Seeking Alpha

David Sobek's  Instablog

David Sobek
Send Message
I have a PhD in political science and have been investing for well over a decade. I generally follow small cap biotechnology, MLPs, and mining companies. I hope to provide my thoughts on both topics of interest to investors and particular companies. See all of my reports at... More
My company:
Sobek Analytics
My book:
The Causes of War
View David Sobek's Instablogs on:
  • License To IL-12: Finding A Potentially New Therapeutic Window

    Immunotherapy is an increasing important treatment option particularly in metastatic melanoma as seen with the recent approval of Yervoy (marketed by BMY), although there has already been treatment with IL-2. It has long been the goal of researchers to utilize cytokines as an anti-cancer treatment but it has been difficult to find a proper therapeutic window (see Cohen 1995 for some of the difficulties). The goal of immunotherapy is to create a systemic response, often with the use of cytokines, to affect the risk of metastatic disease and progression. Immunotherapy is quite broad with many targets including a very effective IL-12. The problem with IL-12, however, is not effectiveness but it is related to significant toxicities. Both Ziopharm (NASDAQ:ZIOP) and OncoSec (OTCQB:ONCS) are developing ways to utilize IL-12 while minimizing its toxic effects (I should also note that there is a private company [EGEN Incorporated] working on using IL-12 in ovarian cancer). I have previously examined early data from Ziopharm in metastatic melanoma and talked more broadly about the import of IL-12. In addition, I touched on both the science behind OncoSec and its approach to using IL-12 in an earlier post. Within the past month both Ziopharm and OncoSec have provided updated data, where the OncoSec data was associated with their metastatic melanoma program and Ziopharm an extension into breast cancer.

    To briefly summarize the Ziopharm approach it is to insert an adenoviral vector, Ad-RTS-mIL-12, expressing IL-12 under the control of RheoSwitch Therapeutic System. The expression of IL-12 is triggered by the ingestion of a small molecule activator ligand. This strategy attempts to avoid the adverse events by carefully controlling the expression of IL-12. Additional data was presented at AACR highlighting the potential effectiveness of the combination of palifosfamide and Ad-RTS-mIL-12. While the earlier study was done in metastatic melanoma, there should be some read-through from this trial into the general mechanism of action.

    The pre-clinical trial looked at the effect of various treatment regimes (solo and combinations of Ad-RTS-mIL-12 and palifosfamide) on the growth of breast cancer in a mouse model. For the mice that received the vehicle (control group), it took an average of 13 days for the tumor to quadruple in size. In terms of treatment with just Ad-RTS-mIL-12, you see a clear dose response (where higher doses of the activator ligand increases the amount of IL-12 expressed). The tumor quadrupling time for activator ligand doses of 10 mg/mm, 30 mg/mm, 75 mg/mm, and 150 mg/mm was 19, 17, 20, 23 days, respectively. The only dosing regime that does not follow the dose response is the 30 mg/mm. When palifosfamide (40 mg/mm) was added to the 30 mg/mm dose, however, it considerably increased the time to quadrupling of the tumor to 25 days and was further increased 26 days with a 120 mg/mm dose of palifosfamide. Outside of simply the effect of tumor growth, you saw similar results on the percent of mice alive at day 35. For the activator ligand doses of 10 mg/mm, 30 mg/mm, 75 mg/mm, and 150 mg/mm the percent of mice alive at day 35 were 10%, 10%, 20% and 30% respectively. In addition, adding the 40 mg/mm or 120 mg/mm doses of palifosfamide increased that percent to 50% and 30%.

    It is always difficult to compare pre-clinical data to actual clinical data in patients but the ZIOP presentation provides two important pieces of information. First, and most importantly, there is a correlation between the dose and the response. Obviously the 30 mg/mm dose was the outlier but, in general, you saw higher doses of the drug related to a slowing of tumor growth and an extension of survival. Second, this reads into the use of IL-12 in general as this is once again shown to be an effective cytokine. What the study does not show is whether there can be a therapeutic window in humans and whether the Ziopharm approach can find it. This is where OncoSec comes into play with its data. While OncoSec cannot inform us on the Ziopharm approach, it can provide data on whether a therapeutic window in humans can be found.

    In an earlier post, I went through the basic science behind OncoSec (ONCS.BB) and its lead programs. In general, the goal of Immunopulse is to increase the permeability of cancer cell walls to enhance the uptake of a plasma encapsulated IL-12 coded DNA. Immunopulse is an attempt to more effectively deliver the IL-12 DNA to cancer cells while sparing the healthy ones in the hope of minimizes the adverse events. I highlighted some of the previous results in the first article but the company has recently provided updated data from the phase II trial in metastatic melanoma (to watch the presentation see here).

    In general, there are two pieces of information that we should focus on in the data. First is the local response. In other words, these patients have a number of lesions and Immunopulse is used on small portion of them and the local response is simply how these targeted lesions respond to the treatment. Second, and perhaps more importantly, is the distant response. In order to be competitive and have a long term effect on the patients, the treatment needs to generate an immune response that affects distant legions as well. Obviously the distant effect will be much smaller but generating this type of response is a clear indicator that the treatment is stimulating the immune system in the desired manner. In fact, the associate medical director at HemOnc Today was commenting on the approach and specifically noted: "This is an interesting approach, but this is local therapy. The problem with melanoma is metastasis, some of which cannot be treated locally. The key to the success of this treatment would be regression of nontreated lesions, as well." So what does the data show?

    The interim results had data on 13 patients. The presentation (seen at 13:19 into the video) had information on the specific patients that were part of the interim analysis and provides the best look at both the local and distant responses. In terms of the best local response (the legions targeted with the Immunopulse treatment) 5 patients received a complete response, 6 had a partial response, 1 had a stable disease, and 1 had progressive disease. This equates to an overall best response rate of 85% for treated tumors, which is impressive but in some ways expected. In addition, these responses were seen quite early in the treatment with most patients receiving their best response by day 30 and all by day 60. Overall, the data seems clear in that the treated lesions are being affected.

    In terms of the distant response, there were only 4 patients who were in the trial long enough to be coded at day 180. Of these 4 patients, 2 had a complete response, 1 had a stable disease, and the last was progressive. It should be noted that of the 4 that made it to 180 days only two of them were actually evaluated in term of the primary endpoint of distant response and of those one had a complete response and the other stable disease. What is interesting is looking at the local response and how it might correlate with the distant response. For instance, of the two patients with complete distant response only one had a complete local response (the other had a partial response). The patients with progressive distant response and stable disease both had complete local responses. While these are small numbers, it is not yet clear the relationship between local and distant responses but one would expect a positive correlation to develop.

    While the efficacy results look promising, there also seemed to be a significant number of patients who went "off study." It is not immediately clear from the presentation the reason so many patients went off the trial. If you then look at some of the descriptions of the results, however, it is noted that 6 had progressive disease and one left the study for an undisclosed reason. It seems then that these "off study" patients are those whose local disease progressed and therefore did not make it to the primary endpoint evaluation of distant response (one of them left study for an unknown reason). Of course, these are patients who are being examined months after treatment stopped, so it would be expected that some progressed but if you assume that the locally progressive disease would lead to distant progression then actually overall rate of response falls to 25% (2 of 8). In general, however, a significant portion of the locally treated legions have durable responses where 45% of the treated legions continued to have a response at month 6 (see 13:21 into the presentation).

    Aside from signs of efficacy, the side effect profile was relatively clean. There were 18 treatment emergent adverse events but these were generally mild. There were no grade 3 or 4 adverse events and only a few grade 2 (fatigue, erythema and maculopapular rash). What is interesting about the side effects is that two of the most severe (keeping in mind that grade two is not particularly severe) are likely related to the activation of the immune system. In other words, the adverse events are also providing some evidence that the drug is working as predicted and even the fatigue could be related to immune system activity.

    In general, the interim results are showing some efficacy both in terms of local and distant effects. This is a small trial to begin with and we only have data from a portion of the patients but it seems as if the treatment is working as expected. The OncoSec and Ziopharm data are both important pieces of the puzzle in that they are slowly building a case that a therapeutic window for IL-12 can be found. In addition, while much of the clinical data is in metastatic melanoma, it could be the case that it can be used more broadly. Unfortunately, the data do not provide much guidance as to which approach will ultimately succeed (if either) but despite being early, these are two programs that are certainly worth following.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

    Tags: ONCS, ZIOP, long-ideas
    Apr 29 1:09 PM | Link | 1 Comment
  • OncoSec And The Quest To Develop A Safe And Effective IL-12 Based Treatment

    IL-12 is a potent cytokine that plays an important role in the adaptive immune response. Adaptive immunity allows the body to recognize objects as "not-self" and direct a specific immune response against these foreign bodies. Robertson and Rix (1996) note that IL-12 is perhaps "the most potent known stimulus for IFN-γ production by normal lymphocytes," which is important as IFN-γ has known anti-tumor effects (Schroder et al 2003). Despite having the ability to stimulate an immune response against tumors, early clinical trials using recombinant IL-12 were quite disappointing as researcher found that some treatment regimes were unexpectedly toxic. For instance, Cohen (1995: 908) describes a clinical trial that had 2 patients die from recombinant IL-12 at doses "that had previously proved tolerable." While these effects appeared linked to the way in which the cytokine was dosed, it highlights the difficulty of using recombinant IL-12. More recently, however, some researchers have had more success (see Younas et al 2004) but IL-12 has yet to live up to its early promise.

    One solution to the issues associated with recombinant IL-12 is to get to get the body to produce natural IL-12 and trigger an immune response. Perhaps, the most effective way to do this would be to introduce the IL-12 coding DNA into the cell. Once in the cell, the DNA would stimulate the production IL-12, which would create an immune response against the cancer cells. The transport of the IL-12 coding DNA across the cellular membrane, however, is a major hurdle. Viral vectors are often used to replace genes within cells but this can be problematic when one wants short-term expression (such as with a cytokine like IL-12). A plasmid DNA-based delivery method might make more sense but getting the plasmids through the cellular membrane is also quite difficult. Ziopharm is attempting to address these issues through the Rheo Switch Therapeutic System™ (RTS), which I have discussed in a previous article. OncoSec Medical Incorporated (OTCQB:ONCS), however, is working on another method to transport plasmid encapsulated DNA-IL12 that involves electroporation.

    Electroporation is a well validated method for getting DNA into cells. Neuman et al (1982) found that an electric impulse of 8 kV/cm for 5 microseconds "leads to an enormous enhancement of DNA transport across cellular membranes." Heller and Heller (2011: 161) similarly note that electroporation "has been used to deliver many different genes with therapeutic potential and has been tested in several animal cancer models." Lucas et al (2002) and Lucas and Heller (2003) found that plasmid delivery of IL-12 in an animal model of melanoma resulted in significant benefits both locally and systemically. Given the validation of electroporation in delivering DNA into cells, it seems to be a natural candidate to be used with DNA IL-12.

    While there is significant pre-clinical research on this approach (electroporation to transport IL-12 into cells), there have been few trials investigating this technique in humans. One of the only trials was described by Heller and Heller (2011: 162) and is from a phase I trial by Inovio (NYSEMKT:INO) in metastatic melanoma:

    Tumor necrosis was observed in most electroporated lesions by day 11 and IL-12 expression was detected at all electroporation sites including at the lowest dose tested (0.1 mg/mL). In addition to the localized response, two patients of the 19 patients with untreated lesions had a complete response in distant nontreated metastases. A third patient who received chemotherapy with DTIC following the IL-12 gene therapy also had a complete response in distant nontreated metastases. These responses have persisted to date (>2 years in all cases).

    These results are clearly encouraging in that they saw both local and systemic effects and the responses appear durable. OncoSec acquired these assets from Inovio in 2011and is currently testing this approach in three type of cancer (metastatic melanoma, Merkel cell carcinoma, and cutaneous t-cell lymphoma).

    In general, then, the OncoSec treatment is intriguing as it combines two parts that appear independently validated. For instance, IL-12 clearly has an effect on tumors, although properly harnessing that potential in a human therapeutic setting has proven quite difficult. In addition, electroporation is quite capable of getting plasmid encapsulated DNA through the cellular membrane. The key question, then, is if the combination of these two parts is sufficient to exploit the anti-tumor effects of IL-12 while minimizing the potential toxicities. While the phase I trial seems to indicate this, it clearly needs more corroboration in larger phase II trials.

    OncoSec is currently undertaking a number of larger phase II trials to more clearly establish the efficacy of their technology and method. They reported positive preliminary data from their phase II metastatic melanoma trial, where "ninety-five percent of treated lesions demonstrated response at Day 39 (5 percent progressive disease, 14 percent stable disease (NYSE:SD), 42 percent partial response (PR), 39 percent complete response (NYSE:CR)). All treated lesions at Day 90 (5 percent SD, 50 percent PR, 45 percent CR), and at Day 180 (33 percent PR, 67 percent CR) demonstrated a response." The company also had some additional signals of activity in their merkel cell carcinoma phase II trial but this data is still quite early. As with the phase I trial, these results remain encouraging but before drawing any clear conclusions one needs the complete data set.

    OncoSec represents an interesting risk/reward. Its technology and use of IL-12 seem validated from a mechanism of action perspective but clearly clinical risks remain. The early trials certainly are encouraging but it is almost impossible to extrapolate ultimate efficacy from phase I trials. The company also needs capital and will ultimately need to raise more cash. That being said, they likely have enough cash to make it to an interim look at the cutaneous t-cell lymphoma trial and more interim data from the metastatic melanoma and merkel cell carcinoma trials. So while risks remain (clinical and dilution), it seems that with a market capitalization of only $18 million a lot of negative news and expectations are priced into the stock. This would imply that success in any of the phase II trials would have a significant effect on valuation. As such, OncoSec represents an intriguing risk/reward at these prices. At the very least, this is an under the radar company/stock that is worth watching to see how the data develops in their three trials.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: ONCS, INO, ZIOP
    Feb 01 10:38 AM | Link | Comment!
  • Beware of Leveraged ETFs

    Many investors use the approach of the New Year to reevaluate their trading and investment strategies as they once again try to outsmart the market.  Recent years have seen a proliferation of leveraged ETFs that promise to double or triple the return of the underlying index.  While this seems like a great way to capitalize on an investment thesis, more often than not investments in these leveraged ETFs become a sucker’s bet.  This derives mainly from the way that the leveraged returns are calculated, i.e. they are designed to double or triple the daily return and are thus reset each and every day.  This is a critical point because over time this can create tremendous tracking error.  To give you a sense of this, imagine that two investors each have $1000 to invest.  Investor A puts that money into the market and investor B places their money in a leveraged ETF that promises twice the daily returns of the underlying market.  Now let us assume that the market essentially goes nowhere over the next 14 trading days and this can be stylized as up 1% on day and down 1% the next day.  What would happen to the two investments?

    Table 1          
    Day Daily Return (Market) Daily Return (2X Leveraged ETF) Investment Value (Market) Investment Value (2X Leveraged ETF)
    1 0.01 0.02 1010 1020  
    2 -0.01 -0.02 999.90 999.60  
    3 0.01 0.02 1009.90 1019.59  
    4 -0.01 -0.02 999.80 999.20  
    5 0.01 0.02 1009.80 1019.18  
    6 -0.01 -0.02 999.70 998.80  
    7 0.01 0.02 1009.70 1018.78  
    8 -0.01 -0.02 999.60 998.40  
    9 0.01 0.02 1009.60 1018.37  
    10 -0.01 -0.02 999.50 998.00  
    11 0.01 0.02 1009.50 1017.96  
    12 -0.01 -0.02 999.40 997.60  
    13 0.01 0.02 1009.39 1017.55  
    14 -0.01 -0.02 999.30 997.20  
        Total Return -0.07% -0.28%  


     

     

     

                Table 1 clearly shows that over the course of those 14 trading days that the leveraged investment does slightly worse that than underlying market.  While this difference does not seem to be a lot, keep in mind that this is only 14 days.  If we look after 60 trading days, the market returns -0.30% versus -1.19% for the leveraged ETF.  So the gap will only grow over time.  As such, in a relatively flat market, holding leveraged ETFs is an increasingly bad bet.

                The performance problem only increases if the market becomes more volatile.  Rather than assume a 1% gain followed by a 1% loss, we can look at a 3% gain followed by a 3% loss.

     

     

    Table 2          
    Day Daily Return (Market) Daily Return (2X Leveraged ETF) Investment Value (Market) Investment Value (2X Leveraged ETF)
    1 0.03 0.06 1030 1060  
    2 -0.03 -0.06 999.10 996.40  
    3 0.03 0.06 1029.07 1056.18  
    4 -0.03 -0.06 998.20 992.81  
    5 0.03 0.06 1028.15 1052.38  
    6 -0.03 -0.06 997.30 989.24  
    7 0.03 0.06 1027.22 1048.59  
    8 -0.03 -0.06 996.40 985.68  
    9 0.03 0.06 1026.30 1044.82  
    10 -0.03 -0.06 995.51 982.13  
    11 0.03 0.06 1025.37 1041.06  
    12 -0.03 -0.06 994.61 978.59  
    13 0.03 0.06 1024.45 1037.31  
    14 -0.03 -0.06 993.72 975.07  
        Total Return -0.63% -2.49%  

     

                Table 2 clearly shows that the underperformance of the leveraged ETF grows in volatile markets.  After only 14 days the market is down -0.63% versus -2.49% for the leveraged ETF.  Again this gap only increases with time, where after 60 trading days the market has returned -2.67% versus a whopping -10.25% loss for the leveraged ETF.  The underperformance is not just in flat markets.  Table 3 examines a market that is slowing moving up over time.

     

     

    Table 3          
    Day Daily Return (Market) Daily Return (2X Leveraged ETF) Investment Value (Market) Investment Value (2X Leveraged ETF)
    1 0.01 0.02 1010 1020  
    2 -0.02 -0.04 989.80 979.20  
    3 0.015 0.03 1004.65 1008.58  
    4 0.01 0.02 1014.69 1028.75  
    5 -0.02 -0.04 994.40 987.60  
    6 0.015 0.03 1009.32 1017.23  
    7 0.01 0.02 1019.41 1037.57  
    8 -0.02 -0.04 999.02 996.07  
    9 0.015 0.03 1014.01 1025.95  
    10 0.01 0.02 1024.15 1046.47  
    11 -0.02 -0.04 1003.66 1004.61  
    12 0.015 0.03 1018.72 1034.75  
    13 0.01 0.02 1028.91 1055.44  
    14 -0.02 -0.04 1008.33 1013.23  
    15 0.015 0.03 1023.45 1043.62  
        Total Return 0.83% 1.32%  

                While the leveraged ETF does outperform the market in this scenario, it is not the double that one would expect.  Of course, the returns that I choose are arbitrary and are only used to demonstrate a point: the tracking error with leveraged ETFs can be dramatic.  There are, however, scenarios where the tracking error works to your advantage and this is when you have a market that is trending.  Table 4 shows the returns in a market that is trending higher over the course of 14 trading days.

     

    Under this scenario, the leveraged ETF returns more than double the market and this gap would only grow as the trend continued.  So what is the net take home of this analysis?  I think there are three main points.

     

    1.      Assume that the tracking error of a leveraged ETF only increases in time.

    2.      The tracking error can work for or against you, so it is best to model how you think the market will perform to determine whether or not to use the leveraged ETF and for how long.

    3.      You can use the tracking error in your favor.  For instance, if you think the market will either be flat or trend down, then it makes sense to short a leveraged long ETF rather than go long a leveraged inverse.

     

     

    Table 4          
    Day Daily Return (Market) Daily Return (2X Leveraged ETF) Investment Value (Market) Investment Value (2X Leveraged ETF)
    1 0.01 0.02 1010 1020  
    2 0.01 0.02 1020.10 1040.40  
    3 0.01 0.02 1030.30 1061.21  
    4 0.01 0.02 1040.60 1082.43  
    5 0.01 0.02 1051.01 1104.08  
    6 0.01 0.02 1061.52 1126.16  
    7 -0.01 -0.02 1050.90 1103.64  
    8 0.01 0.02 1061.41 1125.71  
    9 0.01 0.02 1072.03 1148.23  
    10 0.01 0.02 1082.75 1171.19  
    11 0.01 0.02 1093.58 1194.61  
    12 0.01 0.02 1104.51 1218.51  
    13 0.01 0.02 1115.56 1242.88  
    14 -0.01 -0.02 1104.40 1218.02  
        Total Return 10.44% 21.80%  

     

     

     











    Disclosure: No positions in leveraged ETFs
    Tags: QID, SRS, SKF, SSO, FAZ, FAS
    Dec 28 2:08 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.