Opportunities in Oncology

05/28/2004 12:00 am EST

Focus:

John McCamant

Editor, Medical Technology Stock Letter

In anticipation of the June meeting of the  American Society of Clinical Oncology, biotech expert John McCamant, editor of  Medical Technology Stock Letter, focuses on companies involved in cancer research. Investment research just doesn’t get better than this.

"The American Society of Clinical Oncology, is the premier cancer treatment conference of the year, given its prominence and wide membership. It will be held in New Orleans from June 8 to 14. There will be about 25,000 oncologists plus a lot of Wall Street people down there. We believe that this will be the biggest event in the biotech industry for the year as far as new data. Advances in oncology are changing the way we treat patients. We have seen some recent cancer drugs begin selling this year and they are beating estimates right out of the gates. And while the risks are significant, the potential rewards are also tremendous.

"Allos (ALTH NASDAQ) is developing a drug called RSR 13. It's basically an oxygen therapeutic. What it does is allow hemoglobin and red-blood cells to release more oxygen as it passes through the body. The stock feel sharply after an indication they soughtfor breast cancer that had metastasized to the brain was turned down. Where do we go from here? Lost in the shuffle was the fact that this drug has an obvious clinical benefit for many patients, the safety profile is excellent, and patients with breast cancer that has metastasized to the brain are very sick indeed with no treatment options. Meanwhile, in February, ALTH initiated a second Phase III trial, and the company will file for European approval by the end of June. At the end of March, ALTH had approximately $41.5 million in cash. With a market cap of $53.8 million, ALTH is severely undervalued as a long-term investment. Our buy limit is $2.50 and our 18–24 month target to is $8.

"Cell Genesys (CEGE NASDAQ) has received a special protocol assessment from the FDA for the first of two Phase III trials of its GVAX prostate cancer vaccine. This agreement with the FDA establishes two things. First, the FDA agrees upfront that the trial protocol sufficiently addresses the objectives necessary to file a Biologics License Application (BLA). Second, the FDA agrees that this trial can be used to definitively assess the vaccine's effectiveness. CEGE will conduct two Phase III trials testing their GVAX prostate cancer vaccine in hormone-refractory prostate cancer patients with radiologic evidence of metastatic disease. The first trial will begin this quarter and will enroll chemotherapy-naive, asymptomatic patients without cancer-related pain. The second trial will enroll symptomatic patients. It will begin around the end of the year or early next year. Buy under $12.

"GenVec (GNVC NASDAQ) recently presented an update on their Phase II trials testing TNFerade in patients with pancreatic cancer and esophageal cancer. TNFerade is delivered via endoscopic ultrasound or percutaneously (passing through the skin). Interim results from the esophageal cancer trial revealed that 16 patients in the first three dose cohorts have been treated with a combination of TNFerade and chemoradiation. At the lowest dose, one of seven patients showed a complete absence of tumor at the time of surgical resection. At the middle dose, a complete response was shown in three out of four patients. Data from the highest dose were not available. These results show considerable promise for TNFerade as a treatment for some of the most difficult to treat and deadly cancers. GNVC is a buy under $5.

"Millennium (MLNM NASDAQ) was first recommended by us last February in front of its Velcade approval. That drug was approved for multiple myeloma, a blood-borne disease. There are multiple other cancer indications. The NIH is running over 50 clinical trials of the Velcade as they believe it has broad potential. If that shows results for solid tumors, we'd expect Millennium to have a significant move in the second half of the year. The company recently reported that treatment with Velcade provided the first statistically significant survival benefit for patients with relapsed multiple myeloma (compared with patients receiving the current standard of care, dexamethasone). This is a major positive, which should encourage more extensive use by oncologists. MLNM and Johnson & Johnson have over 80 trials involving Velcade planned or ongoing. The stock a buy under $16.

"If there is one company you want to buy in biotechnology, it has to be Genentech (DNA NYSE). If anything in biotech moves due to news at ASCO, it's going to be led by Genentech. Genentech has been an outstanding company. They have a tremendous track record. They have worked with FDA for years and have gotten numerous products approved. In the cancer area, the firm has developed Avastin, which is in studiesin various stages for renal cancer, pancreatic cancer, sarcoma, inflammatory cancer, and rectal cancer. Its Tarceva is in studies for survival improvement, head and neck cancer, renal cancer, gynecological cancers, various solid tumors, and pancreatic cancer. In addition, Avastin and Tarceva in combination is being studied for breast cancer, and head and neck cancer. Its Herceptin is being studied for breast cancer and its Omnitarg is being studied for ovarian cancer. They will surely be the largest US oncology company by 2010. We would also note that Genentech, with its 2,000 sales reps, has become the 'partner of choice' in the biotech industry. If you are a small company with a new cancer drug it is extremely difficult to set up your own infrastructure to sell that cancer drug. In just one year, Genentech reviewed 700 in-licensing opportunities in diabetes, cardiovascular, cancer, and 33 deals were completed. We recommended Genentech at $35 or $36 last fall and would continue to buy the stock even at the $115-$120 level."

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