3 Companies With Investment Potential In Targeting Cancer

Includes: ADMD, GERN, VSTM
by: A. John Hodge

The new government in the Quebec province of Canada recently announced it will not proceed with the multibillion-dollar refurbishment of Hydro-Québec's Gentilly-2 nuclear power plant near Trois-Rivières, but will instead be shutting it down. The outgoing government of Premier Jean Charest agreed in 2008 to rebuild the aging nuclear plant at a cost of about $2 billion, but work was stopped after the Fukushima disaster in Japan in 2011. The reactor has been in commercial operation since 1983, and refurbishing it could have extended its useful life by up to 30 years. This is typical of many nuclear reactors around the world that are nearing the end of their useful lives and unlikely to be replaced or refurbished.

The Role Of Nuclear Reactors In Present Day Medicine

Normally when we think of nuclear reactors, we think of bombs and electricity generation. But, the entire field of nuclear medicine depends heavily on medical isotopes produced by nuclear reactors. Technetium-99m (Tc-99m), derived from molybdenum-99 (Mo-99) is the most widely used isotope in medicine today. It is used in nearly 80% of the 18 million medical procedures in the U.S. and 30 million procedures globally, and these numbers are growing at the rate of 10% every year. These procedures use isotopes for the diagnosis and treatment of patients with diseases such as cancer. Even though electricity-generating reactors, such as Hydro-Québec's Gentilly-2, do not produce isotopes, the shutdown points to the fragility of the aging nuclear reactors around the world.

Only five aging reactors in the world, between 43 years and 52 years old, produce Mo-99, and the U.S. currently imports around 90% of its requirements. Of these reactors, the Osiris reactor in Saclay, France, is scheduled to shut down in 2015, and Canada's NRU reactor at Chalk River (which accounts for nearly 50% of global supply), is due to shut down in 2016. As if these potential supply problems were not enough, governments including that of the U.S., are insisting that medical isotopes should no longer be produced from bomb-grade highly enriched uranium (HEU), but should rather be produced from low-grade enriched uranium (NYSEMKT:LEU) because of concerns about the misuse of HEU. All five of these reactors currently produce Mo-99 from HEU. General Electric (NYSE:GE) attempted to solve the problem in partnership with Hitachi (OTCPK:HTHIY) and Toshiba (OTCPK:TOSBF), but the project was abandoned because it was not commercially viable. Covidien (COV), a major supplier of medical isotopes, is planning to convert its Mo-99 processing facility, based in Petten, Holland, over to LEU; but according to the company, this is years away from completion.

Shortage Creates Huge Opportunity

This looming shortage presents a substantial market opportunity for isotope producers like Advanced Medical Isotope Corporation (OTCPK:ADMD). In May 2010, Advanced Medical Isotope entered into a special agreement with the University of Missouri to use electron beam accelerators to produce short-lived radioisotopes. Through its use of the Missouri University Research Reactor, Advanced Medical Isotope is confident that it can produce enough Mo-99 to satisfy 50% of U.S. demand.

However, Advanced Medical Isotope is not relying on the Mo-99 opportunity alone in its endeavor to provide medical isotopes for its radiotherapy or medical imaging customers. It is already producing short lived, stable isotopes for PET procedures through a production system called PULSAR Isotope Production system. The system utilizes the first compact linear accelerator (LINAC) in North America that is specially designed to produce isotopes used in Positron Emission Tomography (PET) imaging. Using proton beams, the system is a more compact and reliable technology than cyclotrons, and provides high production yields. Moreover, using advanced technology, the company has been able to build and operate the linear accelerator production centers at a cost that is significantly lower than traditional cyclotron accelerators. In addition to the isotopes fluorine-18, nitrogen-13, carbon-11, and oxygen-15, Advanced Medical Isotope will also be able to produce other longer-lived isotopes, including actinium-225, iodine-123, and indium-111 for diagnostic as well as therapeutic uses.

Targeted Cancer Treatment: Another Huge Opportunity

Advanced Medical Isotope is also focusing on targeted cancer treatments. The company has entered into a licensing agreement with Battelle Memorial Institute to develop radiogel technology. This licensing agreement gives the company access to eight crucial patents. The radiogel treatment consists of a biodegradable, water-based polymer that uses an injection instead of a catheter to deliver yttrium-90 (Y-90) microspheres directly into the targeted tumor. Using body heat, the polymer turns into a gel, which holds the anti-cancer agent into place, thus making the radiation more effective. The major advantage of the treatment is that it maximizes the radiation dose to the cancer tissue while minimizing the effect on neighboring healthy tissue as well as the rest of the body. Since it can be delivered through the skin or sometimes during surgical procedures, radiogel can be used to treat solid tumors that cannot be surgically removed. Radiogel has numerous applications, including cancers of the liver, brain, kidney, and pancreas.

For the first half of 2012, Advanced Medical Isotope reported an operating loss of $2.2 million on revenues of around $116,000. The company also reported operating losses for the last four years. Despite these operating losses, the risk in investing in Advanced Medical Isotope is mitigated by its strategic plans in three critical areas of business described above, and its team of highly talented managers and specialists. The company estimates that annual sales from radiogel could reach $75 to $100 million. Advanced Medical Isotope is currently trading at $0.14 with a market cap of $10.56 million, and has seen heavier trading volume in recent weeks. The stock appears to be in consolidation mode, as investors appear content in a "hold and wait" mentality as they wait for further events to unfold. Investors interested in gaining exposure to new, potentially groundbreaking cancer treatments and medical isotope supply in a growing demand with shrinking supply sector should consider performing additional research in Advanced Medical Isotope.

Geron Focuses On Two High Potential Drugs

Geron (NASDAQ:GERN) has two drugs in its development pipeline, and both of them could prove to be groundbreaking cancer treatments. The company currently has six phase 2 trials underway. Imetelstat, a telomerase inhibitor, is currently in phase 2 trials. Telomerase is an enzyme that gives cells "replicative immortality," which means that they remain stable no matter how often they divide. This is a primary characteristic of cancer tumors, which grow through uncontrolled cellular division. Activation of telomerase has been noted in 90% of cancer tumors. Data suggests that telomerase is key to the development of many cancers, even though no current cancer treatments target the enzyme. Imetelstat inhibits the growth of telomerase, and Geron has spent many years trying to develop this drug properly in order to control tumor growth. The drug is in phase 2 clinical trials for solid tumors in breast cancer and NSCLC (non-small cell lung cancer) and, in hematology, for multiple myeloma and essential thrombocythemia (a rare chronic blood disorder where the bone marrow produces too many platelets which could lead to leukemia).

GRN1005 is an LRP-directed peptide drug conjugates that focuses on brain cancer, which is extremely difficult to treat. Most existing cancer treatments cannot penetrate the blood-brain barrier, which separates the circulating blood in the body from the extracellular fluid in the brain. Only certain substances, like glucose and oxygen, are allowed to penetrate the barrier. GRN1005 uses the LRP-1 transport mechanism (a protein in the plasma of cells that are involved in receptor-mediated endocytosis) to bypass the barrier and deliver cancer drugs to the brain. The phase 1 results were encouraging, and phase 2 studies are underway to determine the effectiveness in treating breast and lung cancer that has spread to the brain.

For the second quarter of 2012, the company reported a net loss of $18.3 million, compared to $21.1 million on a year-on-year basis. Geron reported a loss for the first six months of $37.1 million, relative to $45.5 million in the first six months of 2011. Revenues for the second quarter were $130,000, compared to $462,000 in the same quarter of 2011. The company ended the second quarter with $122.3 million in cash and investments. At the cash burn rate of around $40 million annually; the company has enough funding for the next three years. Geron is currently trading around $1.30, and could be an attractive acquisition candidate for a larger biotech if Imetelstat and GRN1005 continue onto phase 3 clinical trials. Because of these potential catalysts, investors should watch closely for further developments surrounding Imetelstat and GRN1005.

Verastem: An Up-And-Comer Focusing On Stem Cells

Verastem (NASDAQ:VSTM) is a development stage biotech company that focuses on developing proprietary technology for small molecule drugs that target cancer stem cells. A cancer stem cell is a robust form of tumor cell that is resistant to conventional treatment and has been implicated in the recurrent nature of many cancers and metastases. The cofounders have impressive and relevant scientific credentials. Robert Weinberg, Ph.D., Eric Lander, Ph.D. and Piyush Gupta, Ph.D., have been responsible for discoveries that link the epithelial-to-mesenchymal transition, or EMT, to the emergence of cancer stem cells. In this transition, one type of cancer cell is transformed into a more aggressive and drug resistant type of cancer cell. These discoveries have helped the co-founders to develop technology that creates a stable population of cancer stem cells that are in turn used to develop small molecule compounds that target these cells. Verastem also believes that the presence of stem cells in tumors may be a major reason why existing cancer treatments fail to achieve their full effect.

Overstate anticipates that it will file an investigational new drug application (IND) with the FDA in late 2012 for its product candidate, VS-507. It also expects to file in early 2013 for product candidates VS-4718 or VS-5095, in each case to initiate a phase 1 clinical trial of these product candidates. Cancer stem cells are thought to have the ability to initiate tumors and produce other types of cancer cells. Cancer stem cells have been identified in many types of cancers, including breast cancer, lung cancer, and leukemia. Verastem also believes that, while current treatments may be initially effective, they can leave behind a number of cancer stem cells that have the ability to regenerate tumors. Verastem has identified a group of small molecule compounds able to target cancer stem cells. The leading product candidates are the aforementioned VS-507, VS-4718, and VS-5095. Verastem thinks that these candidates may be especially effective in treating aggressive cancers with a high proportion of cancer stem cells, such as triple negative breast cancer, or TNBC (a type of breast cancer with a high percentage of cancer stem cells and a low overall survival rate). Verastem has also initiated programs to develop more than 10 series of chemical compounds by measuring potency and selectivity, which will help in drug formulation, as higher potency allows for lower dosage requirements.

For the second quarter of 2012, Verastem reported losses around $7 million, of which around $4.7 million came from research and development spending. Verastem is currently trading around $7.97, between a 52-week range of $7.56 and $12.24. Investors looking for exposure to new cancer treatments should watch Verastem closely in the coming months for new developments surrounding its product candidates. Although the company's entire pipeline is still in pre-clinicals, this investment is higher profile than many comparables due to its all-star staff of scientists with hopeful and novel approaches to fighting cancer.

Disclosure: I am long OTCPK:ADMD. 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 relationship with any company whose stock is mentioned in this article.