OncoSec has received a CE Mark for its OMS electroporation device in Europe. This means that NeoPulse using bleomycin as the active drug now can be commercially introduced in Europe and marketed in accordance with the existing label for bleomycin. Reference can be made to the positive clinical studies conducted by OncoSec in head and neck, basal cell and squamous cell carcinoma. Management has made the decision to focus all of its resources on ImmunoPulse and only pursue development of NeoPulse with a partner. The data created on NeoPulse is quite encouraging and warrants a broad development effort, but trying to fund both ImmunoPulse and NeoPulse is not possible given the financial constraints of the company.
Given the limited data, the European launch of NeoPulse will likely start narrowly by marketing first to investigators familiar with the product to build awareness and create additional clinical data; it will then gradually be rolled out to a broader audience. I think that it will take about a half year from the signing of a partnering deal to begin marketing NeoPulse in Europe. I think that first year sales will be minimal and could build to perhaps $10 million in two to three years or so. Over a longer period of time with consistent marketing and more clinical data, I could see sales in excess of $100 million in Europe. The FDA will require a new phase III trial in the US for approval and potential marketing in the US before 2017 is doubtful.
Management has been engaged in NeoPulse partnering discussions and is finding the going slower than expected. Big pharma partners are approached constantly with licensing opportunities in oncology and electroporation is not a technology that they are familiar with. I think that a deal may be done, but it will take time. I think that the deal is likely to be backend loaded with significant milestone payments based on regulatory and sales milestones. The upfront payment could only be a few million dollars.
The year 2013 will be a critical year for ImmunoPulse as OncoSec awaits data from its clinical trials that will determine partnering and financing decisions.
The phase II trial for metastatic melanoma will complete enrollment in 1Q, 2013 and data will be released at ASCO in May 2013 and other conferences throughout the year. An end of phase II meeting with the FDA could take place in 2Q, 2013 and a potential pivotal trial could start in 4Q, 2013.
The trial in Merkel cell trial carcinoma could complete enrollment in 1Q, 2013. The end of phase II meeting with the FDA could take place in 3Q, 2013 and a pivotal phase III trial could begin in 4Q, 2013.
The trial in cutaneous T cell lymphoma started in July 2012. It could report interim data in 2013, but it is unlikely to be an investor focus until 2014.
If the final data on ImmunoPulse in malignant melanoma is as positive as the phase I data and the interim results for phase II, it could be the basis for a pivotal phase III trial starting in 4Q, 2013. However, the landscape in metastatic melanoma is becoming congested. Bristol-Myers Squibb’s Yervoy and Roche’s Zelboraf, which were introduced in 2011, were the first new approved products in 30 years. Yervoy is an anti-CTLA-4 monoclonal antibody and Zelboraf is a small molecule that is only effective in patients with the BRAF V660E mutation.
There are a number of other promising new products in development. These include the PD1 inhibitors, Celgene’s Abraxane and Glaxo’s MAGE-A3. Many key opinion leaders consider new monoclonal antibodies that target and block PD-1 as being the most promising anti-cancer drugs in development. They don’t directly kill cancer cells, but block a biological pathway that cancers use to shield themselves from the action of the immune system. By blocking this effect, the ability of the immune system to fight the cancer is significantly enhanced.
Cancers express two proteins called programmed death-1 and programmed death-2 or PD-1 and PD-2. When they join together, they form a biological shield that protects cancer cells from the immune system response. These are prime targets to address with monoclonal antibodies as are other proteins involved in this pathway: the programmed death ligands PD-L1, PD-L2 and PD-L3
Bristol-Myers Squibb, Merck, Teva and Roche have monoclonal antibodies that target and block PD-1. BMY’s BMS-936558 is the current leader as it is in phase III trials in melanoma, non-small cell lung cancer and kidney cancer. Merck’s MK-3475 is also close to phase III trials; Teva and Roche have product candidates that are somewhat behind as their products are in phase II and phase I respectively.
The Bristol-Myers and Merck products have produced durable responses in patients who have exhausted currently available therapeutic options in phase I and II trials. Topline results from the phase III trial of BMS-936558 in non-small cell lung cancer is expected in 2014, melanoma in 2015 and kidney cancer in 2016. Bristol-Myers also has a monoclonal antibody against PD-L2 in development. It is also doing studies with BMS-936558 in combination with Yervoy.
The decision on how to pursue clinical development of ImmunoPulse in malignant melanoma will be made in late 2013. It is complicated by the need to judge how ImmunoPulse may fit with current therapies and those in late stage development. Clinical trials will have to address at what stage of the cancer ImmunoPulse should be given and whether it should be used sequentially or in combination with existing and new therapies. Its phase III development will be an expensive and lengthy undertaking that might cost hundreds of millions of dollars and could lead to approval in 2017. I think that this can only go forward with a large partner.
The road to development in Merkel cell carcinoma is much clearer as there are no approved products and there is limited new product activity. Based on an analysis of the first five patients in the phase II trial, OncoSec has seen a strong clinical response in one patient that is classified as a partial response, but is tracking toward a complete response. This type of response is extraordinary in this cancer, which is more deadly than malignant melanoma.
Based on conversations with key opinion leaders, OncoSec believes that one more strong response comparable to the one already seen could warrant the start of a pivotal phase IIb/III trial. This might be a 150 patient single arm, multi-site study. Key opinion leaders believe that a response rate of 25% to 30% might be an approvable endpoint that this would qualify ImmunoPulse for accelerated approval. This phase III trial could start in 4Q, 2013. It would take about two years to complete and would lead to possible approval in 2016. The cost of the trial would be about $15 million and might be within reach of the company to conduct on its own. Alternatively, it might partner all indications of ImmunoPulse: malignant melanoma, Merkel cell carcinoma and cutaneous T cell lymphoma
There is no interim data on cutaneous T cell lymphoma, but it has a significant unmet medical need for milder forms of CTCL which are now treated with photodynamic therapy. Management thinks that a pivotal trial could be started by 4Q, 2013. It is possible that it could be developed as a monotherapy or in combination with photodynamic therapy.
The year 2013 will be a pivotal one for OncoSec as topline data on the three phase II trials of ImmunoPulse will read out. Critical decisions on the development pathway for ImmunoPulse and resultant decisions on financing will be dependent on the power of the data. Also, partnering discussions for NeoPulse are now underway and the outcome could be known in 1H, 2013.
If the data on ImmunoPulse is promising, there are a large number of potential scenarios, but I believe they can be lumped into three possible outcomes. The company could be sold outright, ImmunoPulse could be licensed for worldwide development or OncoSec might elect to develop ImmunoPulse on its own. I think that given the stage of development of ImmunoPulse that a significant percentage of the deal terms in an acquisition or licensing deal would be delayed and dependent on hitting clinical, regulatory and sales milestones as in the case of Amgen’s acquisition of Biovex. Still, either of these outcomes would almost certainly be rewarding for shareholders.
Taking a product into commercial development produces much greater rewards and greater risks for shareholders. I think that if OncoSec decides to go forward with ImmunoPulse on its own, it will likely be in Merkel cell carcinoma or possibly cutaneous T-cell lymphoma. These are small orphan indications with less competitive activity than malignant melanoma. The company believes a single-arm, phase IIb/III trial in Merkel cell that produces a 25% to 30% response rate might be sufficient for approval. So far, the company in its phase II trial has seen a very strong response in one of five patients treated and evaluated. Management thinks that this trial might cost on the order of $15 million to conduct and could lead to commercialization in late 2016 or early 2017, assuming success in the trial.
The Merkel cell opportunity could be very meaningful. While there are only 2,500 newly diagnosed patients each year, the price of treatment could be substantial. Yervoy is priced at $100,000 per year for malignant melanoma and management of its side effects adds as much as $50,000 to its cost. The side effects with ImmunoPulse are minimal and easy to manage. I think that ImmunoPulse, if successfully developed could be priced at $150,000 per annum. This suggests an addressable market of $430 million in the US and sales potential in the international market, as a rule of thumb, usually approaches the US market. International rights would almost certainly be partnered.
If ImmunoPulse is introduced in 2016, it is possible that the desperate need for effective treatment could result in its quickly penetrating 50% of the market by 2018; this would result in US sales of $215 million and perhaps the same amount internationally. The number of cancer treating sites with Merkel cell expertise is small and OncoSec might be able to reach targeted groups with a small sales force. This would require additional capital and based on experience with other small companies that have followed such a strategy, this might require $30 million in costs for the sale reps and launch expenses. Approval of the product likely would make raising this capital an easy undertaking.
OncoSec Medical needs to strengthen its financial position. I estimate that it will end the first quarter of fiscal 2013 (period ended September 2012) with about $4 million of cash. It is burning about $450,000 per month at the current burn rate so that this cash will last about 9 months or until mid-2013. A NeoPulse partnering deal might bring in $2 to $4 million in that time frame, but this remains to be seen. In the going it alone scenario, OncoSec would need to fund the burn rate for the company plus the expense for beginning the Merkel cell trial. This could lead to an equity offering of $15 million or so in mid to late 2013.
So much depends on the upcoming data. The interim data on the phase II trial of ImmunoPulse in malignant melanoma validates the signal from the phase I study and getting a strong response in one of five Merkel cell patients is quite encouraging. I earlier quoted Roger Perlmutter as saying in regards to Amgen’s decision to acquire Biovex that spontaneous remissions in cancers as aggressive as these just don’t occur spontaneously. There is a good reason to believe that ImmunoPulse has meaningful activity in these disease states.