indication phase 3 trial, and culminates with a multi-billion dollar pharmaceutical with several drugs being marketed and having yet others in various stages of development.

Verastem (NASDAQ:VSTM) is a biopharmaceutical company in the oncology space that focuses on developing drugs to treat breast and other cancers by targeting cancer stem cells (CSCs). The company's second quarter financial results showed a net loss of $6.8 million, compared to a net loss of $2.5 million for the same quarter of 2011. As of June 30, 2012, Verastem had cash and cash equivalents of $104.3 million. In the same press release, the company provided an update on its development activity. The acquisition of the phase 2-ready focal adhesion kinase inhibitors from Pfizer (NYSE:PFE) speeds up the critical cancer stem cell-targeting program by approximately 12 to 18 months, and the company can now initiate a potential registration study in mesothelioma next year.

Despite all the progress in oncology treatment, the chances of recurrence remain high in many cancers. In some aggressive cancers, recurrence can often occur in less than a year. Scientists are discovering that one of the key drivers of this recurrence is a small number of cells in tumors known as CSCs, or tumor-initiating cells. Conventional treatments, such as chemotherapy and radiotherapy, can kill tumor cells quickly, but are unable to destroy CSCs because they are slow growing and have the resiliency of normal cells. As a result, the tumor can return on the basis of the remaining CSCs, often with increased resistance to the treatment that killed their predecessors. In more than half of all cancer cases, treatment reduces it to a minimum residual state (small cancer cell population among millions of normal cells); but the inability to completely eradicate the minimum residual state, combined with whatever CSCs are present, is likely what causes the high recurrence and mortality rates for many recurring cancers.

Several biotechnology companies, including Verastem and ImmunoCellular Therapeutics (NYSEMKT:IMUC), are developing therapies that target CSCs with the objective of preventing or delaying tumor recurrences. All these treatments are in different stages of development and have varying degrees of success. Verastem was founded in 2010 by prominent MIT scientists Piyush Gupta, Robert Weinberg, and Eric Lander. The company's management team has an outstanding track record and proven credibility. The scientific advisory board is very impressive, and provides the company with access to some of the best minds in the business. Verastem's CEO, Christoph Westphal, previously sold Sirtris Pharmaceuticals to GlaxoSmithKline (NYSE:GSK) for $720 million. He was also the co-founder and CEO of Alnylam Pharmaceuticals (NASDAQ:ALNY) and Momenta Pharmaceuticals (NASDAQ:MNTA). Verastem is financed by a number of well-known venture capitalists, including MPM Capital, Astellas Venture Management, and Cardinal Partners.

Any major breakthrough in cancer treatments that removes a tumor completely, rather than just reducing it to a minimum state, could provide great potential for the company. Verastem is working to develop technology that can identify the specific cancer stem cells and create molecules to target and eradicate them. At the same time, diagnostic tools are being developed to provide more personalized treatments for each patient. In addition to the credentials of the management team and the scientific advisory board, the company holds patents in the areas of cancer stem cell identification and targeting, growth inhibitors and high-quality screening tools. The two lead clinical candidates are scheduled for IND in 2012, phase 1 trials in 2013, and potential phase 2 trials in 2014 and into 2015.

Galena Biopharma (NASDAQ:GALE) recently announced that it has been awarded a patent in Japan for its Folate Binding Protein (FBP) variants for individual or expanded use in their novel FBP cancer vaccine, E39. The patent provides exclusivity until 2022 and represents a major milestone in the company's quest to expand its intellectual property. E39 tends to get overlooked frequently because the company's lead product candidate, Neuvax, is in a phase 3 trial that is garnering much attention. The E39 vaccine targets folate binding protein, which is over-expressed in ovarian, endometrial, and breast cancers. The company's goal, to prove that its E39 vaccine will be effective in preventing the recurrence of these diseases, gives it tremendous upside potential. This is in addition to the potential for Neuvax, which has shown promise in early trials in treating low and medium expression HER2 tumors in breast cancer patients. The latter vaccine could potentially be worth billions in sales if approvals are obtained due to its large target market in the adjuvant breast cancer setting.

Galena has a unique strategy that sets it apart from many other biotech companies. Folate has become a popular target for many companies developing cancer treatments, but this company's approach is unique because its peptide vaccine concentrates on preventing recurrence, not front line treatment. ImmunoGen (NASDAQ:IMGN) is using a folate-targeted monoclonal antibody, but no one else seems to be focused on preventing recurrence, which could give Galena a virtual first-mover advantage in the market.

Approaching the "late stage" area of development with its phase 3 Neuvax trial well underway, the company is not generating its own revenue. In its 2Q 2012 filing, it reported a net loss of $196,000 with cash and cash equivalents of about $20 million. The company expects its current cash situation to be sufficient to fund operations through "at least the second quarter of 2013." With more advanced trials and being a latter-stage development company, the company's $130 million market cap seems substantially undervalued relative to Verastem's $195 million market cap.

The day after Galena's Japanese patent announcement, a major investment bank, Cantor Fitzgerald, reiterated a "buy" rating and announced a $4.00 price target that represented a 140% premium over the market price on that day. Since the investment bank has a good reputation, it is worth investigating why they saw such a large upside in the stock. When coverage was initiated by Cantor Fitzgerald two months ago, the financial service firm felt Galena's targeted approach for patients with low HER2 expression represented a completely new approach in treating patients. The target market is substantial, but the path through phase 3 trials is not without its risks. Nevertheless, the company appears relatively undervalued, and favorable news could result in a substantial increase in the stock price.

The optimistic view of the company is based on the premise that there is a large market for breast cancer, and a successful new treatment to prevent recurrence could prove to be very lucrative. To put this in perspective, Herceptin, from Roche (RHHBY.OB), which is used to prevent the recurrence of breast cancer in patients with high levels of HER2, addresses only one third of the market, yet brings in almost $6 billion in revenue. The market for Neuvax, if approved, could potentially be even larger. The phase 2 trials showed impressive results, with a 50% reduction in recurrence. The vaccine was even more effective when booster doses were used to offset any waning efficacy.

The fact that Galena acquired Neuvax for less than $10 million is not surprising. There are many other instances of companies spotting undervalued companies and acquiring them. Cougar Pharmaceuticals acquired Zytiga for $1 million, and then sold it to Johnson & Johnson (NYSE:JNJ) for $1 billion. You may also remember that Questcor Pharmaceuticals (QCOR) acquired the rights to Acthar in 2001 for just $100,000. Soon becoming their flagship product, Acthar sales for Questcor in Q2 2012 were over $100 million. For a speculative perspective, I believe that Galena could also make an attractive acquisition for which a premium could be paid.

Compared to the smaller aforementioned biotech companies, Celgene (NASDAQ:CELG) is a much larger and more established leader in cancer and immune-inflammatory treatments. The company reported strong results for the second quarter, with an increase in product sales of 16% to more than $1.3 billion. REVLIMID sales for the second quarter increased 17% to $934 million. ABRAXANE sales for the second quarter were up by 16% at $110 million, while second quarter sales of VIDAZA increased 24% to $201 million. However, THALOMID sales were $76 million in the second quarter which represented a 13% decrease. The company has increased its full year EPS estimates to a range of $4.80 to $4.85, up from the previous range of $4.70 to $4.80. Total revenue for the year is expected to be in the range of $5.4 to $5.6 billion.

Celgene has a number of drugs with very promising potential in its pipeline. Pomalidomide, used to treat multiple myeloma and myelofibrosis, is in phase 3 clinical trials. The use of REVLIMID to treat lymphoma and leukemia is also in phase 3 clinical trials. ABRAXANE is undergoing clinical trials for indication in non-small cell lung cancer, melanoma, and pancreatic cancer with a decision for approval from the FDA expected in October for treatment of non-small cell lung cancer. In the area of inflammation treatment, apremilast is in phase 3 clinical trials for psoriatic arthritis and psoriasis. A new drug application (NDA) is expected to be filed in the second half of 2013 for apremilast's treatment of psoriasis, while an NDA is expected to be filed in the first half of 2013 for the drug's treatment of psoriatic arthritis. The drug has also entered phase 3 trials for the treatment of a chronic inflammatory disease of the axial skeleton known as ankylosing spondylitis.

The fastest sales growth for the company comes from VIDAZA, a drug used in treating myelodysplastic syndrome. This is surprising, considering the drug lost patent protection in May of 2011. The loss of patent protection is normally bad news for any company as competition is free to produce generic versions. However, as of yet no one has stepped forward to do such. Furthermore, the good news for the bottom line is that the end of U.S. patent exclusivity means that the company does not have to pay any more royalties to Pfizer. The drug is also a hot seller in international markets.

The company did experience a setback in June when European regulatory authorities refused to approve REVLIMID in treating newly diagnosed patients with multiple myeloma. The company plans to resubmit its application with additional data. There was more bad news from Europe in July when regulators were negative about the company's ISTODAX drug, which was intended for the treatment of peripheral T-cell lymphoma. The company has requested a re-examination. Another critical issue affecting the company's future is regulatory approval for apremilast, used in treating psoriatic arthritis, psoriasis, and ankylosing spondylitis.

Unlike the other presented development-phase biotech companies, Celgene can and should be evaluated as an investment in terms of conventional metrics. When looking at analysts' growth estimates, the company looks substantially undervalued. In addition to this, its strong drug pipeline appears to be undervalued by the market. Investors looking to gain exposure in the pharmaceutical sector treating cancer should consider Celgene as a potential investment.

Disclosure: I am long GALE, JNJ. 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.

Source: Multi-Stage Pharmaceuticals With Investment Potential In The War On Cancer