My investment strategy is simple. Find small-cap undervalued biotech companies with promising drugs and significant short and long term upside. My last article published a couple weeks ago detailed Tokai Pharmaceuticals and why its prostate cancer drug Galeterone is highly de-risked going into Phase 3. The stock quickly increased 25% in just a few days. My latest research brings me to a hidden gem in the hot field of immuno-oncology. Biotechnology investors are well aware of the emerging cancer cellular immunotherapy treatments in which the body’s own immune system is used to target and kill cancer cells. This is no doubt the future of cancer treatment. Due to exciting early clinical results and the potential for huge revenues, many start-up companies in this space like Juno Therapeutics and Kite Pharma sport hefty billion dollar market caps.

Likewise, it seems every month there’s an announcement by a big pharma that they’ve partnered with or acquired an Immunotherapy. Companies are racing to stay ahead of the competition. There are a lot of options available for investors to choose from in this space and picking the right one will likely make you a ton of money in the future. The newly uplisted small cap OncoSec Medical Inc (NASDAQ:ONCS) has a very promising core technology with outstanding Phase 2 clinical results in melanoma. The company is poised to significantly enhance the proportion of people who respond to checkpoint inhibitors like the newly FDA approved immunotherapy PD-1 inhibitors. With several Phase 2 clinical trials in progress in various cancer types, stellar clinical results, strong collaborations, a healthy balance sheet and a unique technology platform for immuno-oncology, I believe the current ~$100M market cap of OncoSec leaves a lot of room for significant upside.

ImmunoPulse IL-12 delivers Impressive Results

The ImmunoPulse technology platform is the core of OncoSec’s business strategy. Immunopulse utilizes electroporation to deliver molecules directly into tumor cells. The short electrical pulses cause temporary permeability of the cell plasma membrane allowing DNA to enter the tumor. This strategy has important benefits compared to using viral vectors to integrate the DNA of interest, which most other companies employ. First, there is no possibility for an immune reaction to a viral vector which can complicate and minimize subsequent dosing efficacy. Second, the procedure can be done in an outpatient setting with very little hands on time. Third, the technology allows for an almost limitless number of molecules which can be transferred and importantly its impeccable safety profile allows clinicians to combine with other therapeutic approaches.

*Slide from 2015 Corporate Presentation

Currently OncoSec is focusing its attention on using ImmunoPulse to deliver Interleukin 12 (IL-12), a pro-inflammatory cytokine, to tumor cells in order to elicit an immune response. IL-12 is a multifunctional cytokine with properties that bridge the innate and adaptive immunity. Cells that express IL-12 drive a response from CD8+ Killer T cells, which as their name suggests targets and kills the tumor cells. Interestingly, IL-12 also has anti-angiogenic properties which disrupts the tumors ability to maintain a proper blood supply. Clinical trials in the past studying IL-12 showed minimal efficacy as the systemic exposure to IL-12 was extremely toxic. The novel ImmunoPulse technology enables IL-12 to be delivered directly into the tumor site with virtually no side-effects to the patient. The Phase 1 and Phase 2 clinical trial results to date using ImmunoPulse IL-12 by itself in advanced metastatic melanoma have been extremely impressive and illustrate the potent immune response the OncoSec platform can achieve.

In the Phase 1 dose escalation study 24 metastatic melanoma patients received ImmunoPulse IL-12 as a monotherapy. The injected melanoma lesions had a complete remission rate of 13% and an objective response (OR) rate of 76%. Interestingly, a 58% response was achieved at other untreated lesions detailing the ability of the immune cells to travel to distant sites. There were no dose limiting toxicities observed or severe side-effects. What really caught my eye from this study was the overall survival data released 6 months ago. The median OS for the study was 23.9 months. However a very statistically significant difference in OS was observed between patients who experienced stable disease or better (median OS = 49.1 months; n=10) versus patients who did not respond on study (median OS = 10.9 months; n=14). Those that did not respond had continued progressive disease. The difference illustrated in survival rates between responders and non-responders details the efficacy of IL-12 treatment. The data is very encouraging as most biotech investors realize that high response rates don’t always translate to an impact on survival. These response rates and OS data compare favorably to other immuno-oncology compounds FDA approved for melanoma like Merck’s PD-1 inhibitor Keytruda and Bristol-Myers Squibb’s CTLA-4 anti-body Yervoy and PD-1 inhibitor Opdivo.

The top-line data from the Phase 2 monotherapy in metastatic melanoma has been just as impressive with a 31% overall response and 14% CR rate. In addition, 48% of patients experienced disease control after treatment and 50% of patients had at least one distant non-treated lesion regress.

The trial is now in the extension phase enrolling an additional 21patients who will be tested with a more intensive dosing regimen to see if responses can be further elicited. Importantly, consistent with the Phase 1 data, the safety profile of the treatment is stellar with no grade 4 or 5 adverse events and the only significant side-effect being minimal pain at the injection site.

In fact, on a 10 point scale, patients rated the pain as a 2 immediately after treatment and experienced no pain after 5 minutes. The benign safety profile makes ImmunoPulse IL-12 ideal for combination therapy. This is exactly where I believe the best bet for the technology lies despite the excellent monotherapy efficacy in melanoma patients demonstrated in Phase 1 and Phase 2 trials.

ImmunoPulse IL-12 Combined with PD-1 inhibitor is the Golden Ticket

At ASCO this year the main topic and enthusiasm centered around PD-1 inhibitors and their potential in a variety of different tumor types. The PD-1 receptor, expressed on a multitude of immune cells, is inhibited when binding to the PD-L1 ligand expressed on tumor cells. This mechanism allows tumor cells to evade the immune system. Therefore, by treating patients with a drug that inhibits PD-1 an immune response to the tumor can be achieved. To date, PD-1 inhibitors have demonstrated promising results and durable responses in a wide variety of tumors including Triple Negative Breast Cancer (TNBC), lung carcinoma, head and neck, and melanoma. However, only a small subset of patients actually have a clinical response to PD-1 inhibitors. For most patients, only blocking the PD-1 receptor is not enough to generate an immune response.

*Slide from 2015 Corporate Presentation

The future of PD-1 treatment is combination therapy, where several treatments and drugs are used to spark the immune system and disable the tumors ability to hide. This is the rationale behind the recently launched Phase 2b trial combining ImmunoPulse IL-12 treatment with Merck’s FDA approved PD-1 inhibitor Keytruda.

Drug companies are excited about the potential to combine PD-1 inhibitors with other treatments to increase response rates as it keeps more patients on drug longer. The metastatic melanoma Phase 2b multisite clinical trial will be led by renowned oncologist Dr. Algazi at University of California San Francisco and funded by OncoSec and Merck. The trial will focus on enrolling the ~70% of melanoma patients who do not respond to Keytruda currently to determine if treatment with IL-12 will boost the immune response. The rationale behind the trial is strong. It is known that patients who do not respond to PD-1 inhibitors lack the correct tumor infiltrating lymphocytes that IL-12 expression recruits to the tumor. To make the argument even stronger, it was recently shown that patients who respond to PD-1 inhibitors have a similar tumor gene expression profile that IL-12 is able to induce. The fact that ImmunoPulse IL-12 has tumor immunogenicity as a monotherapy and is able to increase the immune cells needed for PD-1 inhibitors to work coupled with its outstanding safety profile makes this combination therapy a no brainer. I believe not only will we see patients who don’t respond to Keytruda illicit a clinical response but I believe the duration of responses will be longer with increased systemic responses beyond the injection sites. Dr. Algazi from UCSF summed up the trial importance by stating:

Merck’s PD-1 antibody, Keytruda, takes the brakes off of the anti-melanoma immune responses. ImmunoPulse with IL-12 has the potential to bring immune cells and signals into the tumor so that, when Keytruda takes the brakes off the immune response, the results could be devastating for the tumor and great for our patients, allowing us to potentially use this combination approach to address a much larger population of patients with aggressive cancer then with Keytruda alone.

Potential Market For ImmunoPulse IL-12 is Huge

The PD-1 inhibitor market is exploding and projected to reach $22-$33 billion by 2022. Keytruda alone is expected to hit nearly a billion in sales this year and over $3 billion by 2017.With treatment moving further upstream, more cancer types being approved for PD-1 inhibitors and the slew of new PD-1 inhibitors in development the market will continue to grow. Amazingly, these sales numbers reflect only the 20-30% of patients who see a durable response. Imagine the numbers if treating with ImmunoPulse IL-12 coupled with PD-1 inhibitors is effective in the other 70-80% of patients who currently do not respond to treatment. The numbers can get big very quickly. Just for the melanoma indication, ImmunoPulse can be a blockbuster technology. However, OncoSec does not have all its eggs in one basket. They have initiated other Phase 2 clinical trials with ImmunoPulse IL-12 in head and neck cancer, which just enrolled the first patient last week, TNBC and Merkel Cell Cancer which will report out soon. They also have numerous preclinical projects and collaborations with several academic institutions and companies to explore new ImmunoPulse molecules and treatments.

Current Market Cap of OncoSec is Significantly Undervalued

The ~$100M market cap is extremely low but understandable considering most investors have never heard of the stock as it was just uplisted to the Nasdaq last month. However, don’t expect these bargain prices to last much longer as investors begin to understand the technology and the clinical trial results trickle out. The technology also makes a good acquisition play for large pharma which have PD-1 inhibitors on the market. The obvious choice is Merck. If ImmunoPulse IL-12 is effective and can open up ~70-80% of the market who currently don’t respond to the drug wouldn’t that company want to acquire the technology and keep it coupled with their drug for a huge competitive advantage? Why would a doctor prescribe Bristol Myers PD-1 inhibitor Opdivo and achieve a 20-30% response rate when they can prescribe Keytruda coupled with ImmunoPulse IL-12 and achieve much higher. Obviously, if OncoSec technology works with Keytruda it can work with any PD-1 inhibitor so locking it up would make sense. Interestingly, Dr. Pierce the CSO of OncoSec was an executive director of the Merck PD-1 inhibitor global development team and co-authored the ground-breaking paper in the journal Nature describing the function of PD-1 blockage in immune system response. Seems like a pretty good executive manager to have leading the way.

Investment firms and analysts are beginning to take notice and realize the potential of OncoSec. A few days ago, hedge-fund Ridgeback Capital disclosed they gobbled up close to 9% of outstanding shares. Having been on the Nasdaq for barely a month there are only two analysts which cover the stock. Together they have an average price target of $21 which represents a near triple at current trading levels. Maxim Group has a buy on the stock with a $17 price target released last week and Mark Breidenbach of HC Wainright initiated coverage two days ago with a buy recommendation and $25 price target, which he said represents a comparable value to similarly staged biotech companies in the immune-oncology space. Breidenbach stated,

OncoSec represents an attractive player with significant upside for the long-term investor.” Look for more upgrades and price targets as more analysts become familiar with the company.

Financials and Risks

Having just uplisted to the Nasdaq and raised ~$13M, OncoSec has ~$32M in cash which is estimated to be enough to sustain operations into mid-2017. The main risk for OncoSec is their current focus specifically on IL-12. Although, monotherapy response and survival rates to date are impressive, if the IL-12 story doesn’t pan out then OncoSec will have lost valuable time and money. They have begun to address this by beginning numerous collaborations focused on various other targets. It is also known that OncoSec has used paid promotional pieces in the past when trading on the pink sheets, a common tactic to increase awareness and stock value. Investors should be cautious of paid promotion stock increases as they generally result in pump and dump. Rest assured, I have not been paid by anyone to write my analysis.


Every cancer doctor and investor realizes that immune-oncology will be the future of cancer treatment. Newly uplisted, small cap biotech OncoSec is making big advancements in the immune-oncology space with its unique ImmunoPulse intratumor delivery technology. OncoSec’s Phase 1 and Phase 2 clinical trials in metastatic melanoma illustrated significant clinical response rates and improved overall survival with ImmunoPulse IL-12 treatment alone. They have now opened up several other Phase 2 clinical trials focusing on IL-12 in TNBC and head and neck cancer. The ability of IL-12 intratumor delivery to initiate an immune response by recruiting tumor infiltrating cells to the tumor is exactly the mechanism needed to increase the lowly response rates of PD-1 inhibitors. With the Merck PD-1 inhibitor and OncoSec Phase 2b clinical trial scheduled to begin any day now there is significant upside on any increase in response rates. Trading with a market cap of only ~$100M, over $30M in cash, several Phase 2 clinical trials underway, impressive clinical data and the potential to revolutionize immuno-oncology treatment, I believe OncoSec is extremely undervalued and a prime acquisition target for a pharma company looking to optimize PD-1 inhibitor or other compounds efficacy. In line with recent analyst projections, I believe a $200-300M market cap is justified representing 200-300% upside from current levels. I’m loading up before the market realizes all the things you just read and drives the price up.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

*Slide from 2015 Corporate Presentation*Slide from 2015 Corporate Presentation

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