Investors Can Capitalize On The Increasing Action In The Melanoma Space

Immunotherapy has become a new way of treating cancer, using the individual's own immune system to fight against the cancer cells. These immune responses may be generated by stimulating the immune system, or by injecting such components that may help the immune system. Immunotherapy, according to Citigroup analysts, is expected to reach 60% of treatment for cancer in the next ten years. Today it comprises of only 3% of treatments, and in the next decade it could generate $35 billion in sales.

One company employing immunotherapy as a method of treatment isOncoSec Medical, ONCS, using electroporation technology. Electroporation, a technology created by Inovio Pharmaceuticals, uses electric pulses to open the cells' pores briefly, allowing a vaccine or therapy to enter the cells. OncoSec is using this technology to deliver a DNA-based immunocytokine (IL-12) to help fight metastatic melanoma, via a platform called ImmunoPulse.

The Business

OncoSec Medical is a drug-medical device and therapeutic company, engaged in the design, development and commercialization of medical approaches to treat solid tumors, addressing unmet needs or current therapies that are not adequate. It is focused on developing treatments for three kinds of skin cancer, viz. melanoma, Merkel cell lymphoma, and cutaneous T-cell lymphoma.

The company acquired the rights to electroporation technology from Inovio Pharmaceuticals and uses it as a base for its proprietary technologies ImmunoPulse, for DNA IL-12 delivery, and NeoPulse to deliver existing chemotherapeutic drugs. It is currently running three phase II trials for skin cancer, including OMS-I100 for Merkel cell carcinoma, OMS-I100 for metastatic melanoma, and OMS-I120 for cutaneous T-cell Lymphoma. The company also uses electroporation in NeoPulse to target cancer cells by delivering existing chemotherapy drugs viz. bleomycin.

The company is headed by Punit Dhillon, who earlier worked at Inovio Pharmaceuticals and left it to form OncoSec. He licensed the electroporation technology from Inovio and combined it with a DNA IL-12 vaccine, thus creating the proprietary ImmunoPulse platform.

The company is faced with competition at the hands of Inovio, for the electroporation technology, and by Amgen in the stage III melanoma segment. There are currently various drugs being developed for melanoma, but stage III melanoma currently does not have sufficient treatments, since it doesn't qualify for the stage IV drugs, and the radiation and surgery are unable to work alone.

ImmunoPulse

OncoSec's lead product candidate is the ImmunoPulse platform, utilizing a DNA-based immunotherapy for the treatment of metastatic melanoma. ImmunoPulse is based on the electroporation technology, and helps enhance DNA plasmid delivery. This plasmid, DNA IL-12, is injected into the tumor and is then followed by electric pulses that help the cells to become porous and allow the antigen directly into the tumor. This uptake into the cells then helps trigger production of the IL-12 protein, which seeks and destroys the cancer cells, thus generating an immune response. This method has fewer side effects, since the antigen is delivered directly into the cells and requires smaller doses. Additionally, there is little or no toxicity, and the only side effect is irritation or redness at the location where the injection is made. The process only targets the cancerous cells and spares the healthy tissues from destruction.

The phase I OMS-I100 trial results showed that the vaccine induced an anti-tumor response in the entire body, instead of just the intended target. This is a vital benefit for metastatic disease, which characteristically spreads throughout the body. The results showed that 53% metastatic melanoma patients witnessed an objective response, and 16% showed complete regression. The positive results continued in the phase II trial, which builds a strong case for the potential of the vaccine.

The recently announced interim data for the metastatic melanoma phase II trial, in collaboration with the University of California, San Francisco, has confirmed the safety of ImmunoPulse. A total of 47 patients have been treated, in the phase I and II trials, and there have been no report of drug related serious adverse events. The analysis after 180 days, in 21 evaluable patients, showed a 38.1% objective overall response, which was assessed by ≥30% reduction in lesion size. A partial response of 28.6% was seen; while a 9.5% of complete response was achieved that lasted at least six months.

Another important result from the data was the systemic antitumor immune response of 61.1% or in 11 out of 18 patients, without any systemic toxicity. This was measured by objective regression, i.e., ≥30% size reduction in at least a single untreated lesion. This immune response was also observed in the phase I trial, and a continuity in the phase II trial shows that the vaccine might be able to generate this kind of immune response. This could really lead to a revolution in the treatment of metastatic melanoma, since other therapies induce only a localized immune response and induce toxicity.

Competition

A number of companies have taken interest in melanoma and are developing treatments for it, with a few drugs already in the market. These treatments target either newly diagnosed or the aggressive form of melanoma, leaving the stage III space almost empty. Late last year, a stage III melanoma candidate, Vical's (VICL) Allovectin-7, failed in its phase III trials, and was discontinued. It was very similar to ImmunoPulse, since it also used DNA-based plasmids, and was injecting directly into the tumor, without the electroporation technology though. Thus there are limited to no treatments available for stage III melanoma, and there are only two candidates under development, viz. Amgen's TVEC and OncoSec's ImmunoPulse for metastatic melanoma. Both these candidates have the same target disease, but have strikingly different methods.

Other drugs already approved for metastatic melanoma include Yervoy by Bristol-Myers Squibb (NYSE: BMY) and Zelboraf by Roche. These products are immunotherapeutic, but are polar opposites of ImmunoPulse, since these drugs target different cells and also differ in the mechanism. Additionally, the safety profile of these drugs is inferior to ImmunoPulse and they target different stages of melanoma.

Also for consideration is that OncoSec licensed the electroporation technology from Inovio, though is faced with competition from Inovio. However, Inovio may also license the technology to other companies that may decide to develop therapies similar to OncoSec. This may result in additional competition in the future, despite the fact that, by then, OncoSec will be way ahead in the development.

Amgen's TVEC

Talimogene laherparepvec (TVEC) is Amgen's (NASDAQ: AMGN)cancer immunotherapy candidate, which is directly injected into the tumor tissue and then replicates. The replication continues until the cancer cell membrane ruptures and releases tumor specific antigens and GM-CSF (granulocyte-macrophage colony-stimulating factor). This is believed to induce a systemic immune response targeting cancer cells in the body.

The phase III trial was based on 400 patients and the results showed a durable response rate of 19%, an objective response rate of 31%, and a 16% reduction in tumor with TVEC. Additionally, the median time to response was 4.1 months, and 68% of TVEC responders achieved responses that lasted for at least nine months. However, serious adverse events were witnessed in 26% of the TVEC patients; some of these events included pyrexia, cellulitis and disease progression.

The data, even though robust, doesn't provide results like ImmunoPulse, which achieved not only reduction, but also complete response and systemic anti-tumor immune response. These factors provide ImmunoPulse with a better profile, as the electroporation technology also helps the vaccine to reach the cancer cells more effectively. It has shown better results, even though on a small subset. Additionally, to date there has been no serious side effects for ImmunoPulse, and no toxicity, while TVEC has shown treatment related side effects.

Upcoming Events

OncoSec will be participating in the JP Morgan Annual Healthcare Conference Biotech Showcase, from January 13-15, 2014. This will allow the firm to present its potential to prospective investors and will help to bring it under attention. The company will also be participating in the Noble Financial 10th Annual Equity Conference between the 19th and 22nd of January, 2014. These events will be cardinal for bringing the company to the front and capturing investor interest.

As of yet, OncoSec is not listed on a major exchange. If the company begins its efforts for the uplisting in 2014 and is subsequently listed on it, this will be a major catalyst.

The company is expected to announce the interim results for the phase II Merkel cell carcinoma trial and the final data presentation this year. These events are expected to boost the share price, as Merkel cell carcinoma is a deadly disease and has a mortality rate as high as 40%, and chemotherapy isn't an effective treatment for it. The previous results from the trials have been encouraging and if they continue it would greatly impact the share prices.

The melanoma phase II/b trials are also expected to begin next year. The previous positive trial results have garnered increased interest and have many investors keeping tabs on this trial. Thus this event will also have a catalytic impact on the share price.

The interim results from the phase II cutaneous T-cell lymphoma trial are also expected this year. Cutaneous T-cell lymphoma results in immune dysfunction, and the existing therapies have not been able to show long-term benefits. Ergo, the trial results, if positive will boost the share price.

Fundamentals and Potential Risks

Since OncoSec's inception in 2008, it has not generated any revenue, which is common for developmental biotechs. The candidates are still in phase II and have awhile before they reach the market and generate sales, if ever. Resultantly, the company is currently incurring losses, and has a loss of $11.6 million since inception.

The company has cash and equivalents of $15.2 million as of October 31, 2013, out of which $12 million were generated from the stockoffering in September, 2013. The net proceeds from the offering were $11.1 million, which the company is employing to fund its operations. However, the company paid $1 million due December 31, 2013 to Inovio for the assets purchased in 2011, and so clearing the obligations related to the purchase.

OncoSec has cash to fund itself for a long time, though it may have to turn toward another offering in the extended future. The firm also has the option of finding a partner to fund the future trials.

Bottom Line

OncoSec has a promising treatment for stage III melanoma and, along with the electroporation technology, is touted to provide superior benefits as compared to its competitor candidate, TVEC. Both the candidates have different mechanisms and delivery methods, but are the only treatments for stage III melanoma. Other drugs in the market or under development target metastatic melanoma in different stages; hence they are not direct competitors to ImmunoPulse.

The company currently has a strong cash position and is funding the trials itself; invariably it may need to turn to dilution. However, cash is imperative for the future trials of the company, and dilution can only be avoided by landing a suitable partnership that will help fund the future trials.

The other trials based on ImmunoPulse and NeoPulse have also shown positive results, and the Merkel cell carcinoma treatment may gain FDA approval due to the indication's rarity and mortality rate. Accordingly, OncoSec's pipeline is lucrative and trial advancement will lead to major price appreciations.