Market Overview OncoSec offers great opportunities but investors are wary


OncoSec offers great opportunities but investors are wary

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Side effects are a main problem when it comes to treatments for solid tumor cancers. Extreme nausea, fatigue, skin discoloration and hair loss are among the more prevalent results associated with the most widely used treatments. In fact, in many cases, these side effects produced more traumatic and debilitating results than the disease itself.

Standard treatment such as chemotherapy, radiation, surgery and immunotherapy techniques required large doses of the necessary drug to get the desired result, whereas smaller amounts were ineffective. Depending upon the drug, the treatments could produce anything from mildly toxic to outright fatal consequences. To solve this problem researchers are concentrating on delivery systems to help cancer patients get proper treatment with minimal side effects. OncoSec Medical (OTCBB:ONCS), a biotech company listed on the NASDAQ Bulletin Board, is one of them. OncoSec has developed a new delivery technology that vastly reduces the necessary drug dosage. Since over 120,000 new cases of melanoma are diagnosed each year in the U.S., and 50 million people worldwide suffer from the decease, the benefit from new technologies can be huge.

OncoSec developed a proprietary process called the OncoSec Medical System (OMS) that uses electroporation to deliver cancer-fighting drugs. Electroporation uses a series of brief but intense electrical impulses that open pores in cancer cells. Once the pores are open, chemotherapeutics (cytokines) are injected into the cancer tumors. Electroporation allows to use with the same effect much lower dose that has much smaller side effects. Thus, cytokines were not considered a viable anti-cancer therapy due to their high toxicity. But electroporation (OncoSec's OMS system) allows to use a much smaller dosage of cytokines, thus making them a more feasible therapy for cancer treatment.

OncoSec developed two clinical applications for two separate treatments. ImmunoPulse delivers a plasmid DNA that instructs cells to produce the IL-12 protein that stimulates immune system to eliminate the cancer cells. ImmunoPulse therapy also forces the immune system to eradicate cancer cells outside of the treatment range. Before application of OncoSec's electroporation technology, administration of IL-12 could be lethal since it required too high a dose. This technology significantly reduces the required quantity of IL-12; FDA Phase I trials for efficacy against metastatic melanoma proved successful and ImmunoPulse was moved to Phase II confirmatory studies.

The second OncoSec platform, NeoPulse, delivers a chemotherapy drug, bleomycin, straight into the cancer cells. Bleomycin is an already approved antibiotic that has undesirable side effects. NeoPulse's electroporation opens the cell membranes and enhance absorption of Bleomycin into cancer cells by a factor of 4,000. Moreover, soon after administration of Bleomycin the pores close, trapping it inside the cells. This procedure greatly increases the effectiveness of the treatment so that 5% of a standard chemotherapy dose is enough.

Nevertheless, the company's prospects are not clear. The price of the stock is similar to a venture capital investment: market capitalization of OncoSec is $20 million. Similar companies at this stage have market capitalization at least ten times as large. Thus, Celsion (NASDAQ:CLSN), used a similar approach that apply microwave, radio-wave or focused ultrasound to heat the affected areas before injecting drugs. Celsion, however, teamed up with Oxford University to raise capital and conduct its next clinical trial, and at the same time partnered with Philips NV (NYSE:PHG) to use ultrasound technology. It took 60 days for Celsion to close these partnerships, propelling a $50 million market cap company into a $300 million enterprise in less than a year.

How investors can profit from OncoSec's advancements is not that clear. OncoSec have approached 25 to 30 companies, made a presentation to about half of these and only six companies signed a confidentiality agreement. Only one of them moved to term sheet. OncoSec didn't go through initial public offering process. During this process investment community becomes acquainted with a company and banking firms do analytical reporting on an ongoing basis. Thus investors are updated on the company's development. OncoSec chose reverse merger to get public but the price was smaller investor awareness. This comes at the time of intensive competition in cancer drug development. Investors deal with barrages of the investment stories describing success of hundreds of various biotech companies. Competition in cancer drug development is very intense. It is very difficult to discern competitive advantages of every product in development. Thus, investors prefer familiar technologies; on other side, they are not acquainted with electroporation.

In addition, ImmunoPulse data are based on a small number of patients. Phase I data are encouraging but for biotechnology investors skepticism is warranted since too often in larger phase III trials these results are not replicated. The NeoPulse clinical data have larger base, but the sample size is still small. There are still no partnering deals, and, thus, OncoSec's results are not validated by a sophisticated third party. Furthermore, OncoSec has very limited cash position that can become the biggest impediment for further expansion.

Nevertheless, OncoSec reached two important milestones: it got EU regulatory approval for its OMS electroporation device and has made an agreement with institutional investors to buy $7.2 million of securities in a public offering. OncoSec has agreed to sell to institutional investors an aggregate of 28,800,000 shares of its common stock at $0.25 per share. In addition, investors will get warrants to buy up to 14,400,000 shares of common stock at $0.26 per share for a term of four years. The offerings are expected to bring about approximately $7.2 million ($6.5 million net). OncoSec will use proceeds for clinical trial expenses as well as research and development expenses. In addition, clinical trials for NeoPulse are now at Phase IV and already shown that it is safe and effective in the treatment of melanoma, basal cell carcinoma, squamous cell carcinoma, and liver and pancreatic cancers. These developments suggest that commercialization of the OncoSec's treatments is in sight.

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