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Ray Dirks has been a respected analyst on Wall Street for decades. Ray has written two books,” The Great Wall Street Scandal” and “Heads You Win, Tails You Win”, published by McGraw-Hill and Bantam Books respectively. Dirks opened his own securities analysis firm after gaining much attention in... More
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  • Ergomed Ups The Ante For CEL-SCI

    Cancer immunotherapy company CEL-SCI Corp. (CVM:NYSE MKT) is thriving. Ergomed, a multinational Contract Research Organization (CRO) with a pristine reputation and the confidence in CEL-SCI's lead drug Multikine to make a huge upfront $10 million investment, recently raised the ante 20% − to $12 million. The deal was done under the same terms first put in place that calls for only a single-digit royalty on potential sales. This clearly shows Ergomed's confidence not only in the likelihood of Multikine being approved, but also in the large revenue potential of the cancer immunotherapy drug.

    CROs play a big part in managing everything from recruiting clinical sites and patients, to back office jobs clinical trials require like data entry and statistical analysis, but it's a rare situation when significant cash commits, and even rarer when the amount of cash goes up by a large percentage. I believe Ergomed see something very valuable in CEL-SCI's future.

    Global consultants McKinsey & Company, advisors to big pharma and biotech, in their industry reports support the fact that CROs don't typically make investments in the companies they provide service for. What pharmaceutical and biotechnology companies want is an increase in how many drug programs are going on at the same time, hopefully stuffing pipelines without spending extra cash other than paying for basic services. They avoid risk with their CROs. Ergomed stands out because that's exactly what they're doing - putting big money into a project where they believe there's a big return.

    Immunotherapy is quickly becoming a solid source of interest to investors as IPOs see sky-high valuations out of the box, and beyond, and Big Pharma tosses millions of dollars at the earliest of phased trials. Juno Therapeutics (JUNO:NASDAQ), public in December 2014, doubled its market cap, to $5 billion since its IPO in December 2014 even though the company is barely out of Phase I. Cellectis (CLLS:NASDAQ), trying to re-engineer the immune system in rats with prayers humans may someday benefit, hovers around a valuation of $1 billion. Aduro Bio Tech (ADRO:NASDAQ) went public last April with an almost doubling of price and now sports a market cap of $1.4 billion but like its fellows, barely out of Phase II.

    Large drug companies with their sad lack of meaningful pipelines except 'me-too' drugs and tired combinations have jumped on the immuno-bandwagon with a vengeance: Bristol-Myers Squibb (BMY:NYSE) paid $1.25 billion for Flexus Biosciences; AbbVie Inc. (ABBV:NYSE) bought Pharmacyclics (PCYC:NASDAQ) for a mind-boggling $21 billion; Mallinckrodt PLC (MNK:NYSE), best known for medical imaging materials, stepped up to the immunotherapy plate with a buy-out offer of $1.3 billion for Therakos. Deals seek overseas sources: Eli Lilly (LLY:NYSE) will spend $1 billion on China-based Innovent Biologics whose current line-up in monoclonal antibodies reads like a generic pharmacists' formulary.

    Ergomed, serving high-profile clients like oncology firms Synta Pharmaceuticals (SNTA:NASDAQ) and Aeterna Zentaris (AEZS:NASDAQ) has lived up to its name in helping fill clinical trial beds, bringing both companies to Phase III trials. CEL-SCI sees this benefit: since bringing Ergomed on board, enrollment has skyrocketed with a final count last month of 570 patients taking Multikine for head and neck cancer, almost two-thirds of its way to goal. Ergomed's jump in investment will aid CEL-SCI in enrolling even more quickly.

    These enrollment numbers are striking, especially considering untreated head and neck cancer, the aim of the study, are a harder pool of patients to find. Thanks to Ergomed and its wide reach, this group of over 600,000 patients in total have been tapped in more than 24 countries, at top sites. CEL-SCI averages 26 patients per month since the beginning of the year.

    Almost no pharma firm is tackling head and neck cancer like CEL-SCI. And those who get close trade high. Inovio Pharmaceuticals (INO:NASDAQ), does studies in head and neck cancer caused by human papilloma virus (HPV) but only in Phase II, yet boasts a valuation of $450 million. ImmunoGen, Inc. (IMGN:NASDAQ) began work in head and neck, but dropped it mysteriously in the last six months and only dabbles now in a variety of solid tumor cancers not out of Phase I. Even big firms shy away from this form of cancer probably, I believe, because they do not understand how to treat it the way CEL-SCI does, giving CEL-SCI a clear road to dominating this $3.2 billion global market.

    (click to enlarge)

    Further testimony that CEL-SCI is on the right track to treat a disease no one else can, and backing up CEL-SCI's claim of fraud instigated by its CRO predecessor, a commitment of $5 million was made just days ago to help the fight. The company had a bad experience with their former contract research organization (CRO) InVentiv, whose incompetence enrolling patients in CEL-SCI's large and ground-breaking Phase III clinical trial for head and neck cancer caused a drop-off in the stock.

    In another unprecedented move for a company wronged by corporate maleficence under the guise of helping humanity cure ills, CEO Geert Kersten struck a good deal with Lake Whillans, experts in supporting litigation, structured around settlement (if that occurs), and gives CEL-SCI breathing room to use its $11 million plus in cash to look after Phase III trials of Multikine in head and neck cancer. The take is at least $50 million from InVentiv - a small price to pay for the pain and suffering caused to CEL-SCI and those potential clinical trial patients that could have benefited from the company's innovative immunotherapy.

    Multikine marches on and so does CEL-SCI. With enrollment at all-time record highs and the trial's endpoint only a 10% improvement in overall survival versus standard of care, this is a cancer study lay-up. After approval, Multikine will likely be available in all the countries where studies are now held, giving CEL-SCI a massive global reach.

    Like any biotech, there are risks and investors should be aware. CEL-SCI does not have products in the market yet, its stock is below $1.00, and news flow, as is the case with many small companies, may be light and liquidity may be low. Market capitalization is about $82 million but I believe, given the company's great potential, it is one of the most undervalued immunotherapy plays on the market.

    CEL-SCI should be rewarded for rapid progress in patient enrollment, for gathering industry support, and for the money it earns from parties interested in seeking to bring this company into the spotlight of a $35 billion immunotherapy market. The time to buy is now.

    Oct 20 4:21 PM | Link | Comment!
  • Global Rollout Of LabStyle Innovations Dario™ Diabetes Platform Offers Investors Enormous Opportunity



    In my view and in the view of my team of security analysts and money managers, LabStyle Innovations Corp.'s (OTCQB:DRIO) common stock is currently undervalued. We have written about DRIO in the past and at this time we are issuing coverage with a BUY rating and a near-term price target of $3.50.

    Several catalysts have prompted us to initiate coverage at this point. The most important three are: 1) the US patent recently granted to DRIO that expands its IP rights and corresponding target markets far beyond blood glucose testing - a $12 billion worldwide industry in its own right; 2) the anticipated upcoming FDA response to DRIO's 510(k) filing which, if positive, will mean DRIO will enter the U.S. market, the largest in the world; and 3) market traction and corresponding revenue growth in the countries in which DRIO has received approval and launched the Dario™ Diabetes Management System.

    Company Profile - Bringing the Future to Diabetes Management

    DRIO makes and sells patented technology providing consumers with blood glucose testing capabilities using the owner's smart mobile devices. DRIO's flagship product is Dario™, is a platform that combines an all-in-one, blood glucose meter, smart phone application (iOS & Android), website application and treatment tools to help diabetics become more proactive in their disease. Through the Internet cloud, data can be quickly viewed by doctors, parents and other care-givers for proactive treatment and better-informed decision making. In this way, Dario™ offers millions of diabetics a way to self-manage their condition anywhere, anytime by monitoring daily activities with input not only on blood sugar, but also tracking of carbohydrates and insulin. Care-givers are provided both real-time and historic data. Patient compliance is enhanced, resulting in a renewed quality of life.

    In August 2014 DRIO was granted a US patent covering core functions of the Dario™ Blood Glucose Monitoring System and in September 2015, it received an additional patent extending its coverage into markets beyond diabetes, areas covering specific processes related to blood glucose measurement as well as more general methods of rapid tests of body fluids using mobile devices and cloud-based services. DRIO is pursuing these patent applications in other countries outside of the US.

    Dario™ received regulatory approval in Europe and components of the device are now approved for reimbursement in the UK, New Zealand, Australia, Italy and Canada. Launch has occurred in the UK, New Zealand, Netherlands, and Canada, with others close behind. The company expects FDA approval and launch in 2015.

    Savvy Management with Vast Experience

    Erez Raphael, CEO/President

    Mr. Raphael joined the company in 2012 and has led LabStyle Innovations through its CE Mark, territory launches, and reimbursement status. Formerly, he was an integral part of business transformation at Nokia Seimens Networks, after holding senior positions at communication software and service provider Amdocs Limited (NASDAQ:DOX), currently an $8.9 billion company.

    Zvi Ben-David, CFO

    Before joining LabStyle Innovations, Mr. Ben-David spent 25 years in financial accounting roles with public and private medical technology companies. These included co-founder and chief financial officer at Given Imaging Ltd. (NASDAQ:GIVN), and chief financial officer of Ultrashape Medical Ltd., where he was instrumental in its IPO on the Tel Aviv stock exchange and eventual acquisition by Syneron Medical Ltd. (NASDAQ:ELOS) in 2012.

    Dror Bacher, Vice President of R&D

    Offering LabStyle Innovations the benefit of over 15 years of software business experience that included management of product development in mobile and semi-conductor companies, Mr. Bacher also oversaw software development programs at Amdocs Limited. Before that, he was an executive at Tower Semiconductor (NASDAQ:TSEM) with responsibility for both high- and low-end product development.

    Todd Durniak, U.S. Senior Vice President and General Manager

    Mr. Durniak brings to the company over 25 years of medical device commercialization and technical leadership. Formerly, he was vice president and general manager of Neighborhood Diabetes, a division of Insulet Corp. that supplied diabetic materials through durable medical equipment and pharmacy channels. Prior to this, Mr. Durniak was with Smith & Nephew Orthopaedics serving as president, Asia Pacific, in Australia.

    Current Market Metrics

    DRIO's common stock price is $0.32 per share and has been trading in a range of $0.10 - $0.65 over the past 12 months. Market cap is $12.7 million. DRIO closed on a $2.5 million round of financing on August 31, 2015 with private investors, many of them returning from prior rounds to show faith in the device and its astounding prospects. Management has skin in the Dario™ game, too.


    Selling into the $12 Billion Global Glucose Monitoring Market

    The global blood glucose monitoring market is expected to reach $12 billion by 2017, driven by the sheer number of Type 2 diabetics which could be low because it's difficult to estimate how many people are not diagnosed. More than 382 million people live with diabetes worldwide, a figure predicted to rise to an astounding 592 million by 2035, making diabetes a very dangerous epidemic in an aging population with unhealthy eating habits and sluggish lifestyles.

    The worldwide diabetes management market that includes doctor visits, hospital admissions, medication, tele-medicine, insurer treatment plans, and insulin delivery devices was US$50.8 billion in 2011, projected to reach US$98.4 billion by 2018. Technologies in glucose testing and disease management have not seen much change in the past few decades, contrasted with the accelerated pace of progress in other technology-driven markets such as mobile phones and cloud-based data management. Glucose monitor makers like Sanofi (NYSE:SNY) with its IBGStar are responding to testing through wireless mobile devices, although DRIO is the only all-in-one product available with a streamlined product appealing to patients.

    mHealth Market Merges the Latest in Smartphone & Cloud Technology for Disease Management

    The mobile health market, dubbed mHealth and defined by disease management through smart technology like phones, iPods, tablet computers and PDAs, is exploding. DRIO has taken this concept one step further by seamlessly integrating blood sugar testing with the steadily rising use of smartphones. Grand View Research estimates the global mHealth market will reach a whopping $49.12 billion by 2020, growing at a compounded annual rate (OTCPK:CAGR) of nearly 50% since 2013, when figures were first gathered. Medical monitoring services will grow even faster, a CAGR of 49.7% in the same period. As we wrote last May, I believe the two key players in this market are Apple Inc. (NASDAQ:AAPL) with its Apple Watch and DRIO with its Dario™ Diabetes Management System.

    All of the data collected on smartphones by the Dario™ are recorded in real-time on a cloud-based network that shares the patient's key health metrics with authorized users such as doctors and family members. This reporting greatly increases compliance, gives caregivers the ability to quickly respond to health risks, and provide better long-term care. It also means data can be monetized by DRIO because it becomes a cloud-based disease management system that can help patients and optimize costs for HMOs and other payors.

    Growing Revenues Prove Market Traction in Global Rollout

    The CE Mark was granted for the Dario™ diabetes management system in 2013, allowing for marketing in 32 countries in Europe and outside. DRIO wasted no time launching the device in the UK, New Zealand, Netherlands, Australia, and Canada. Selling is done through distributors, with exclusive contracts signed in key markets and many more to come. Soon, DRIO expects to introduce Dario™ in Panama and Costa Rica, and reimbursement coverage is actively pursued.

    DRIO reported stunning financial results for the second quarter ended June 30, 2015. Quarterly revenues grew 161% from $67,000 in 1Q2015 to $175,000 in 2Q2015, and net loss narrowed by 34% as operational expense moderated through careful management. Our revenue and earnings projections appear below.

    Soon to Enter the US Market, Largest in the World for Diabetes Management

    DRIO filed a Premarket Notification Application, also known as a 510(k), with the FDA for the Dario™ in September 2013. Clearance to sell the device is still on track, expected by year-end. Our country is the largest market in the world for diabetes management - according to the American Diabetes Association, roughly one in four adults suffer from the condition with a total cost of $245 billion, last estimated in 2012, reflecting direct medical costs and worker absenteeism. To effectively address this vast industry, DRIO hired a diabetes market veteran, Todd Durniak as Executive VP of the US. Mr. Durniak is spearheading the anticipated US launch and with his past experience, he should ease the transition to US markets.

    Multiple Recurring Revenue Streams

    Sales of Dario™ are not DRIO's only current and future source of revenue: multiple recurring revenue streams include disposables like test strips and lancets, where reimbursement for users will be as high as 85%. There are also potential service fees from diabetes management behavioral programs and software subscriptions. Because data resides on the Internet cloud, it can be monetized through sales to insurers, tele-care providers, and clinical studies.

    Beyond Diabetes

    On September 9, 2015 DRIO was granted US Patent No. 9,125,549 titled, "Fluids Testing Apparatus and Methods of Use" that greatly extends IP rights previously awarded DRIO in the US by including testing of bodily fluids other than blood through an audio jack connection. Many health-related conditions and chronic diseases are tested through blood, urine, saliva and amniotic fluid and smartphones and other wireless tools are becoming the device target of choice. With this patent, and as DRIO's research and development expand toward this initiative, DRIO will be able to tap healthcare markets far beyond diabetes. Investors should note the overall blood testing market, besides glucose, was worth $50 billion in 2013, according to BCC Research.

    Heart disease is a major category monitored through blood tests to measure cholesterol, kidney and thyroid function, anemia, and B-type natriuretic peptide (BNP). Saliva is another fluid used to screen and diagnose a range of diseases and conditions from HIV, to Cushing's disease, to cancer, and parasites and allergies.

    As technology and medicine are advancing, testing moves toward monitoring disease via mobile devices. The rapid rise of mHealth should grab a significant slice of the medical diagnostic market as patients, their doctors, and payors want to see more testing and monitoring done by patients themselves to get timely information that could ultimately reduce costs of office and laboratory visits, and avoid expensive hospital stays.

    Financial Discussion and Projections

    With initial launch, distributor arrangements and reimbursement underway in select territories, DRIO recently began posting its first product revenue. For the year 2014 (ended December 31), sales of Dario™ were $51,000, then showed a healthy ramp-up in the six months ended June 30, 2015 to $242,000. Year-over-year moderation of operating expenses resulted in a lower loss per share of ($0.07) in 2Q2015 from ($0.15) in the comparable period last year. There is no long-term debt and cash as of 2Q2015 stood at roughly $1.1 million. Through a series of recent private funding, including executives of the firm, that totaled $2.5 million, DRIO is in a better position financially and received Board approval to increase its share base to 160,000,000, up from 80,000,000.

    To cast earnings projections, a top-down analysis was chosen, beginning with the number of diabetics in each market Dario™ is now sold, or soon to be as infrastructure and reimbursement is established. Although Dario™ plans to launch in numerous new territories, to be conservative, only eight countries were analyzed whereas Dario™ received the CE Mark that covers 32 countries. The US was also included - approval here should happen by year-end. Distributors are expected to rapidly add Dario™ to their stock of glucose meters.

    Estimates vary and change often as the epidemic of diabetes rises; the World Health Organization (WHO) puts worldwide growth over 4% in coming years. Because figures vary from country to country, with Type 2 diabetes rapidly increasing (not including those not yet diagnosed) and higher income countries expected to see faster growth, a 5% climb per annum was chosen.

    This was contrasted with the number of smartphone users in each country. Taking data from industry follower Research2Guidance that quotes under 2% of smartphone or tablet users manage their diabetes through apps, a figure was derived to accurately depict the market. This number is expected to grow upwards of 30% by 2018 and estimates were extrapolated accordingly. The fastest growing markets targeted by DRIO are the UK, Canada, and the US for which 510(k) FDA marketing clearance is imminent. Further, according to a recent survey by Research2Guidance, 76% of mobile health app users believe diabetes is the chronic disease with the greatest business potential for mobile health. Considering Dario™'s compatibility with many devices, and with the Apple iPhone and Android enjoying a combined worldwide share of over 75%, it is reasonable to believe that DRIO can participate in the diabetes smartphone monitoring market in a significant way.

    To that table of figures a market penetration rate was applied, showing growth in the years extending to 2018. This number is also conservative considering the unique nature of the Dario™ device with few direct competitors and may also be low when viewed in conjunction with estimates from mHealthNews that predict the number of people using diabetes apps to grow 71% per year over the next five years.

    Price for Dario was gleaned from certain news items and is put into the model as $55.00, which may be low for higher-end territories like the US and UK. A distributor's discount was subtracted, yielding a final revenue projection for each period extending to 2018.

    Forward sales figures include the many recurring revenue streams DRIO can pick up with the device - service fees for diabetes behavioral programs which are gaining in number, especially in the US as the disease leads to soaring hospital visits and absence from work; monetization of cloud-based data for insurers, tele-care providers and research clinicians; software licensing fees; and DRIO's eCommerce initiative for direct-to-consumer marketing. Another potent source of revenue will be use of Dario™ to test bodily fluids like saliva or urine to detect diseases other than diabetes, providing great leverage for the device where research and development cost is expected to be much lower now that the platform is completed.

    Our sales figures do not include recurring revenue for test strips: with an average of 2.5 strips used daily per diabetic each year, at a price of around $0.22 per strip, and considering the number of users and market penetration, these figures will add a significant amount to the top-line. We may be conservative in the adoption of smartphone use for diabetic apps, particularly in the US, where the American Diabetes Association estimates that in 2012, 29.1 million US citizens, or 9.3% of the population, had diabetes.

    Margins, difficult to assign given the company's early stage of manufacturing and operations, were cast in accordance with other small medical technology companies and may be low-balled as scalability is enhanced and attempts to keep costs in check prevail. If DRIO sells more shares to investors than projected, a larger share base could be dilutive. Net income is expected to turn positive in 2017. An estimated rapid and robust ramp in sales brings the company to a top-line of $23.3 million in 2018, for a staggering CAGR of 187%, and with DRIO's continued prudent use of funds, it should be able to reach earnings per share estimates.

    Going forward, we predict DRIO can show sales upwards of $35 million by 2019 based on the number of diabetics adopting apps with their smartphones, and the number of people with this condition expected to be diagnosed. Not included in our estimates, DRIO expects to see more Type 1 diabetics using this revolutionary and convenient device, further pushing up future sales figures.

    (click to enlarge)

    Valuation and Target Price

    To assign a target price for LabStyle Innovations, a discounted cash flow model was employed as the company is currently in a loss-making position and comparable companies are either privately-held or part of large multinationals. A forward P/E multiple of 38x was chosen to reflect fast growth; likewise, the discount rate - comprising a risk-free rate pegged to 3-month Treasuries and two additional risk metrics to account for the company's small size and untested marketing prowess - was kept high but appropriate for DRIO's stage of life.

    Using our 2018 EPS of $0.12 and discounted to 2016, a near-term price target of $3.50 was assigned.


    As with any small cap stock, investors should be aware of risks associated with the investment. Those specific to DRIO include rejection of its 510(k), limiting a big market, or non-approval in other key markets. Patients may not like the device, although response has so far been overwhelmingly positive. Doctors may not be interested in real-time or historical data trends, preferring older tried and true methods, and may not trust the device to give accurate results. Product roll-out may be delayed as production ramps up, causing backlogs that annoy customers, including distributors. Like a lot of fast-growing companies, DRIO may not have in-house capacity to manage operational development.

    Non-specific risks are dominated by the potential for dilution as the company will likely need to raise more cash in the future. News flow tends to be light with companies the size of DRIO; however, with new markets coming on board at a swift pace through launch, distribution agreements or reimbursement, this should not pose a problem.

    This is my initial research report on DRIO and I suggest readers/investors do their due diligence, consult their investment advisers, and then consider taking a position in the common shares of DRIO at current prices for what I believe is the possibility of spectacular capital appreciation on their investment over the near term (six to 12 months) and the long term (one to three years).

    RAY DIRKS Research suggests that readers/investors place no more than 1% of the money they devote to common stocks in any one security. It's best to diversify.

    Oct 12 5:29 PM | Link | 1 Comment
  • Heat Biologics: Immunotherapy Vaccine To Transform Cancer Treatment

    We all know that cancer affects many of our friends and family, but why don't we all get cancer? We now know that our immune system is continuously fighting and destroying potential cancer cells. What if we could stimulate the immune system in cancer patients and kill the tumor? This is exactly what Heat Biologics (HTBX: NASDAQ) is doing.

    Cancer is a devastating disease and the harsh effects of current cancer treatments are well-known to us all. A new way of treating cancer known as immunotherapy is transforming cancer, not in the next 5 or 10 years, but today! And Heat Biologics is playing a significant role in this new and exciting landscape. Very simply put their drug activates a patient's cancer killing T-cells (immune cells) that seek and destroy their tumor.

    The way cancer has been treated is essentially barbaric. Patients are injected with poisons known as chemo that kill all cells, but kill cancer cells faster. Patients are bombarded with lethal radiation, or useful organs infested with cancer are removed, leaving patients incapacitated for the rest of their lives.

    Driven by its proprietary platform, ImPACT, Heat is developing multiple vaccines for a number of different cancers. Vaccines have transformed polio, tetanus, chicken pox and measles from being deadly diseases, to merely something we take a shot for today. Cancer could become the next disease to be virtually eliminated by a vaccine.

    ImPACT genetically modifies human cancer cells to pump out antigens (biological agents that target the immune system) and proteins to create an immune response and attack a specific cancer. Not like competitor's drugs that take days, if not weeks, to work, Heat's therapy takes only a few minutes. Then the vaccine lives at the site of the tumor, continuously targeting and destroying the cancer.

    Heat's vaccine platform is easy to make, stays on the shelf until needed, and can be given to anybody, regardless of their blood type or DNA makeup, which is unique in the cancer immunotherapy market. ImPACT is far superior to immunotherapies offered by the global behemoths I will describe below, that need to use the patient's own tissue to make their products work - a costly and inconvenient method.

    Currently, Merck & Co. (NYSE:MRK) is in line at the FDA with Keytruda, first approved for skin cancer (with first quarter sales of $83 million) hoping for approval in non-small cell lung cancer (NSCLC) where analysts predict revenues upwards of $5 billion. Not to be shut out by its giant competitor, Bristol-Myers Squibb Co.'s (NYSE:BMY) Opdivo also began on the market for skin cancer and was approved in March for NSCLC; after only three months Opdivo generated sales of $40 million. Both have severe side effects which I will explain below.

    Joining the ranks of these larger companies, Heat has an ongoing Phase II trial for its HS-110 vaccine in the treatment of NSCLC. Heat is well positioned to compete for this market expected to be $7 billion globally by 2019, with a high annual growth rate.

    In my recent interview with Heat founder and CEO Jeffrey Wolf, I learned that instead of using chemotherapy that destroys all human cells, ImPACT will direct its drugs to kill cancer cells faster with immunotherapy that activates, stimulates, and strengthens a patient's immune system to attack a deadly disease with no known cure. Besides lung cancer, Heat targets bladder cancer with HS-410, now in Phase II at 16 US clinical sites (including Johns Hopkins, known for its extensive urological work) to potentially enter a market estimated at $300 million in the next two years. Expected completion of enrollment for the bladder cancer trial is the third quarter of next year.

    One problem I discussed with Mr. Wolf were side effects of the new anti-cancer wonder drugs that have the potential of pneumonia, holes in intestines, hepatitis and kidney failure. Newer companies like Kite Pharma (NASDAQ:KITE) and Juno Therapeutics (NASDAQ:JUNO), two much-watched darlings of the cancer immunotherapy world, trade at a combined valuation of $7.5 billion. Both target blood cancers but Heat is testing patients much later than Juno for lung cancer. Juno and Kite have shown in trials to lead to an overload of the immune system, known as a deadly cytokine storm; high fever; and serious drops in blood pressure. Medical sources claim cancer immunotherapy drugs like those of Merck and Bristol-Myers work in only 40% of patients and we will see how they fare in lung cancer.

    The grandfather of cancer immunotherapy, Dendreon Corp's (NASDAQ:DNDN), drug Provenge sales were limited due to the cost to the patient which was approximately $93,000, leading the company to declare bankruptcy. The complexity of customizing the drug for each patient was too expensive. This will not happen to Heat. Heat's drug is an off the shelf product, so the cost per patient is approximately $200 for a far superior product, enabling Heat to generate pharmaceutical grade margins, according to Wolf.

    Another major coming on board to battle in the cancer immunotherapy space for NSCLC dollars is Eli Lilly & Co. (NYSE:LLY), but the FDA is wary. Recently, the agency met with Lilly to raise concerns about deadly blood clots. Early data showed an extension of life slightly below Merck's or Bristol-Meyers - a median survival of just under one year. The drug, if approved, is expected to make around $600 million per year but with almost 10% of patients developing what could turn into a heart attack, I'm sure the FDA will be extra cautious.

    Regardless, all sales projections discussed above make for a lucrative story for Heat.

    Heat's NSCLC trials show excellent safety profiles with good efficacy. HS-110 activated a strong immune response in 70% of patients, including even those far along in their disease, leading to a substantial increase in survival - up to 300% over chemotherapy. The Phase II trial should finish enrolling patients in Q3 2015 and data is expected to be reported later in 2016.

    Despite adverse effects from Big (and smaller) Pharma cancer immunotherapy drugs, the industry is projected to generate $35 billion in sales over the next ten years and used to treat 60% of cancers, according to analysts, who believe immunotherapy will cause a tectonic shift in how oncologists view cancer therapy. Experts believe cancer immunotherapy will make current anti-cancer methods primitive (some say barbaric) as we do away with flooding the body with toxic chemotherapy and removing vital organs through surgery.

    Primitive is the word Dr. Mark Schoenberg, key opinion leader to Heat also serving on its clinical advisory board uses to describe current methods of treating bladder cancer (which affects over 500,000 Americans and is one of the most expensive cancers to treat). Standard of care is to the attack disease through surgery, not an optimal choice for the patient because bladder tissue does not grow back. I learned from him there are no new drugs for bladder cancer, with most doctors using BCG - a brutal tuberculosis vaccine originating more than 40 years ago. Male patients, as most are, need a catheter inserted directly into the penis with unpleasant effects like pus formation and skin peeling.

    Foremost immunologists in the world, Dr. Eckhard Podack, is ImPACT's inventor and serves as chairman of Heat's scientific advisory board. His work is in virtually every immunology textbook; he has a track record of developing drugs that have gained FDA approval. For example, Seattle Genetics, Inc.'s (NASDAQ:SGEN) main drug Adcetris for lymphoma, has driven Seattle's $6 billion market cap. This came out of Dr. Podack's lab.

    There are several news-related milestones for Heat coming up in the second half of 2015 I look forward to Phase II data in NSCLC, because many eyes on Wall Street are focused on this indication.

    (click to enlarge)

    Heat is a promising therapy, and in line with industry trends, where larger drug companies invest a lot of money in cancer immunotherapy. Celgene Corp. (NASDAQ:CELG) just spent $1 billion in a licensing deal with Juno that extends for 10 years, with a possible 30% ownership of Juno's stock, what analysts are calling the largest biotechnology deal ever. After the announcement, Juno's shares popped 66%, underscoring the love investors have for immunotherapy.

    Immunotherapy can be the answer to bring cancer treatment into the modern age - from a deadly disease into one open for long-term survival, like what pharma companies did for diabetes. Allied Market Research projects the global cancer drug market to reach $111.9 billion by 2020, with immunotherapy and biological drugs the main driver of growth. This is what's driving cancer immunotherapy drug companies' high values.

    As of March 31, Heat had approximately $21.1 million in cash, cash equivalents, and short-term investments, providing a runway to take it through the first quarter of 2016. With a market cap of $53 million, recent trading at a per share price of between $6 to $7, Heat has an unjustifiably low valuation and I believe it is poised to at least double in the short term. I'm not alone in this prognosis, as the two firms covering the stock have price targets of $13 and $22 per share.

    Heat is a home-run from an efficacy/safety and economic point of view. The stock offers a phenomenal find for those looking for a lot of upside in cancer immunotherapy, which is now characterized by companies with billion dollar market caps.

    RAY DIRKS suggests that Readers/Investors place no more than 1% of the funds they devote to common stocks in any one issue. It's best to diversify.

    Jul 15 4:00 PM | Link | Comment!
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