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Valuation Case For Oncosec's Immunopulse

|Includes: OncoSec Medical Incorporated (ONCS)

Oncosec's closest reference (competitor) is Tvec (a.k.a . "Talimogene laherparepvec")

Tvec is an injectable oncolytic virus. It was bought at a valuation of $1B by Amgen in 2011.

(NYSE:A) Why should Oncosec be valued against Tvec?

  1. Their solutions are very similar in mechanism of action.

    1. Both employ genetic engineering. Both result in continuous emission of "come kill me signals" to the immune system.

    2. For Immunopulse this is done by incorporating DNA fragments into tumor cells. The DNA fragments cause tumor cells to emit a continuous stream of IL-12 (a cytokine).

    3. For Tvec, this is done by injecting a genetically modified live virus. The virus infects and kills some cancer cells. The virus is modified to emit a continuous stream of GmCSF (another cytokine).

  2. Oncosec's Phase 2 data is virtually neck-and-neck with Tvec's Phase 3 data

    1. Here is a comparison table of efficacy

    2. Immunopulse has

      • 14% CR (all tumors disappear)

      • 31% ORR (at least some tumors respond)

    3. Tvec monotherapy had 11% CR and 26% ORR (see wikipedia for more on Tvec)

    4. Note:

      • Even though Immunopulse seems slightly better than Tvec, Tvec results were Phase 3 with larger sample size (n=295).

      • That said, Immunopulse Phase 2 had 29 patients. ORR and CR were generally consistent with their earlier Phase 1. Despite the smaller numbers, this is an important clue that their results are reproducible.

    5. It is no surprise Immunopulse phase 2 results are about the same as Tvec.

      • Their mechanisms of action are so similar -- both are novel methods of creating a constant stream of "come get me" signals at the site of the injected tumor.

  3. Both have an extremely low toxicity, with Oncosec's slightly superior

    1. Oncosec's main toxicity - if you can even call it that - is temporary pain and inflammation at the injection site. This typically lasts 1 minute.

    2. Tvec uses live, genetically modified virus. Causes fatigue, chills and fevers. Even so, these are temporary and nowhere near the toxicity from chemo and targeted agents. Given a choice, some patients may prefer not to go through fever/chills. They may prefer to grit their teeth, endure 1 minute of pain (Grade 1-2 level pain).

  4. Both result in systemic anti-tumor effect

    1. In both Tvec & Immunopulse, patients experienced shrinkage of tumors that were NOT injected. The virtually identical data affirms this. Both can cause complete regression of systemic disease. In theory, this can only happen via creation of Tcells that "recognize" the tumor as enemy.

    2. Throughout history, systemic anti-tumor effect has been observed when tumors are damaged. Doctors have observed this during surgery or even biopsy (but rare). It has also been seen after radiation, thermal ablation, cryo-therapy. The likely explanation for this is the local damage led to creation of some Tcells that recognize the tumor. In all of these cases, the systemic anti-tumor effect was minor and transient. It certainly did not result in dramatic or prolonged shrinkage of all tumors. Otherwise, we would have seen dramatic increase in survival rates.

    3. Recently, researchers at Stanford University and Memorial Sloan Kettering documented how radiation "rescued" Yervoy. In other words, Yervoy was not working by itself. But when suddenly combined with a local "intra-tumoral" therapy (radiation), all of the patient's tumors dramatically shrank. This is not surprising. Yervoy and other checkpoint blockers simply "take the brakes off" the immune system. However, the "car is not going to move" if you don't have an accelerator pedal. Having Tcells that recognize the tumor is that accelerator pedal. In this case, local Radiation therapy to a single tumor likely caused creation of those Tcells (accelerator pedal).

    4. The key advantage of Tvec and Immunopulse - they cause a constant 24x7 stream of "come kill me" signals to the immune system. It is as if one performed repeated radiation to a single tumor every minute, over and over. The embedding of this homing signal by Tvec / Immunopulse is an extremely elegant approach, resulting in 24x7 creation of Tcells.

    5. Furthermore, both IL-12 (Immunopulse) and GmCSF (Tvec) help to modify the defenses around the tumor to allow incoming immune cells to penetrate. In response to the immune assault, tumors upregulate certain defenses (such as PD1 and CTLA4). Tumors do this by taking advantage of the body's natural tendency to prevent autoimmune diseases and allergies. Without PD1, CTLA4 and other pathways, we might all be dead from all sorts of allergies (think Peanut allergies, asthma).

    6. PD1 and CTLA4 blockers are able to "take the brakes off" by temporarily shutting down the human body's natural anti-allergy mechanism. This is done for a short window of time during PD1 infusion. During that window, antigen presenting cells are empowered to penetrate, kill, and go on to educate Tcells to recognize tumor. This process should take a few days/week (think of how long it takes for your body to generate Tcells to fend of a flu)

    7. Once Tcell education is achieved, you may not need PD1 any longer. You can allow the body's anti-allergy mechanisms to resume. How do we know this? There are patients who took Yervoy and PD1 years ago, during the early trials - yet are still alive with no tumors today. They only had a few infusions years ago, with zero therapy thereafter. Yet their tumors kept on shrinking, and stayed away with no other therapy.

    8. In summary, Immunopulse & Tvec greatly facilitate the training process for Tcells right inside the body. This is not just theory. Tvec's combination trial with Yervoy proved this (increasing ORRs from 26%->56% … discussed further below)

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(NYSE:B) Why is Tvec so important to Amgen?
  1. When Tvec results were released, they were considered a success, but "so so".

    • Mind you, these "so so" results were actually better than Yervoy monotherapy. However, they weren't dramatically better.

    • Amgen quickly chose to switch course and pushed the combination approach with checkpoint blockers.

    • Why? Amgen knew (at least in theory) that combination with checkpoint blockers would dramatically increase efficacy.

  2. The first combination trial Amgen pursued was combination Tvec + Yervoy (Ipilimumab)

    • Adding Yervoy to Tvec caused:

      • ORR to improve from 26% -> 56%

      • CR to improve from 11% -> 33%

  3. Amgen got really excited at the combination results.

  4. Amgen recently teamed up with Merck to test Tvec + PD1

    • Amgen began with Yervoy because it was already approved. At the time, PD1 drugs were still in trials.

    • Now that PD1 is approved, Amgen has switched to Tvec + PD1.

      • There is no doubt that they chose not to pursue phase 3 Yervoy combination because PD1 is superior to Yervoy.

      • Yervoy monotherapy yields < 10% ORR. Side effects can be pretty bad.

      • In contrast, PD1 monotherapy yields between 20-40% ORRs, with much less side effects.

    • If Yervoy can increase ORR from 26->56%, it's not unreasonable PD1 might increase ORR from 26->66%, 76%, or even 86%.

    • CRs could increase from 11->50% range

    • Yes, this is simplistic thinking. However, there is logical and scientific basis for this possibility.

    • 80% ORR and 50% CR would be nothing short of REVOLUTIONARY. We're talking about patients who previous have NO OTHER OPTIONS -- ie. facing death. Importantly, these response are often durable (long lasting). Secondly, this mechanism is NOT specific to Melanoma. The evidence and theory supports that it can be applied to ANY cancer. PD1's reproducible response in NSCLC "completely debunked the idea that some cancers are not responsive to immunotherapy".

  5. You can see why Amgen is pouring so much into the Tvec combination trials.

    • Huge increase in efficacy could lead to billions in additional revenue. Doctors and patients will demand the combination therapy. Even though Tvec was initially thought to be useful only for "skin accessible tumors", with convincing enough ORRs, doctors and patients will potentially be willing to undergo CT-guided deep injection or even mid-surgery injection.

    • More checkpoint blocker antibodies are coming online (OX40, TIM3 etc). There is evidence that using more than 1 checkpoint blocker can increase responses. This may increase the combination approach even more.

    • Such efficacy numbers would approach the dramatic results seen in CAR-T therapies. CAR-T therapies are the hottest thing in for B-cell blood cancers (leukemias, lymphomas). Witness the huge valuations assigned to Kite Pharma (>$2B) and the upcoming Juno IPO (the chatter is Juno will be $3B).

    • Side note: please exercise caution with the CAR-T ipos. In just this last year, 8 companies have raced into the CAR-T space. The general approach is public domain. That is why 8 companies were able to enter the space so rapidly. Anyone who can engineer their own CAR-Ts can enter the space. More will enter. Currently, CAR-Ts only work for B-cell blood cancers (I estimate 80,000 cases in US total). Revenue will have to be divided. You could be witnessing an internet-stock-like bubble in the CAR-T space. Just please exercise caution.

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(NYSE:C) What should Oncosec be valued at?

Valuation is always in the eye of the beholder. That said, here are some objective facts:

  1. Tvec was purchase in 2011 by Amgen at a valuation of $1B

    • Note: Back in 2011, Amgen was willing to assign $1B valuation for efficacy that was better than Yervoy and approaching that of PD1 monotherapy

    • Immunopulse monotherapy efficacy is neck-to-neck with Tvec (actually slightly better). Toxicity is virtually zero. Based on this alone, Oncosec could be valued at $1B today.

    • Dr. Pierce surely realized this, which might explain why he quickly moved from Merck to Oncosec.

  2. However, Amgen has seen the light and is betting on dramatic efficacy improvement when combined with PD1.

  3. Given the similar mechanisms of action between Immunopulse and Tvec, there is reasonable scientific basis to extrapolate and expect Immunopulse+PD1 to yield similar efficacy to Tvec+PD1.

    • This is supported by the data showing Tvec and Immunopulse monotherapies have virtually identical results.

    • If Immunopulse+PD1 efficacy is proven, Oncosec could be worth multiples of $1B. A key point to remember: Immunopulse has virtually ZERO toxicity. In the world of oncology (and lawsuits), toxicity is of paramount importance. Imagine this scenario:- Patient comes into office. Oncologist whips out Immunopulse hand-cart, zaps tumor. Sends patient off to infusion lab to get PD1. Everything done outpatient because of super-low toxicity. This scenario could easily become standard of care, replicated in outpatient clinics worldwide.

    • Oncosec's current market cap as of Dec 14, 2014 is about $106m. You can do the math yourself. At today's price, Oncosec stock is like a call option, with potential 10x gain. Importantly, Tvec+Yervoy results significantly de-risk the upcoming Immunopulse+PD1 combination trial, greatly increasing probability of success.

    • Merck or any of the other checkpoint blocker companies could easily snap up Oncosec for $1B, instead of splitting profits forever with Amgen.

  4. What about competition between Tvec & Immunopulse?

    • Firstly, they could conceivably be combined. If you're going to inject one non-toxic substance, one could easily inject a second (also non toxic) substance. Granted, the rationale for combination is not immediately obvious to this author, and needs to be fleshed out further.

    • If a patient had to choose between the two - Tvec causes chills/fatigue/fevers. Immunopulse causes 1 minute of pain at the injection site. Which would you choose? Fevers or 1 minute of moderate pain? Ultimately, patient and oncologist adoption will determine which wins (assuming identical efficacy).

    • Again, Merck or any of the other PD1 players could easily snap up Oncosec to avoid sharing profits with Amgen. If Merck doesn't buy ONCS, any of the other PD1 companies will seriously consider it. Otherwise, they risk having the Amgen/Merck combination chosen above their own PD1 drugs due to far superior efficacy. They will be forced to achieve equivalent efficacy and the fastest way would be to team up with Oncosec because of equivalence, and importantly, ZERO TOXICITY.

    • Finally, Tvec employs live genetically modified virus. There may be risk this virus might circulate and cause unforseen problem in healthy tissue. Genetically modified viruses have always been viewed with caution for this potential. In contrast, Immunopulse injects DNA fragments. As these are not live cells, there is no risk of the DNA fragments "running around", invading healthy cells outside the electroporation zone.

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NOTE: This document represents the view of the author. Readers are responsible for their own due diligence. Everything in this article can be backed up by journalistic articles, scientific literature and data (except of course the guesstimate on Immunopulse+PD1 efficacy). Google is your friend. Use it to verify the claims made in here before you decide on an investment.

Additionaly note, this was article was not written by me, but has been posted here with permission from the original author. Though I share his/her opinion on the information shared, it is your responsibility to verify.

Disclosure: The author is long ONCS.