Those that follow my biotech recommendations know that I look for undervalued small cap stocks with significant upside. Some may be momentum plays, meaning that the stock is ripe to move upwards based on recent data or upcoming catalysts which are likely to be positive. Generally, these stocks have very little, if any, analyst coverage and are ignored and undervalued until positive developments emerge, enabling significant gains to be made quickly if one does the proper research.
For example, I wrote an article 2 months ago detailing why microcap Actinium Pharmaceuticals was a good buy ahead of the ASCO conference. The stock quickly gained more than 80% in 4 days on data that had already been disclosed and detailed in my article. A similar scenario is setting up for MEI Pharma when it releases its elderly AML survival data later this year. I detailed last week in an article why the data will be positive and is a good buy at current levels. The stock was up 20% in the 3 days following my article, while small cap biotechs were down 8% in the same period.
The newly uplisted OncoSec Medical Inc (NASDAQ:ONCS) is significantly undervalued and poised for a big run as upcoming catalysts are announced, and as big pharma and the FDA jump on board with intra-tumor injection technology.
OncoSec Medical is in the red hot immuno-oncology space and utilizes electroporation to introduce molecules into tumor cells to elicit an immune response. The thinly traded biotech has only been on the market for a few months, and currently trades with a market cap under $100M despite nothing but outstanding data from its ImmunoPulse IL-12 Phase 1 and Phase 2 clinical trials in late stage melanoma. In addition, the company has an Immuno-Pulse IL-12 single agent Phase 2 clinical trial enrolling in head and neck cancer, and a Phase 2 trial in Triple Negative Breast Cancer (TNBC) expected to begin this year. The Merkel Cell Carcinoma Phase 2 topline data to be presented next month at European Cancer Congress (ECC) will be positive and represents a significant milestone for the company. Importantly, a pivotal Phase 2b clinical trial sponsored by UCSF in collaboration with Merck testing OncoSec’s technology in combination with the PD-1 inhibitor Keytruda in advanced melanoma is currently recruiting. This is impressive for a company trading under $100M.
With ImmunoPulse IL-12 efficacy outperforming Amgen’s intra-tumor injection viral product T-Vec, which was recently recommended for FDA approval in advanced melanoma, and obvious advantages in safety, OncoSec has a big advantage in this market. In addition, the acceptance of OncoSec’s technology platform was confirmed yesterday when AstraZeneca signed a deal with Inovio Pharmaceuticals (INV) for over $700M to develop its electroporation immunotherapy targeting the oncogenes of HPV as well as incorporating the IL-12 release in HPV-caused cancers. This deal is significant because OncoSec and Inovio are developing therapeutics with the same electroporation technology, and due to outstanding results and safety, big pharma is now interested. This bodes very well for an OncoSec partnership on the heels of the upcoming catalysts discussed in this article. OncoSec offers one of the best risk/reward profiles in the immuno-oncology space at current valuation and in agreement with HC Wainright who just slapped a $25 price target on the stock, I think investors who get in now will see significant upside as upcoming catalysts are realized.
ImmunoPulse IL-12 Outperforms the Competition in Late Stage Melanoma
The main value driver for OncoSec is ImmunoPulse IL-12 in late stage melanoma. ImmunoPulse uses electroporation (electric shock) to deliver the pro-inflammatory cytokine IL-12 to tumor cells. IL-12 is extremely well characterized and known to attract tumor infiltrating lymphocytes (TILs) to cancer sites. Importantly, delivering IL-12 through the blood is extremely toxic so using a locally targeted method like ImmunoPulse is needed. Data released from the Phase 1 and Phase 2 clinical trials using ImmunoPulse alone to treat advanced melanoma has been outstanding, with response rates over 30% and complete remissions observed in ~14% of patients. Tumor remissions in distant lesion sites were also reported in responders. Data from the Phase 1 trial illustrated a dramatic impact on overall survival (OS) for those that did respond. The impact on 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 the IL-12 treatment. The Phase 2 trial is now in the extension phase, enrolling an additional 21 patients who will be tested with a more intensive dosing regimen to see if responses can be further elicited. Completion of enrollment for the extension study and topline data will attract the attention of the market. Phase 1 and Phase 2 data were very similar so I would expect the extension study to be in concordance or better due to the aggressive treatment strategy.
Recently, the FDA advisory committee recommended that Amgen’s T-Vec immunotherapy be approved for late stage Melanoma treatment. This is significant because, similar to ImmunoPulse, T-Vec is injected directly into the tumor site in order to achieve an immune response. However, T-Vec uses an oncolytic virus, which is a live herpes simplex virus, to replicate in tumor cells and produce granulocyte macrophage colony-stimulating factor (GM-CSF). Using a live virus instead of electroporation is a serious concern for treating clinicians and one they would likely prefer to avoid. A big concern is viral shedding and infection with HSV of healthcare providers since patients are treated with a live virus. In the Phase 3 clinical trial, there were several incidences of health care providers accidentally sticking themselves with needles and being exposed to live virus. These healthcare providers were put on the anti-viral, acyclovir, to prevent infection. Having to worry about this possibility is not something clinicians and nurses want to do. In addition, it was found that virus shedding does occur and is present in high concentrations in the dressings placed on patients. Again, exposure of family members or others in close contact with live virus is not ideal and something most would want to avoid if possible.
Not only does ImmunoPulse have a safety advantage over T-Vec but the data to date also shows that the efficacy of ImmunoPulse IL-12 is better with significantly less adverse events. Importantly, the big advantage of ImmunoPulse IL-12 is the ability to show systemic responses in uninjected tumor sites. In the Phase 2 ImmunoPulse topline data, 50% of patients had a systemic response at a non-treated lesion. This compares very favorably to only 15% of T-Vec treated patients. The safety profile of ImmunoPulse is flawless with only 3% of patients having any grade 3 or higher adverse event, compared to 36% for T-Vec Phase 3.
*ImmunoPulse IL-12 Phase 2 data compared to T-Vec Phase 3
It should also be noted that T-Vec did not have an effect on patients in late stage 4 metastatic disease or in patients that were treated previously with other drugs. The acceptance of the first intra-tumor injection technology by the FDA advisory committee sets the stage well for ImmunoPulse. OncoSec should move ImmunoPulse IL-12 to Phase 3 based on positive results and have no problem selling a product with better efficacy and safety to clinicians. Likewise, the acceptance of T-Vec is comforting to large pharma who want to move into intra-tumor injection immunotherapy but were unsure how the FDA would view them. The bar has not been set high with T-Vec.
Several Upcoming Catalysts will Boost Stock
*Slide from OncoSec Corporate Presentation July 2015
ImmunoPulse IL-12 combo Merck PD-1 Inhibitor Phase 2b Trial Enrollment
The benign safety profile of ImmunoPulse IL-12 makes it an ideal candidate for combination therapy. 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. Merck has taken notice, as the ability to increase the efficacy of its PD-1 inhibitor Keytruda would mean a huge competitive advantage and cement its head start in the immuno-oncology space. In accordance, Dr. Algazi from UCSF has initiated a multi-site Phase 2b clinical trial in 41 advanced melanoma patients, coupling ImmunoPulse IL-12 with Keytruda with a primary endpoint of efficacy based on RECIST (Response Evaluation Criteria in Solid Tumors). Dr. Algazi is very familiar with both ImmunoPulse and Keytruda as he is the current lead investigator in the ImmunoPulse IL-12 Phase 2 melanoma trial and was a clinical site for the Keytruda Phase 3 registration trial. Merck will be supplying the drug and OncoSec the ImmunoPulse IL-12 technology. The Phase 2b trial has begun recruiting and screening patients. The announcement of the first patient enrolled in the trial will be a big boost for the stock. The ability to turn non-responders into responders through the addition of IL-12 would significantly increase big pharma awareness.
ImmunoPulse IL-12 in Head and Neck Cancer and Triple Negative Breast Cancer Phase 2 Initiation
Having illustrated ImmunoPulse IL-12 efficacy as a monotherapy in advanced melanoma and moving it into a combination treatment trial with Keytruda, OncoSec is initiating Phase 2 clinical trials in other indications in which PD-1 inhibitors have shown efficacy like TNBC and head and neck cancer. It recently announced the enrollment of the first patient in the head and neck cancer trial and is poised to begin recruiting patients for the TNBC trial.
Merkel Cell Carcinoma Phase 2 Final Data Release in September
Merkel Cell Carcinoma (MCC) is perhaps OncoSec’s best bet to get a product to market quickly. MCC is an aggressive disease with no standard of care or FDA approved products and very poor prognosis. It is a rare cancer, affecting only 1,500 individuals in the US a year, which would allow OncoSec to be granted Orphan Drug Status and leave it with a product in which there’s currently no competition. In addition, due to the small incidence rate, a Phase 3 clinical trial would be rather inexpensive and likely granted an accelerated path to approval. Although a small population, treatment approval for MCC is expectedto be a ~$300M annual market opportunity. The Phase 2 clinical trial enrolled 15 patients and was conducted at the Fred Hutchinson Cancer Center/University of Washington. The preliminary results released for the first 3 patients late 2012 revealed one patient had achieved a complete response in local lesions and a 70% partial response in distant lesions. The patient had been heavily pre-treated with a wide variety of therapies. Any response in MCC is extremely rare so to see a complete response in lesions is very encouraging. On September 27 at ECC, Dr. Bhatia from the University of Washington will be presenting the final Phase 2 results. As I stated before, this is an example where we already know the presentation will be positive and should significantly boost the stock. The title of the presentation that was posted on the ECC website is:
Intratumoral delivery of Interleukin-12 DNA via in vivo electroporation leads to regression of injected and non-injected tumors in Merkel cell carcinoma: Final Results of a phase 2 study
If that presentation doesn’t sound positive, I don’t know what does. Investors should buy ahead of data.
AstraZeneca Signs Deal to Get Hands on Electroporation and IL-12
Yesterday, AstraZeneca signed a deal valued up to $727M for the rights to Inovio Pharmaceutical’s INO-3112 which utilizes electroporation to target the oncogenes of HPV and deliver IL-12 to HPV causing cancers like cervical and head and neck cancer. AstraZeneca will also pay all development associated costs and royalties on product sales. This is highly significant as OncoSec is a spinoff of Inovio and both are developing a pipeline around electroporation. Importantly, head and neck cancer is the only tumor type both companies are working on to treat with IL-12, and OncoSec is further along having already started enrollment of its Phase 2 trial. This deal is huge for OncoSec because it not only validates the electroporation technology but also, as I’ve written about before, highlights the increasing interest by big pharma to leverage various immuno-oncology platforms. Make no mistake, OncoSec will partner ImmunoPulse IL-12 but the longer it accumulates data and illustrates efficacy the more beneficial the deal will be.
Financials and Risks
As with any small cap biotech, the risks are big as the stock can fluctuate wildly depending on data outcomes. However, currently OncoSec does not sport a bloated valuation like many stocks in the immuno-oncology space. Having just uplisted to the Nasdaq, the financial position is strong with over $30M in cash on hand.
The FDA committee’s acceptance of Amgen’s intra-tumoral viral injection therapy for melanoma and AstraZeneca’s partnership signed with Inovio to gain rights to electroporation and IL-12 technology bodes well for OncoSec’s future. OncoSec provides an elegant solution to target solid tumors using ImmunoPulse and provides a way for companies to diversify their targeting strategies. ImmunoPulse IL-12 has already shown solid efficacy as a monotherapy in melanoma and will now be combined with Keytruda to enhance the PD-1 inhibitor response. Upcoming catalysts, especially the positive MCC data to be released next month, should drive the stock significantly off current levels. With Amgen acquiring T-Vec in 2011 for up to $1B, and AstraZeneca partnering with Inovio for a deal worth over $700M, you can see how undervalued OncoSec is at a market cap under $100M. With impressive clinical efficacy results, late stage clinical trials and an increasing interest in its technology, OncoSec is one of the rare bargains in the immuno-oncology space. I continue to add heavily.
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