Seeking Alpha

John H. Ford's  Instablog

John H. Ford
Send Message
For the past 30 years, I have been involved in startups, as a founder, and active investor. My first company was purchased by Johnson & Johnson, which set the foundation for future investments. My level of trading escalated after graduating from college, primarily as a result of my... More
View John H. Ford's Instablogs on:
  • Chanticleer's Share Price Could Surge Next Week

    I just more than doubled my position in Chanticleer (NASDAQ:HOTR) based on a short-term trade that could generate significant profits.

    Chanticleer is in the process of purchasing the Little Big Burger chain in the Pacific Northwest. Take a look at the Yelp reviews, Little Big Burger is very popular and will be a phenomenal asset for Chanticleer.

    Little Big Burger is generating $6 million in revenue and $1.2 million in cash all of which will be accretive to Chanticleer's top and bottom lines. Most importantly, Chanticleer negotiated a very good purchasing price.

    The addition of this chain will be transformational for Chanticleer, helping to generate revenue of $60 million annually, and $6 million-$8 million in positive EBITDA. Keep in mind that Chanticleer generated $30 million last year, so jumping to $60 million is significant.

    Chanticleer is raising money via a rights offering in order to complete this purchase. The offering is priced at $1.35 and yesterday shares traded up to $1.53 after hours. With that level of arbitrage the company should have no trouble raising capital. I subscribed to the rights offering at a level of 100%, plus an additional 50%, because even without the arbitrage $1.35 is dirt cheap.

    If you recall investors who participated in the last rights offering saw more than a 100% short-term return.

    Once the company announces the completion of the Little Big Burger purchase, the share price should surge. That's why I have more than doubled my previous position.

    But what makes this a home run trade is that with over 1 million shares short, the short squeeze could be epic and could push the share price much higher than anyone expected. If you recall, following my last Chanticleer article, the shares went from $2 to $4, and that was without a short squeeze.

    But what will really kill the shorts is that following the purchase of Little Big Burger, Chanticleer should be a self-sustaining company, growing organically with cash flow. In other words, the company will be able to open new restaurants with internally generated cash, rather than capital raises.

    Following a successful rights offering, Chanticleer will be valued between $25 million and $30 million, depending on the shareprice and how much capital is raised. If we conservatively use the $30 million figure, that gives Chanticleer a ridiculously low price to sales ratio of .5, assuming $60 million in pro forma annual revenue which is what the company has already projected.

    Compare that to Shake Shack's (NYSE:SHAK), price to sales ratio of 4, or Good Time's (NASDAQ:GTIM), price to sales ratio of 2. Even if we use a sector conservative price to sales ratio of 2, that would give Chanticleer a valuation of $120 million, and a shareprice in the $6 range, based on $60 million in revenue. That's for stock that's trading in the $1.50 range.

    Just to give you some perspective, the average price to sales ratio for the restaurant sector as a whole was 2.9, as determined by NYU, and is confirmed here. Another smaller sample puts the average at 3.8. Chipotle (NYSE:CMG), has a price to sales ratio of 5.1. I'm just making the point that if Chanticleer traded at $6 with a price to sales ratio of 2, many would consider that a conservative valuation.

    What makes this rights offering particularly attractive is the overallotment clause. I was able to place an order for an additional 50% beyond my original holdings. The process of subscribing was easy, simply a matter of calling my broker and placing the order, much like an IPO.

    The subscription period expires today at 5 PM Eastern time, but I wouldn't be surprised if there was an extension in order to fill late orders, not uncommon with these types of offerings. Some brokers require investors to subscribe a day or 2 before the expiration period, so an extensions helps fill these orders. I would like to see an extension because it would provide an opportunity to further increase my position.

    There were some very large bids yesterday (20,000 shares to 100,000 shares), so Wall Street is just waking up to the fact that Chanticleer is extremely undervalued, and with the Little Big Burger near-term catalyst, it provides an exceptional short-term trade. Wall Street interest was confirmed after hours yesterday, when almost 200,000 shares were traded.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Sep 18 9:05 AM | Link | 8 Comments
  • MabVax: Near-Term Catalysts Could Push Shares From $2 To Over $5


    · I'm speculating that a licensing deal with Juno could be announced imminently and could push MabVax's shareprice above $5.

    · When MabVax uplists to NASDAQ institutional investors could push the share price even higher.

    · The Cancer Immunotherapy Index has risen almost 50% this year and MabVax is a major contender in that sector.

    · MabVax is completely undiscovered by Wall Street and would be undervalued even if the shareprice doubled.

    · Dr. Phillip Frost and Opko just invested in MabVax and given Dr. Frost's track record, MabVax could be another home run trade.

    · In neuroblastoma trials MabVax demonstrated its drug is almost twice as effective as the standard of care.

    · MabVax is extremely undervalued trading at an 80% discount to peers.

    · If positive clinical data is announced later this year, the shares could trade well above $10.

    This is an exciting time for MabVax (OTCQB:MBVX), shareholders because the company's share price could rise from $2 to over $5 in the next few weeks based on MabVax's extreme level of undervaluation and 2 imminent catalysts.

    The first catalyst revolves around Juno's and MabVax's option agreement which gives Juno (NASDAQ:JUNO) the right to purchase a license from MabVax. Given MabVax's clinical success, I'm speculating that MabVax could enter into a licensing agreement with Juno. This could provide MabVax with an upfront payment, milestones, and royalties.

    Yesterday marked the option deadline, so if a deal is in the works, when we consider the time required to close complex biotech deals, we could hear something within the next couple of weeks.

    But the story gets even better, because MabVax should uplist to NASDAQ within the next few weeks. A NASDAQ up listing will open the door to institutional investors, providing even more upside potential.

    Cancer immunotherapy stocks are on fire right now

    According to Goldman Sachs, cancer immunotherapy has become the dominant story in Pharma. This is definitely one of the hottest sectors because it's becoming clear that this technology could completely transform cancer treatment and become the new standard of care. Fortunes have already been made in this sector and I expect that trend to accelerate as more positive clinical results are announced.

    Celgene investing $1 billion in Juno

    Celgene (NASDAQ:CELG), just it increased its presence in cancer immunotherapy with the announcement of a $1 billion initial payment to be made to Juno. This includes the purchase of 9.1 million shares of Juno stock at $93 per share. That's a huge premium because the shares closed at $46 immediately prior to this announcement.

    In my opinion the Celgene/Juno deal is just the beginning, and we are going to see more mega partnerships and buyouts. MabVax is a major contender in this sector and following this Celgene/Juno deal, Big Pharma could have its eyes on MabVax as well.

    What makes MabVax such a great trade is that it's completely undiscovered by Wall Street and extremely undervalued. That will change. I have been an aggressive buyer of MabVax shares.

    Cancer Immunotherapy Index is a star performer this year

    Wall Street has become so enamored with this sector that a new index was just created to track cancer immunotherapy stocks. The Loncar Cancer Immunotherapy Index, LCINDX, is an equal -weighted basket of 25 pharmaceutical and biotech companies developing and marketing drugs which use the body's own immune system to target and kill cancer cells.

    But here's what's impressive; the index has risen almost 50% year to date. Once MabVax is up listed to NASDAQ and starts trading above $10, I expect it will also become listed on this Index. This will be significant because it would bring even more attention to MabVax.

    MabVax is clinically more advanced than Juno, yet is trading at a huge discount

    Juno and MabVax are both focusing on the same goal; using the body's immune system to treat cancer. If you go to each company's website, you will see the similarities. Juno is "re-engaging the body's immune system to treat cancer" and MabVax is "harnessing the body's immune system to treat and diagnose cancer."

    If you look at each company's pipeline, you will see that Juno has 6 candidates in Phase 1 trials, and nothing yet in Phase 2 or Phase 3, whereas MabVax has 3 candidates in or about to enter Phase 1, and 2 candidates in Phase 2. From this perspective, MabVax is clinically more advanced than Juno.

    Both companies have demonstrated exceptional clinical data, which I will detail later. MabVax is treating cancer with fully human antibodies, and Juno is using CAR-T cells. Clinical data has shown that both approaches could revolutionize how cancer is treated.

    But here's the crazy part; Juno is given a valuation of $5 billion, and MabVax is only valued at $100 million. Juno is a great company, with a phenomenal technology, and deserves a high valuation as evidenced by the recent Celgene deal. But so is MabVax and a $100 million valuation for a company with a proven technology in a $100 billion market is insane. This level of mispricing presents an ideal trading opportunity.

    Why is MabVax so undervalued?

    Last year MabVax entered the market rather quietly through a reverse merger, and Wall Street completely missed it. Most investors don't even know MabVax exists, and those who do, don't understand the company's technology or that MabVax could become a leader in the cancer immunotherapy sector.

    On the other hand, Juno made a big splash with a mega IPO, and Wall Street jumped on board with a vengeance. Investors who bought at Juno's $24 IPO price are doing well, because the stock is now trading between $50 and $70.

    MabVax is also being discounted because it is trading on the OTC. Most institutions couldn't invest in MabVax even if they knew about the company.

    But this is a temporary situation because I expect MabVax to uplist to NASDAQ in a few weeks. When that occurs, the playing field will be leveled, and MabVax will draw the attention of institutional investors. At that point I expect MabVax's shareprice to rise significantly higher.

    MabVax has demonstrated phenomenal safety and efficacy

    In recent neuroblastoma trials, MabVax has demonstrated its technology is almost twice as effective as the current standard of care. Neuroblastoma is the most common extracranial solid tumor in children. According to NCI data, this disease only has a 45% survival rate, despite intensive therapy.

    MabVax reported Phase I data, demonstrating that this horrendous form of cancer could be more effectively treated with MabVax's technology. Memorial Sloan Kettering Cancer Center (MSKCC) carried out this Phase 1 trial in subjects with high risk neuroblastoma to assess the toxicity of escalating doses of MabVax's vaccine.

    Subjects received 7 subcutaneous injections over 52 weeks. No dose limiting toxicity was noted in any of the subjects. Progression free survival was 87.9% at 12 months and 78.1% at 24 months. Overall survival is 100% based on a follow-up at 22 months and beyond. These results are in marked contrast to the expected relapse rate at 12 months of 50% to 60%. This data was so positive that it resulted in MabVax receiving federal and nonprofit foundation grants to offset manufacturing and clinical costs.

    The market completely missed the reporting of these results, which is one of the reasons why MabVax is so undervalued right now. With results like that, one could easily make a case that MabVax should be valued several times higher than today's $100 million valuation.

    What I found particularly encouraging was that there was absolutely no dose limiting toxicity. Cancer treatment with limited side effects would be a huge improvement on today's standard of care.

    Stage IV breast cancer patient is disease free after 7 years

    Another good example involves a Stage IV breast cancer patient that received MabVax's vaccine 7 years ago. That patient is alive today with no evidence of disease.

    Stage IV breast cancer is usually terminal because at that point cancer has spread to other parts of the body, and according to the American Cancer Society the five-year survival rate is only 22%. What's remarkable is that not only this patient still alive, but there is absolutely no evidence of disease.

    Orphan drug status increases MabVax's value to Big Pharma

    The FDA has given MabVax orphan drug status for its neuroblastoma drug. Orphan drug status is important because in the US and EU it is easier to gain FDA and CE Mark approval for orphan drugs. Orphan drugs also receive financial incentives such as extended exclusivity rights. Most importantly, orphan drugs command skyhigh prices and protection from generic competition for 7 years.

    In other words, orphan drug status is a huge win for MabVax primarily because it can get the drug to market much quicker than a drug without orphan drug status. Orphan drug status also makes MabVax more attractive to partners because an accelerated path to revenue is very attractive to Big Pharma.

    Orphan drug companies are top performers this year

    About 15 companies in the Russell 3000 are up more than 100% this year. More than half of these companies have one thing in common: they are biotech companies working on orphan drugs. Orphan drug status adds huge value to a company, and once again, the market has completely missed this major milestone that MabVax has already achieved.

    As recent reports from Bloomberg have demonstrated, the hunt for rare disease drugs has created a buying frenzy among deal makers as takeover valuations jump to the highest level in at least 20 years. MabVax's neuroblastoma drug with its orphan drug status makes MabVax an ideal takeover candidate, and for all we know, MabVax could be in play right now.

    To give you some examples of orphan deals, Shire bought Silicon Valley biotech, FerroKin for $350 million just for its orphan drug FBS0701 which was only in proof of concept stage at the time of the purchase. Following that, Shire bought ViroPharma for its rare disease orphan drug Cinryze. That drug was more developed and cost Shire $4.2 billion.

    My point is this; orphan drugs are of high value to biotechs, and MabVax's orphan drug status is just one more factor that amplifies the value of the company.

    Why has Wall Street gone crazy for Juno?

    The excitement over Juno actually starts with Novartis's (NYSE:NVS), blockbuster leukemia drug Gleevec. Gleevec was approved officially based on a 38% overall response rate. 38% doesn't seem too impressive, but in the cancer world, those are good results.

    Investors are betting on Juno because the company has demonstrated clinical results for its CAR-T-cell approach to certain types of leukemia that look even better than Gleevec. Combine that with Gleevec's $1.87 billion in 2013 sales, and Juno's $5 billion valuation for a Phase 1 company becomes understandable.

    CAR-T-cell stands for chimeric antigen receptor T-cell which basically means a killer immune cell genetically engineered with a targeting mechanism to lock onto cancer cells. Think of it like a smart version of Pac-Man.

    The process behind engineering the cells is ingenious, and was pioneered by Dr. Carl June at the University of Pennsylvania. A type of attenuated HIV is genetically modified to carry the cancer antigen which is used to invade a patient's T-cells and reprogramming them with the new genes to recognize a target antigen on cancer cells.

    Soon after Dr. June reported his first success, Novartis acquired the rights to his technology. Smart move. Undoubtedly Novartis believes this technology can improve upon Gleevec's 38% overall response rate.

    Juno is also working with genetically reprogrammed killer T-cells and has demonstrated exceptional results. In clinical trials complete remission occurred in 24 out of 27 leukemia patients, significantly better than Gleevec's official 38% overall response rate. Since Gleevec's overall response includes partial responses, Juno's results look even better.

    Now you can see why Juno shares have risen from $24 to $70 in a very short time frame. Juno has a technology that could be game changing in the world of cancer treatment. If Juno's shareprice experiences a major pullback, I intend to establish a long position.

    Why is Juno interested in MabVax?

    MabVax and Juno were both working at the Sloan Kettering Memorial Cancer Center when they were introduced by someone who was working with both companies. Juno liked MabVax's technology, and shortly thereafter signed an option agreement with Juno.

    From my perspective, Juno is interested in MabVax technology because MabVax's antibodies are the navigation system for Juno's modified T-cell weaponry that are focused on solid tumors. Any of MabVax's antibodies used in Juno's T-cells as a targeting sequence translates into royalties for MabVax.

    Remember, for an antibody to be effective as a cancer therapeutic, it not only has to lock onto a cancer cell but also needs to kill it. A T-cell is a great weapon for killing cancer cells, but when pursuing solid tumors it needs MabVax's technology in order to find and lock onto to cancer cells.

    The simplest way to look at it is like this; with solid tumors, Juno has the weapon, and MabVax is supplying the navigation system. A weapon is of little value without a navigation system.

    It should also be noted that MabVax has very effective weapons of its own, as was demonstrated in the neuroblastoma trial. This brings up an interesting point; MabVax has considerably more value based on its entire pipeline, than the portion that could be licensed to Juno.

    Why a licensing deal with Juno would push MabVax shares higher

    Any deal with Juno is positive for a company, as was evidenced when Fate Therapeutics (NASDAQ:FATE) announced its deal with Juno earlier this year. Following the announcement, Fate's shareprice doubled.

    Given the groundbreaking success in this sector, there is a tremendous demand in the investment community for cancer immunotherapy companies, and investors who were unable to buy Juno at $24 could be very interested in MabVax. Juno and other high flyers in this sector have created a pent-up demand for undervalued cancer immunotherapy stocks. MabVax looks very attractive with its $100 million valuation when compared to Juno's $5 billion valuation.

    With such a high level of investor focus on Juno right now, a licensing deal would not only bring MabVax into Wall Street's spotlight, but from a scientific perspective, this deal would publicly validate MabVax's technology. MabVax's technology has already been validated via the neuroblastoma trials, as well as the Opko/Frost investment, but most of Wall Street doesn't even know MabVax exists.

    If Juno exercises its option with MabVax, MabVax will no longer be under Wall Street's radar. Those who did not buy Juno at $24 will have an even greater opportunity with MabVax, currently trading at a ridiculous discount to fair value.

    Why I'm speculating a licensing deal could occur

    As I explained above, a navigation system, particularly one based on MabVax's carbohydrate target approach appears to be of value to Juno. I believe that fact alone is sufficient to generate a licensing deal.

    What makes this technology potentially even more valuable to Juno is the fact that MabVax is providing a human navigation system. The reason a human navigation system is so important is that with the CAR-T technology, without a human navigation system, when pursuing solid tumors, the CAR-T approach can be less effective.

    Additionally, Juno has indicated the company wants to enter the neuroblastoma space, and given MabVax's excellent clinical results in this area, Juno could be interested in MabVax for that indication.

    It's also important to note that Juno is working on establishing a set of technologies that are effective on solid tumors. A deal with MabVax will help Juno reach that goal.

    When I put all that information together, I am willing to speculate that a licensing deal could occur.

    What kind of a licensing deal could we expect?

    MabVax has indicated in investor presentations that a deal with Juno could include an upfront payment, royalties, and milestone payments. I cannot speculate on the size of the deal, but given some of the deals that have occurred recently, it could be significant.

    Any deal with Juno is important for investors, because it will demonstrate the value of MabVax's technology and bring attention to a company that nobody knows about. Additionally a deal will provide investors with a level of product validation that no amount of due diligence could accomplish.

    What is MabVax worth today?

    The best way to value MabVax is to see how other cancer immunotherapy companies are valued. When we look at the 25 companies in the Cancer Immunotherapy Index, valuations range from $600 million for Sorrento Therapeutics (NASDAQ:SRNE), to $18 billion for Incyte (NASDAQ:INCY). The average valuation of all 25 companies is about $2 billion per company.

    In order to keep estimates conservative, I will compare MabVax to 3 of the lowest valuation companies in the index. I also selected companies that are less clinically advanced than MabVax.

    Please keep in mind that comps are never perfect, because no two companies are identical, but comps give us reasonable indications of a company's value.

    · Sorrento provides a good comparison because the company has 5 candidates about to enter Phase 1 and one candidate in Phase 1. Sorrento has generated promising activity against different cancer types, including leukemia, lymphoma, melanoma, renal cell cancer, and lung cancer. Given its promising pipeline, and past successes, the market considers Sorrento fairly valued at $600 million.

    · Another good comparison is Five Prime (NASDAQ:FPRX), which has already received over $300 million in collaborative arrangements, and the company's new agreement with Bluebird could deliver milestone payments of over $130 million per license product. Five Prime's most advanced product is in Phase 1B trials, and the company is valued at over $600 million.

    · Bellicum Pharmaceuticals (NASDAQ:BLCM), has 4 candidates in Phase 1, and 3 preclinical candidates and is addressing various forms of cancer including prostate cancer and melanoma. The company is currently valued at $500 million.

    MabVax has 3 candidates in or about to enter Phase 1 and 2 candidates in Phase 2 so it is more advanced clinically than any of these companies, yet is only given a valuation of $100 million. This is an extreme level of mispricing.

    On a peer comparison basis, MabVax should be valued somewhere in the $500 million to $600 million range. When you consider MabVax's orphan drug status and potential partnership with Juno, a valuation above $600 million could be justified.

    What will it take for the market to give MabVax a $500 million valuation?

    If MabVax is worth at least $500 million today, why isn't it trading at that level? As I explained above, MabVax is not yet on Wall Street's radar, most investors just don't know about this company yet. Additionally, given the OTC status, the few investors who know about the company are not willing to take a position.

    A Juno deal and NASDAQ up listing will solve both these problems, and MabVax should transition to a more reasonable valuation. Given the high level of interest in the sector MabVax could trade above $5 if a Juno deal is announced. Keep in mind that even if MabVax was trading at $5, that would still be a 50% discount to fair value.

    With a NASDAQ up listing, MabVax should move towards fair value, or $10 per share.

    What I like about this trade is that even without any catalysts, because of the severe undervaluation, MabVax should move higher as Wall Street begins to discover the company's excellent clinical results and fundamentals.

    Sorrento, Five Prime, and Bellicum have been star performers

    Late last year, Sorrento and Five Prime were in the same position MabVaX; undiscovered and undervalued. As investors discovered both company's fundamentals, the share prices rose significantly. Sorrento went from $3 to $17, and Five Prime from $10 to $30.

    Bellicum has performed well also, rising almost 100% since last December. As demonstrated by these 3 companies, investors see the potential in this new technology and are hungry for cancer immunotherapy companies.

    Clinical catalyst later this year could push share price above $10

    MabVax should be presenting Phase 1 clinical data later this year for two antibody programs addressing critical unmet medical needs in the billion dollar markets of metatstatic pancreatic and colon cancer. Positive data would be important for 2 reasons. First, we should see a significant increase in shareprice if positive data is reported, but even more valuable would be the major partnership discussions that this data could initiate. Positive data should bring in Big Pharma.

    MabVax's diagnostic agent will provide a major catalyst in Q1 of 2016

    MabVax has another valuable asset that the market is completely unaware of. The company's next-generation diagnostic agent could become the standard of care given its superior accuracy and reliability. This one product alone is addressing a $400 million market.

    The big advantage with a diagnostic product is that it has a very low regulatory hurdle, so you can get to market much faster than with a drug. This product has generated exceptional data in animal models, and with this type of science, positive data will probably also be seen in human trials. In other words, with this type of indication, positive animal data usually transfers to positive human data.

    What I like about this product is that clinical trials will begin later this year, and MabVax should report data in Q1 2016. With such a large total addressable market, positive data would drive the share price significantly higher.

    The wildcard; MabVax could begin trading at a premium

    With all the excitement in this sector, particularly after Monday's Juno/Celgene announcement, once Wall Street becomes aware of MabVax, the company could begin trading at a premium. At that point, a shareprice above $15 would be entirely possible, particularly when you consider that the average valuation of companies in the Cancer Immunotherapy Index is $2 billion.

    Do I expect that to happen? MabVax definitely fits the criteria; a promising company in a hot sector, so it's a possibility. If MabVax trades at a premium that would simply be a bonus for shareholders.

    Juno could buy MabVax

    With a $5 billion valuation, Juno is in a strong position to buy smaller complementary companies. Juno just bought X-Body so the company is definitely in acquisition mode.

    I believe MabVax is an ideal candidate. With Juno's strong cash position and shares trading between $50 and $70, Juno definitely has the muscle to buy MabVax, even if it were to pay a large premium. This is pure speculation, and I have not heard any rumors to this effect, but a buyout could be a good option for Juno.

    Dr. Phillip Frost and Opko investments validate MabVax's technology

    One of the primary reasons I've invested in MabVax is based on Dr. Phillip Frost's and Opko's (NYSE:OPK),recent investment in the company. Dr. Frost and Opko were the lead investor's in an $11.7 million deal. Undoubtedly Dr. Frost and his team of scientists conducted a high level of due diligence, which validates MabVax's technology.

    One of the most important questions for investors is whether or not MabVax's technology works. Given the size of Dr. Frost's and Opko investments, in my opinion that question has been answered in the affirmative. In other words, Dr. Frost and Opko would not have invested in MabVax unless they believed the science was solid.

    I first became aware of Dr. Frost when I wrote about his flagship company Opko. At the time of my first Opko article, the shares were trading at $4, and have since risen above $19. Opko is a great company, and its involvement with MabVax will be positive for MabVax.

    Another example of Dr. Frost's success includes his investment in Cocrystal Pharma (OTCQB:COCP) at $.30 per share. Corystal has traded above $1.50 this year, providing more than a 5X return. I have done well investing in companies backed by Dr. Frost and MabVax could be one of his best performers.

    Top immunologist validates MabVax's technology

    Even though MabVax's technology has been validated through clinical trials and the Dr. Frost/Opko investment, before I established a large position I wanted one more level of validation. I contacted one of the top immunology PhD's in the country, (Harvard, Tufts) and asked him about MabVax's technology. He was well aware of MabVax and what they have accomplished, and provided me with valuable information.

    He reiterated what I already suspected; MabVax's carbohydrate approach gives it a unique advantage in being able to treat cancers that other immunology approaches cannot address. He also made it clear that MabVax's fully human antibodies provides distinct advantages over other immunology technologies. Since the antibodies are derived from humans, both safety and efficacy can be superior to other approaches.

    Following our conference call, it was clear that MabVax has what could become one of the leading approaches to the next generation of cancer treatment. MabVax's science has now been validated from 3 different sources, and I feel confident in the strength of the company's science.

    If Juno jumps on board with a licensing deal, other pharmaceutical companies could follow

    Another big advantage of a Juno deal would be that with such a high level of product validation, other big Pharma companies could partner with MabVax. Novartis , is a likely candidate, given its success in the CAR-T cell space. Celgene could also be interested in partnering with MabVax especially after its recent deal with Juno. Bluebird (NASDAQ:BLUE), Kite Pharma (NASDAQ:KITE), and Ziopharm (NASDAQ:ZIOP), could have their eyes on MabVax as well.

    It's important to remember that the CAR-T cell companies need a navigation system when pursuing solid tumors in order for the drugs to be effective. MabVax can supply this. The primary reason Juno bought X-Body was based on X-Body's navigation system. The same could be said for Bluebird's deal with Five Prime. The fact that MabVax has a fully human navigation system puts MabVax in a class of its own, and MabVax could generate additional licensing deals from other CAR-T cell companies.

    What is cancer immunotherapy?

    Radiation, chemotherapy, and surgery have been the traditional methods of fighting cancer. Radiation was discovered in the 1800s by Marie Curie. Chemotherapy evolved from World War I's mustard gas.

    These treatment methods are all based on destroying cancer cells by burning them through radiation, poisoning them with chemotherapy, or removing them through surgery. Even though these methods are effective at killing or removing cancer cells, these treatments are often limited because large numbers of healthy cells are also destroyed. This results in debilitating side effects. Worst case; patients die

    Up to now there has been no perfect cancer cure. However immunotherapy provides a cutting-edge technology that is offering significant hope. It's based on the theory that the immune system is the best tool humans have for fighting disease. That theory has proven true in many instances.

    Immunotherapy has the potential to fight cancer by either applying an external stimulus to the immune system to make it act more aggressively or intelligently, or by providing the immune system with man-made or naturally derived tumor-specific proteins made outside the body so that the immune system can recognize the tumor as a foreign object and destroy it.

    Immunotherapy is sometimes used to treat cancer by itself, but it's most often used in combination with traditional treatments like radiation, chemotherapy and surgery. Immunotherapy has the potential to be significantly less toxic than the old school treatments. More importantly, immunotherapy offers a different mode of attack on the tumor, which has generated significantly better outcomes for patients.

    With cancer, the immune system alone often fails to effectively fight the tumor for the following reasons:

    1. The normal immune system is blind to tumor cells because the tumor cells are derived from the body's cells. The body thinks of the tumor as a normal part of the body, which creates a phenomenon known as tumor tolerance.

    2. The tumor actually has the ability to defend itself. Cancer cells may create substances that keep the immune system at bay.

    3. The immune system can recognize certain cancer cells, but it's response may not be strong enough by itself to destroy the cancer cells.

    4. The immune system's response may not occur in the right place in the body and it may send the wrong type of immune cells.

    For all these reasons, the immune system needs a boost to become more effective at fighting the cancer. That's where the MabVax and Juno technologies come in.

    MabVax's genius; using the human body to create cancer antibodies

    MabVax's innovation involves using the human body to engineer cancer specific antibodies. The human body is amazing. It can grow new skin, fight disease, create new cells, and heal broken bones. In many ways there is no laboratory as effective and powerful than the human body. MabVax has found a way to use the body to create highly effective cancer antibodies.

    Here's how it works:

    Patients with cancer are injected with a vaccine that includes an antigen and an immune system booster which elicits an antibody response in each patient's body. This triggers the body to create new antibodies that search out and begin to destroy the tumors.

    MabVax then draws blood from all vaccinated patients and screens for antibodies. Next, these antibodies are screened again in order to find the best ones. From that point, MabVax is able to clone these fully human antibodies and use them in new patients.

    What's important here, is that these antibodies have already proven effective in the original patient from which the antibodies were derived so there is a high probability of efficacy in new patients. Even more important; since these antibodies were derived from humans, there is minimized safety risk. This is where we enter into the potential of cancer treatment without serious side effects.

    The genius in MabVax's approach is that the human body can create antibodies that could be far safer and more effective against certain types of cancer than antibodies that were not fully created in the human body.

    Antibody therapy could replace chemotherapy

    If antibody therapy is ultimately successful, it could replace chemotherapy as a form of cancer treatment. It's too early to know if this will occur, but with the limited side effects of some forms of antibody therapy, if efficacy continues to be proven, antibody therapy could become the new standard of care. Imagine treating cancer without the debilitating effects of chemotherapy. That would be a game changer for the medical community.

    The Juno deal only represents a fraction of MabVax's value

    The Juno deal is important, but MabVax has assets considerably more valuable than those represented in the Juno deal. MabVax's portfolio includes completed clinical trials in melanoma, neuroblastoma, sarcoma, breast cancer, ovarian cancer, and small cell lung cancer. These are all huge markets.

    MabVax's antibody discovery platform has produced a library of more than 100 fully human antibody leads. This provides the company with a potential pipeline that is staggering in terms of dollar value. MabVax could be a multibillion dollar company with only a portion of this library, but the library's sheer size could ultimately reflect a huge valuation for MabVax.

    When you combine the antibody library with the imaging and vaccine candidates, it becomes clear that MabVax is a company with a broad pipeline that addresses a $100 billion market. Once again, this is just another example of how undervalued MabVax is right now.

    Why cancer drug companies are given such high valuations

    Juno's $5 billion valuation is understandable when you consider the size of the cancer drug market. This market just hit $100 billion and according to the IMS, it could reach $147 billion in 2018. That's why Phase 1 companies like Juno are given such high valuations, and precisely why MabVax should be given a considerably higher valuation. Even if you have a drug that only captures 1% of the market, that's $1 billion annually, for one high-margin drug.

    Who will win the cancer immunotherapy race?

    MabVax is a major contender in the sector, given its clinical success and focus on fully human monoclonal antibodies. The fully human element is what's important here, and with time investors will recognize its significance.

    Right now the market is betting on multibillion dollar companies like Incyte, Juno, Bluebird, and Kite. That's understandable. Each of these companies have shown very positive clinical data. But MabVax has also demonstrated remarkable results however Wall Street hasn't caught on yet. That will change, particularly if a Juno deal occurs.

    With time MabVax could share the stage with the top cancer immunotherapy companies. There will not be one winner, but a handful of companies that provide the next generation of cancer treatment. While no one has used the word "cure" yet, cancer immunotherapy could ultimately provide a level of success beyond what anyone has imagined.

    Recommended reading

    If you want to learn more about MabVax's technology and how it could be vital in the next generation of cancer treatment, I recommend reading this excellent Seeking Alpha article. This article makes a clear case of why monoclonal antibodies have become so popular, and why MabVax's technology could be one of the front runners in the race to replacing old-school cancer treatments.

    MabVax should be up listed to NASDAQ within 7 weeks

    MabVax has stated the company is working on up listing, a process that began over 6 months ago. From what I can determine a NASDAQ up listing will occur by the 3rd week in August. Here's why:

    · It appears MabVax meets all the listing requirements, except that the shares need to trade above $2 for 90 consecutive trading days and MabVax needs to demonstrate its cash position in a new 10Q.

    · MabVax began trading above $2 on April 2, so if this continues until August 6, that requirement will have been met.

    · MabVax could file the new 10Q in early August, but they must file by August 15 at the latest.

    · With those 2 requirements met, MabVax should begin trading on the NASDAQ by the 3rd week in August, or earlier if the 10Q is filed in early August.

    A NASDAQ up listing will be an important catalyst for MabVax because institutions could drive the shareprice much higher.

    Summary of upcoming catalysts

    Here is a summary of upcoming MabVax catalysts:

    · Licensing deal with Juno: if a deal occurs, there could be an announcement within the next 2 weeks.

    · NASDAQ up listing: this should occur within 7 weeks.

    · Reporting of Phase 1 clinical data for pancreatic and colon cancer: this data should be released in Q4 of this year.

    · Reporting of Phase 1 clinical data for diagnostic agent: this data should be released in Q1 of 2016.

    If any one of these catalysts occur, MabVax will be a home run trade. If more than one catalyst occurs, it will be like a grand slam in the final inning of the World Series. But what makes this such a phenomenal trade is that it's possible that all 4 catalysts will occur.

    Insiders have been buying

    For the past 6 months, there has been a steady stream of insider buying on the open market. Most of the purchases have been above today's shareprice, and there has been no insider selling. Insider buying and no selling is often a good indication of future share price appreciation. After all, insiders know more about a company than anyone else.

    MabVax's strong balance sheet

    MabVax has $9 million in cash and no debt. The company is burning about $750,000 per month, low for a biotech, so I don't anticipate a near-term financing.

    MabVax's share structure

    MabVax only has 23 million shares that are tradable, giving the company a $50 million valuation. However when we include all restricted stock, warrants and options, the company has about 48 million shares, fully diluted, giving the company a valuation of just over $100 million.

    MabVax's strong IP position adds additional value

    MabVax currently has 20 issued vaccine patents in the U.S. and 41 patents outside the U.S. the company's issued patents cover monovalent vaccines, methods of manufacture, and methods of use.

    MabVax also has 8 patent applications pending of which 2 are in the U.S. and 6 are outside the U.S. These applications cover the companies proprietary antibody discovery program and lead drug development candidates as well as combinations of monovalent vaccines in areas of, breast, and ovarian cancer.

    My impression of CEO Dave Hansen

    After numerous conference calls with Dave Hansen, beginning last April, I'm impressed. I particularly appreciate his scientific knowledge and conservative approach. Whereas many CEOs only focus on the positive aspects of their companies, Mr. Hansen clarifies the entire picture, including all risks. Part of the reason I have established a position in MabVax, is based on my confidence in Mr. Hansen's ability to successfully grow the company.

    What's the risk?

    There is risk that Juno will not exercise its option to license with MabVax or a final agreement will be delayed. I have speculated that Juno will license MabVax's technology, but I could be wrong. But since MabVax is worth more than today's valuation without the Juno deal, the downside risk is limited. The real risk is that if the Juno deal does not occur, significant share price appreciation could be delayed. We should still get reasonable share price appreciation from a NASDAQ up listing, but the combination of an up listing and a licensing deal with Juno is what makes this a home run trade.

    On the other hand, Juno may be planning to buy MabVax, so if the option was not exercised, that could simply be part of an acquisition strategy.

    There is also risk that a NASDAQ up listing will be delayed. I believe I'm accurate in my current timeframe projections but a delay could occur.

    Longer-term there is clinical risk when MabVax reports clinical data later this year and early next year. Just because past data has been exceptional, that's no guarantee future data will also be good.

    There is also risk beginning October 6, 2015 when the discounted shares that Dr. Frost, Opko, and other institutional investors bought become unrestricted. I don't believe Dr. Frost or Opko will be sellers at that point, but I can't predict what other investors will do. This doesn't affect the short-term catalyst driven trade, but it does present risk longer-term.


    MabVax presents an ideal catalyst driven trade. If a licensing deal with Juno is announced, MabVax could begin trading above $5. A NASDAQ up listing could push the share price even higher.

    With MabVax trading at an 80% discount, there is considerable downside protection. Safety and efficacy have already been validated in neuroblastoma trials, where MabVax's drug proved almost twice as effective as the current standard of care. If additional positive clinical data is announced later this year, MabVax could be trading above $10.

    But keep this in mind; Monday's $1 billion Celgene/Juno deal took the cancer immunotherapy sector to a whole new level. With so much interest in this sector, MabVax could easily go from a company that investors have never heard of, to a company that everyone is talking about. At that point MabVax could begin trading at a premium. That's what makes this such a great trade.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Jul 01 9:38 AM | Link | 2 Comments
  • GTX Announced Another State Has Come On Board With Reimbursement

    This information was buried in a press release, but it's very significant. For GTX to obtain reimbursement for 2 states within such a short period of time is unheard of. I didn't expect the first state to come on board until the end of this year at the earliest, and now we could have more than 2 states by year-end, if they keep signing on at this rate.

    Jun 09 10:42 AM | Link | Comment!
Full index of posts »
Latest Followers


More »

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.