3 Growing Immunotherapy Companies: Celldex, Merck, OncoSec
By now, almost all health care-focused investors have heard the term “immunotherapy.” Immunotherapy refers to the treatment of disease by inducing, enhancing, or suppressing an immune response. Companies using immunotherapy to treat cancer are attempting to stimulate one’s immune system in order to reject and eliminate cancerous cells and tumors.
Immunotherapy has actually been around for decades but is just finally starting to come into the spotlight, as companies now have the means and the resources necessary to elevate the science to a new level. Three companies that are especially primed for advancing medicine over the next couple of years include Celldex Therapeutics (NASDAQ:CLDX), Merck (NYSE:MRK), and OncoSec Medical (ONCS.PK).
Celldex Therapeutics has certainly become one of the darlings of the biotechnology industry as shares have increased by roughly 250 percent over the past 52 weeks. Several prominent institutions such as FMR LLC, Franklin Resources, Vanguard, Blackrock, and State Street have taken large stakes in the company on hopes that the company’s immunotherapy platform can advance cancer treatment to a place nobody thought possible just a few years ago.
The company’s pipeline is comprised of therapeutic antibodies, antibody drug conjugates, immune system modulators, and vaccines that are targeted to specific patient populations whose diseases express specific markers. Celldex has developed an impressive pipeline that currently has six candidates. One candidate, rindopepimut, is being evaluated in two clinical trials: front-line glioblastoma and recurrent glioblastoma. Celldex is also evaluating the following candidates:
- CDX-011 in breast cancer
- CDX-1135 in dense deposit disease
- CDX-1127 in lymphoma
- CDX-301 in HSC transplantation
- CDX-1401 in multiple solid tumors
Based on the above indications, it’s easy to understand why Celldex Therapeutics is currently valued at more than $2 billion. In fact, Cantor Fitzgerald currently has a $39 price target on the company, which would value Celldex at $3.2 billion. Investors should be aware that the company is expecting to update the status of CDX-1135, which is currently in a pilot study to treat dense deposit disease. If positive, this would likely serve as a very strong catalyst for the share price.
While Celldex Therapeutics is focusing on several indications, the two other companies mentioned above are trying to conquer the deadly form of cancer known as melanoma. Melanoma is the most dangerous form of skin cancer, causing nearly 9,500 deaths in 2013 in the U.S. alone. Additionally, there were almost 77,000 new melanomas that were diagnosed last year. Melanomas typically develop when unrepaired DNA damage to skin cells triggers mutations that lead skin cells to multiply rapidly and form malignant tumors.
If caught early, melanomas can easily be treated. The problem occurs when melanomas are not discovered. The truth is that not everyone goes to the doctor’s office as much as they should. This can leave melanomas time to grow and expand into other parts of the body. When this occurs, they can be extremely deadly.
Luckily, Merck and OncoSec Medical are working on a new and improved treatment. Merck is developing MK-3475, an anti-PD-1 immunotherapy. PD-1 blocking antibodies have surged into the media spotlight in the past several months as several companies, most notably Merck, have released extremely encouraging clinical data. The modulation of signaling through receptors expressed on T cells has proven to be a potent way of enhancing anti-tumor immune responses.
This approach has been used to develop a new class of anticancer therapies called “checkpoint-balancing” antibodies that block the receptor CTLA-4. In fact, ipilimumab is an example of a checkpoint-balancing antibody that was recently approved by the U.S. Food and Drug Administration. Because of the success seen in blocking CTLA-4, companies have started to investigate whether blocking a second co-inhibitory receptor called PD-1 would generate the same kind of effect. Based on Merck’s data thus far, it would appear that the answer is yes.
Merck released data in November that indicated that its anti-PD-1 candidate, MK-3475, demonstrated an estimated overall survival rate of 81 percent at one year in patients with advanced melanoma. There was also a 41 percent objective response rate among the 135 patients enrolled in the ongoing Phase 1B clinical trial. As good as this data are, it’s important for investors to understand that it is still in a Phase 1 trial, which means there is a long way to go.
And while Merck is certainly leading the anti-PD-1 charge, the final company of topic, OncoSec Medical, is emerging as a potential leader in the skin cancer treatment field. There was an interesting article published by Seeking Alpha on January 29. The article was an interview with Dr. Robert Pierce, the current chief medical officer of OncoSec Medical. It’s worth noting that Pierce previously worked at Merck and was instrumental in the company’s anti-PD-1 investigative program.
In the article, Pierce noted that between 60 percent and 80 percent of patients do not respond to PD-1 Checkpoint Inhibitors. Basically, the patients who do not respond are unable to generate an effective immune response against the cancer. As Pierce said in the interview, “Their tumors appear to be non-immunogenic.”
OncoSec Medical’s revolutionary technology, electroporation, will have the ability to treat those patients who are unable to generate the appropriate response to PD-1 Checkpoint Inhibitors. At its core, electroporation is a process that increases a cell’s permeability so that the cell can be penetrated with a substance capable of destroying the cancer. The permeability is significantly enhanced through the use of an electrical charge, by increasing a cell’s porosity.
It was mentioned that a substance is inserted into the cell once its porosity has been enhanced. That substance is typically a gene-based cytokine, which is delivered at a lower dose so that desired outcome is realized while minimizing the toxicity associated with the treatment. The end result will be an effective treatment that is preferred by both physicians and patients.
OncoSec has three ongoing trials:
- Phase 2 for Merkcel cell carcinoma
- Phase 2 for metastatic melanoma
- Phase 2 for cutaneous T-cell lymphoma
Investors can expect several updates on these trials this year. Biotechnology investors are aware of the run-up that typically occurs in small-cap biotechnology stocks as trial data approach. In fact, it’s almost hard to find a small-cap biotech that didn’t see at least a minimal increase in value as it approached trial results. Given the depth and potential market size of the indications that OncoSec Medical is attempting to treat, the company could easily reach a market capitalization of $300 million by the end of 2014.
It’s also important to point out that OncoSec Medical is extremely well funded with more than $15.2 million in available cash as of the end of October. This means that investors won’t have to endure the pain of having to go through a secondary offering anytime soon. Based on the company’s quarterly burn rate of roughly $1.9 million, the company should have enough cash to fund operations through most of 2015.
Christine is an analyst and fund manager with almost 20 years of investment experience. She covers a variety of industries, with a special focus on technology, and likes to write about value stocks, poorly understood or under-followed situations, and contrarian perspectives.