Novelos (NVLT): Initiating with an Outperform
By Grant Zeng, CFA
We are initiating coverage of Novelos ( NVLT) with an Outperform rating. Our 12-month price target is $2.50.
Novelos is a development stage pharmaceutical company. The Company’s unique technology specifically targets cancer and cancer stem cells through interaction with lipid rafts which are enriched in cancer and cancer stem cells.
The advantages the Company’s technology lie in its selectivity of cancer-targeting as well as broad spectrum of anticancer activity. Since the lipid rafts are enriched in cancer and cancer stem cells, the Company’s three candidates all selectively target these cancer and cancer stem cells. Because lipid rafts are overexpressed in most of cancer and cancer stem cells, this makes the Company’s candidates target many types of cancers.
LIGHT has the potential to become the new standard of care for cancer PET imaging due to its selectivity for cancer/cancer stem cells over FDG, current standard of care for cancer PET imaging. LIGHT also has the advantage of delivery range due to its four-day half-life versus F-18 labeled FDG’s 110 minutes half-life.
The specific targeting of both cancer and cancer stem cells makes NVLT’s HOT/COLD with the efficacy potential to target all three major drivers of mortality in cancer – primary tumors, metastases and stem cell-based relapse, which distinguishes HOT/COLD from all other cancer therapy modalities.
As a new systemic radiotherapy, HOT has the advantage over existing systemic radiotherapeutic Zevalin and Bexxar. The selective interaction with lipid rafts makes HOT a broad spectrum cancer targeting agent since lipid rafts are overexpressed in most of cancer and cancer stem cells. Selective uptake and retention of HOT in cancer stem cells compared with normal cells also offer the prospect of longer lasting cancer remission.
We believe development risk is relatively less for HOT than other early stage cancer therapeutics. HOT exploits a new cancer-selective delivery and retention mechanism, but is paired with a proven and effective radioisotope (I-131) for therapy. Because the therapeutic properties of the iodine-131 are well known, the risk of non-efficacy in human clinical trials is less than that of other cancer therapies at this stage of development. Furthermore, LIGHT PET imaging data is expected to predict efficacy and enable calculation of efficacious doses of HOT for Phase II trials (i.e. LIGHT serves as an ideal and personalized biomarker for HOT).
This is important for investors because less development risk means that HOT has a higher probability for success in clinical trials and regulatory approval. Therefore, downside risk is reduced while upside potential remains the same.
Current valuation is low in our view. The risk/return profile is biased to return at this point.
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