Market Playground

By Amy Baldwin

OncoSec Medical Inc. (PINK:ONCS) is a small $20 million biotechnology company with phenomenal promise. The company is in late-stage trials developing two different platforms (ImmunoPulse and NeoPulse) that can be used with any immunotherapy or chemotherapy agent to increase uptake and decrease side effects with the use of electrical currents to create temporary pores in the targeted cells’ membranes. The company had one of the best years in biotechnology during 2012 and is setting itself up to be this year’s Celsion Corporation (NASDAQ:CLSN) with a number of significant catalysts.

2012 In Review

OncoSec Medical Incorporated initiated three Phase 2 studies in 2012, one each for metastatic melanoma, Merkel cell carcinoma (MCC), and cutaneous T-cell lymphoma. OncoSec already announced interim data on its MCC and metastatic melanoma trials, which showed positive safety and efficacy results. This data was consistent with the company’s Phase I trial, which showed that its ImmunoPulse platform causes regression in both treated legions and untreated distant lesions. In the MCC trial, data shows that the platform increased the levels of IL-12 (the agent being used) in the tumor microenvironment and could result in an immune response without any negative side effects. The metastatic melanom trial had similar interim data results with data indicating “Ninety-five percent of treated lesions demonstrated response at Day 39 (5 percent progressive disease, 14 percent stable disease (SD), 42 percent partial response (PR), 39 percent complete response (CR)). All treated lesions at Day 90 (5 percent SD, 50 percent PR, 45 percent CR), and at Day 180 (33 percent PR, 67 percent CR) demonstrated a response.”  Only two patients had reached the 180 day mark after treatment at that time with one of those having SD and the other having confirmed CR of all treated and untreated tumors.

While OncoSec hopes to prove its platform effective and then use it with various forms of therapies for the treatment of melanoma, MCC is highly rare without any approved therapies on the market. Both platforms could produce significant revenue for the company with these two indications alone. However, aside from solid data to complement strong Q1 results, the company also received a number of patents (most recently in Australia and China) and a CE mark on its platform in Europe, which allows for marketing in Europe.

Setting up for a Breakout Year

If OncoSec can continue on its current path with good data in 2013 then it will most likely be transformed into a much larger company. The upside for OncoSec is very reminiscent of Celsion back in January 2012. Celsion is another medical device company that traded with losses of 16% in 2011 despite strong data. However, in 2012 the stock rallied 350% as its potential was realized, data was announced, and the stock appreciated to reflect the company’s currently perceived worth.

Celsion is a company that is poised to generate up to $1 billion in annual revenue if its ThermoDox liver cancer treatment is successful, which we should know in the coming weeks. This upside led to Celsion’s impressively large gains, as it traded with a market cap of just $60 million in December 2011 (as of markets close on Friday, its market capitalization is $245 million.) OncoSec, with its ImmunoPulse and NeoPulse platforms, has revenue potential of possibly greater than ThermoDox’s if proven successful. The platform is already being tested on three different conditions, and when you consider that it can be used with virtually any immunotherapy or chemotherapy agent to improve efficiency, increase uptake, and decrease side-effects, it may very well become a platform that biotech firms and pharmas utilize to gain a competitive edge in the market, especially for metastatic melanoma.

At this very moment, with OncoSec’s market cap at just $20 million, there is no other company in the market with the same level of clinical benefit for its product candidate that shares the same level of value. We’re talking about a company with promising data for metastatic melanoma and MCC, a CE mark for NeoPulse, and more than $1 billion in potential revenue. The numbers simply don’t add up!  A $20 million market capitalization with a share price still trading well under its 52-week highs truly does not represent the company’s revenue potential at this stage of development, the typical measure of a development-phase biotech’s market value.

This is not a company that is early in the clinical process. OncoSec will complete enrollment for its metastatic melanoma trial by the end of the first quarter. Then, by the end of the second quarter, we will have interim results. Finally, we will see data for the primary six-month endpoint by the end of the year. But if that wasn’t enough, the MCC trial will finish its enrollment by the end of the third quarter, and final IL-12 expression data will be announced in the fourth quarter. 2013 is shaping up to be quite an eventful year for OncoSec, one that could change the valuation of the company due to a consistent news feed throughout 2013 that should allow for sustained gains.

Very Limited Downside

Looking at OncoSec as a potential investment opportunity, there is virtually no downside, but a tremendous amount of upside. The company has raised money through financing and has very low operating costs, losing just $1.22 million last quarter in operating activities. If you look back on its stock over the last year, its jump from $0.21 to $0.41 occurred because of data, and all other jumps throughout the year also came as a result of data. All data thus far has been positive. In my opinion, after fully assessing the downside, upside, and the most likely scenario, OncoSec could very well be a $150 million company by the end of 2013.

Final Take

OncoSec has years of data that has not been properly priced into its stock, in part because it’s an OTC company, but also because it’s a company that is developing a medical device. Celsion went through the same thing in 2011. The market simply does not initially value companies developing medical devices as much as those developing therapeutics, such as Dendreon Corporation (NASDAQ:DNDN) or Amarin Corporation plc (NASDAQ:AMRN). With 2013 being a year of substantial likely catalysts, as outlined in the company’s recently announced 2013 Milestone and Corporate Update press release, OncoSec should rally to a large degree and see significant price appreciation in the near future.

If in fact data remains strong then OncoSec could reach revenues of $1 billion or more. As a result, it could trade with a valuation north of $2 billion within the next four to six years. I think it’s a good speculative investment with limited downside—one that should have a great year in 2013 as a result of a continuous stream of catalysts keeping investor interest intact.

Disclosure: Long ONCS