By The Swiss Trader
For 2012 the broader biotech indices, the NASDAQ Biotechnology Index (NBI) was up more than 30%, almost double the 15.9% rise in the S&P 500. The NBI has 117 companies, but pharmaceuticals are driving the industry; 94% of the index’s weight is in companies with marketed pharmaceuticals. Navigation of the regulatory path to getting the drugs approved for market can be long and challenging and usually unsuccessful. However, success is rewarding for patients, the companies and the wise or lucky investors. To illustrate the difficulty of the development path, according to the Biotechnology Industry Association (BIO), the success rates of new drugs from Phase I to FDA approval is a low 9% including both lead and secondary indications. Cancer drug approvals are near the bottom with 11% for lead indications and 2% for secondary indications. However, as failed drugs drop out, the percentages of success increases per Phase; for oncology it becomes 29% for Phase II and 34% for Phase III. Below are three companies of various sizes with cancer drugs or drug delivery systems in later stages of development that, if approved, should bring profits to both companies and investors.
Celgene Corporation (NASDAQ:CELG), the global biopharmaceutical giant based out of Summit, New Jersey, is engaged in developing and commercializing therapies designed to treat cancer and immune-inflammatory related diseases. Two of its promising cancer drugs are in late stage trials. Abraxane, a drug that combines the chemotherapy drug paclitaxel with a protein, albumin, has already been approved to fight breast and lung cancer, but is in late stage clinical trials for a secondary indication for pancreatic cancer and has shown it improves survival rates. Separately, in another secondary late stage clinical trial, patients with melanoma lived longer when treated with Abraxane (without getting worse) than those who received just the chemotherapy drug. Matthew Roden, an analyst at USB Securities LLC, in a research report states global sales of Abraxane could reach $500 million for just pancreatic cancer and could rise to $1 billion if the drug shows dramatic survival rates for those suffers — though he did caution that if the data is not “sufficiently robust to drive high utilization” sales would be in the $200 million range. If the drug is approved for all the secondary indications, Celgene expects sales of $1 billion to $1.25 billion by 2015. Abraxane, which Celgene acquired in 2010 when it bought Abraxis BioScience, has shown to deliver a greater amount of chemotherapy to cancer cells with fewer side effects. Earlier on some analysts saw the $2.9 billion that Celgene paid for Abraxis to be far too high; but given the positive results that the drug has shown, the price for the company appears to be in line, if not perhaps a bargain.
Another possible blockbuster drug Celgene has in last stage trials is pomalidomide, an immunomodulatory drug that is in two Phase III trials for multiple myeloma and myelofibrosis. Results announced late last year have shown the drug can significantly improve survival in patients with multiple myeloma who have failed other treatments. Patients were given a combination of pomalidomide and a low dose of the chemotherapeutic agent, dexamethasone, and compared the results with patients who just received high doses of dexamethasone alone. The results showed patients who took pomalidomide and low-dose dexamethasone survived significantly longer than those who took just the high-dose dexamethasone. The U.S. Food and Drug Administration (FDA) is expected to make its decision on pamalidomide’s approval by February 10th, and European regulators are expected to have their decision later in the second half of the year. Brian Abrahams, an analyst with Wells Fargo Securities, wrote in a research note late last year, “…we believe pom (pomalidomide) has a high likelihood of approval and will have an important role in refractory multiple myeloma.” Geoff Meacham, an analyst at J.P. Morgan, estimates pomalidomide could generate sales of around $450 million by 2015; other analysts see the drug’s potential to generate sales of $1 billion by 2015.
Celgene, with a market cap of $39.06 billion, is the world’s fourth- largest biotechnology company. Its stock rose 21% year over year, and closed on Friday, January 11th at $96.30 per share, trading at its 52-week high. Its P/E of 22.7 is slightly above the sector average of 20.79. On Jan 4th RBC Capital raised its target price from $85.00 to $90.00, while analysts at Robert W. Baird reaffirmed their outperform rating and set a price target of $92.00. Earlier last month analysts at Goldman Sachs initiated coverage and gave a neutral rating on the stock, while at the same time analysts at Dawson James Securities reiterated a market outperform and have a target price of $102.00. I like Celgene. Along with its already established products it has an excellent pipeline of drugs in late stage development. It also has strong growth, a low price to book value, and would be a solid company to hold long term in one’s portfolio.
Synta Pharmaceuticals Corp. (NASDAQ:SNTA), a biopharmaceutical company that focus on developing small molecule drugs for cancer and chronic inflammatory diseases, has had an excellent run with its stock doubling in value during 2012. The reason for the run up was primarily due to Ganetespib, an Hsp90 inhibitor that is in late Phase 2b/3 of its Galaxy trials for non-small cell lung cancer. Late last year Synta, based out of Lexington, Massachusetts, announced results of the Phase 2 portion of the study which showed good tolerability for the combination of ganetespib and docetaxel, along with meaningful improvements in overall survival in adenocarcinoma patients that received ganetespib and docetaxel compared to those in the control group that received just docetaxel. In a separate ongoing trial, Synta announced promising results with ganetespib showing it leads to the inhibition of expression of HIF-1a, which plays a major role in driving multiple processes of tumor aggressiveness, including metastasis, angiogenesis, immunosuppression, stem cell immortalization, and resistance to chemotherapy, radiotherapy, and immunotherapy. According to Bassel El-Rayes, MD, Associate Professor, Hematology and Medical Oncology, Winship Cancer Institute of Emory University, “Ganetespib has shown promising ability to change tumor biology. In an ongoing trial evaluating ganetespib in patients with rectal cancer, we have biopsied tumors from patients before and after treatment. We observed significant inhibition of HIF-1a, STAT-3, and VEGF, key drivers of tumor metastasis and angiogenesis, in patients who were treated with ganetespib. These results are consistent with preclinical experiments in which we demonstrated ganetespib significantly inhibits VEGF synthesis in cancer cells and disrupts tumor vasculature. Collectively, the results suggest ganetespib provides a novel approach to inhibiting angiogenesis compared to currently used agents: suppressing VEGF production rather than targeting VEGF signaling.”
Synta, a $647 million market cap company, common shares closed on Friday, January 11th at $10.46, pennies under its 52-week high of $10.55. Last November Synta reported a loss of $0.25 per share for the quarter, $0.01 below the analysts’ consensus estimate of a loss of $0.24 per share. In December Brean Murray began coverage on Synta and set a target price of $12.00 per share, though analysts at Jefferies Group two months earlier issued a buy rating and upped its target price from $15.00 to $22.00. Synta has another promising drug, Elesclomol, a mitochondrial metabolism inhibitor that exerts potent anti-cancer activity through targeting the electron transport chain in mitochondria. Elesclomol is in early Phase I trials for acute myeloid leukemia, and Phase II trials in combination with paclitaxel for ovarian cancer. I can see that if either of the two drugs gains approval the analysts’ target prices may actually be on the conservative side. I like Synta, but until it gets approval for one of its drugs, it still is a biopharmaceutical development stage company; and though at current price it might still be a good entry point, caution is advised.
OncoSec Medical Inc. (PINK:ONCS), a development stage biopharmaceutical company, is utilizing electrical pulses to deliver targeted cancer fighting drugs to cancer tumors. Armed with its electroporation therapy, the OncoSec Medical System (OMS), this San Diego, California based company has developed a proprietary gene and drug delivery system that allows for a more targeted and effective treatment using a significantly lower drug dose. The OMS system delivers, through a hand held applicator, short bursts of electrical pulses to the targeted tumor which in turn causes pores of the cells’ membranes to open. The previously-injected drug is then allowed to penetrate the targeted cancer cells. Once the electrical pulses are turned off, the pores close back up trapping the cancer drugs within the cells. OncoSec has two therapies using its OMS system. NeoPulse is used in conjunction with bleomycin, a chemotherapy drug that is traditionally delivered intravenously which requires high toxic levels to be effective. This generally would lead to a lot of unpleasant side effects. However, using electroporation that directly targets the cancer tumors, NeoPulse was able to have effective results with 1/20th of a traditional bleomycin dose; it enhanced the medicine’s effectiveness in killing tumor cells by a factor of up to 4,000 without destroying surrounding healthy tissues. NeoPulse is in Phase IV trials targeting early stage skin cancer tumors, with a goal to assess the ability to control growth or recurrence of the cancer six months following treatment with respect to primary tumors and locally recurrent tumors. The data so far has shown a complete response of greater than 90% in basal cell carcinoma patients and 70% in squamous cell carcinoma patients at six months.
ImmunoPulse is OncoSec’s other electroporation therapy and it utilizes a DNA-based immunotherapy to treat solid tumor cancers that have metastasized or spread. The standard treatment for late-stage skin cancers is still chemotherapy and surgery. However, evidence has shown that gene therapy has the potential to treat cancer cells in the target area and also trigger immune responses affecting remote cancer cells outside the direct treatment area, including distant lesions. ImmunoPulse uses a noninvasive approach and the company sees this approach could improve the quality of life for skin cancer sufferers. OncoSec is conducting three simultaneous Phase II clinical trials to treat metastatic melanoma, Merkel cell carcinoma, and cutaneous T-Cell lymphoma.
OncoSec has a market cap of $19.80 million, and closed Friday, Jan. 11th at $0.224 per share. The stock has lost some momentum since it announced it entered into definitive agreements with institutional investors to purchase approximately $7.2 million of securities in a registered public offering. The company said it was using the proceeds for general corporate purposes, including clinical trial and research and development expenses. More should be known about the progress of the company’s therapies after January 8th when Punit Dhillon, President and CEO, will provide a corporate update and outline of anticipated 2013 milestones at Biotech Showcase 2013. What I like about OncoSec is that it is not developing a new drug, but is developing what appears to be a better delivery system for existing therapies. If there are positive updates from Mr. Dhillon at the Biotech Showcase I can see the stock gaining back its momentum rather quickly.
Each of these promising companies has products in mid or later stage clinicals, which increases the percentages of approval. However, until these drugs are approved, the risks are still high. Celgene is the least risky of the companies. It could easily weather a failed product, but it also does not have the upside growth potential that either Synta or OncoSec stock would have if either of their drugs receive approval. Synta has had a good run with the anticipation of future approval of its drugs; OncoSec has not had that type of run as of yet. Though all three companies hold promise, in regard to the “best bang for the buck” I would look at OncoSec. But caution is advised anytime one invests in small biopharmaceutical development companies: They offer huge upside potential and the corresponding downside risks. Interested investors are advised to perform additional due diligence to determine which, if any, of these companies fit their investment goals.
Disclosure: Long CELG, SNTA, ONCS