Expert Financial Analysis and Reporting

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Purpose of Report

I attended the Rodman conference on September 9th and 10th and listened to 29 company presentations and then attended the BioCentury Conference on September 26 where I listened to another 10. I go to as many conferences as possible to get updates on companies that I follow and to learn about new companies that I might want to research. Some subscribers have asked me to pass along my impressions on companies that I am not actively covering. I am always hesitant to do this because I find that my initial impressions can change greatly after I do more in-depth research.

That said, I have decided in this piece to give my initial impression on some companies for which I have done limited research. This is because many subscribers do their own independent research and are looking for leads on new companies. I hope that they find this article helpful. Another goal of this report is to signal my thoughts on the most significant areas of drug development that will be important commercial drivers of the industry over the next several decades.

Investment Perspective

I have been involved in biopharm research for over 35 years so I have a lot of perspective on events that have occurred with drug development. I am awed at the pace of technology advances that are now taking place. Knowledge and the drug discovery that springs from it are unfolding at an exponential pace and I believe that this will lead to great advances in the coming decade that could result in great investment opportunities.

Any objective observer and I hope that I am one, must admit that no single person can understand the scope of current drug development. In this article, I try to highlight some of the most important things that I see transpiring, but I do this with great humility. There is so much more that I don’t understand than what I think that I know.

A very important conclusion that I have is that the next great technology platform for pharmaceutical innovation will likely come from living cell therapies. However, if I am right, history shows that this will not be an overnight process, but will transpire over decades. Let me take you back to look at some other paradigm changing technologies to illustrate this point.

Until the 1970s, drug research was primarily based on finding small organic molecules that could affect disease processes. A major leap forward came with the development of recombinant DNA technology in 1974 which made it possible to commercially produce large macromolecules (proteins) that the body uses to control physiological processes. Initially progress was slowed by concerns about altering DNA in plant and animal cells. The most prominent first products developed from this technology in the 1980s were human insulin, human growth hormone and Amgen’s Epogen (erythropoietin). Now 40 years later, products based on recombinant DNA technology are responsible for $75 billion of sales and there are more than 150 clinical trials on new products based on this technology.

In 1975, the hybridoma technology was developed that led to the ability to produce monoclonal antibodies. Initially, this technology was slowed by human immune response to the mouse antibodies (HAMA) that resulted from the need to use mice to develop these antibodies and this took a while to overcome. In 1985, OKT-3 was approved for organ transplants but was limited because of HAMA. Finally, in 1997, the first important monoclonal antibody that was not limited by HAMA was introduced. This was Rituxan (rituximab) which is now a $6 billion product. Today, monoclonal antibodies are a $57 billion global market growing at 8% or more per year; there are about 35 approved products and 350 new products in development. Eight of the top ten selling products in the world are monoclonal antibodies.

The lesson to be learned is that new paradigm shifting technologies can take 15 to 20 years or more to go from conception to commercialization and then the technology can take another ten years or more to become a dominant business for the pharmaceutical industry. So what is the next great technology? I think that products based on living cell therapies are one likely possibility. Use of autologous living cell therapies actually started over thirty years ago with the use of stem cell transplants in cancer patients, but really began to come into focus with work on stem cells that began in the 1990s.

Which Companies Will Be The Winners?

I have been drawn to living cell therapies through my extensive work on Northwest Biotherapeutics, ImmunoCellular Therapeutics and Neuralstem. The experience gained with these companies provided the knowledge base and interest to research other companies that are using living cells.

From my experience in following the pharmaceutical and biotechnology industries since the 1970s I have seen that it is not the large companies that drive paradigm shifts in technology; they are invariably followers. People in large companies like to focus on evolutionary advances. They are unwilling to bet their careers on a ten to fifteen year development project that may ultimately end in failure. They want to work with proven technologies in which they can develop evolutionary improvements in drugs with much greater potential for success. For example, Merck really only got involved in monoclonal antibodies in the last six to eight years. Now, this is emerging as a major research driver of the company. The point I am trying to make is that entrepreneurs in small companies have driven the initial development of new technologies and this is likely to be the case in the foreseeable future. The big companies will sit back and ultimately license or acquire companies outright to gain access to new technologies.

While the homerun potential for investing exists with small companies, there are significant hurdles for success. There is the technology risk that the biological hypothesis underlying the technology is wrong so that a company may spend a decade working on a project only to determine that it won’t work, but this is what innovation is all about. There is also the financing risk. Biotechnology companies can go several years or a decade of heavy investment spending without any revenues. It is common that companies have to raise hundreds of millions of dollars before they even get a product approval. They have to induce investors to provide more money on the basis of reaching milestones that validate their product and increase the potential. Inability to access sufficient funds can almost be as great a risk as the technology risk.

Key Technologies Discussed in This Report

This section is just a brief overview of more extensive comments that appear later in this report. The overall report is pretty extensive and you may want to read it in parts as opposed to going through the entire report at one time. Some of the more important sections are summarized below.

Dendritic Cell Vaccines

There is a tremendous amount of interest and clinical activity using living immune cells to treat cancer. I have written extensively on the use of autologous (cells from one’s own body) dendritic cells being used by Northwest Biotherapeutics and ImmunoCellular to develop cancer vaccines against glioblastoma. In this case, monocytes are obtained from a patient through a blood draw. They are then differentiated outside of the body into dendritic cells and pulsed (loaded) with antigens obtained from that patient's tumor. The resultant living cell products are then re-introduced into the patient using a subcutaneous injection with the objective of significantly boosting the natural immune response against the cancer.

Each company’s cancer vaccines showed very promising phase 1/2 results in the treatment of newly diagnosed glioblastoma. While these were small unblinded trials and should be interpreted with caution, they showed that median overall survival was about 36 to 38 months versus 15 to 16 months that can be expected with standard of care. In a small phase 2 study, ImmunoCellular’s product ICT-107 failed to reach statistical significance in median overall survival. However, subset analysis has resulted in a plan to do a phase 3 trial in HLA-A2 patients. Northwest will complete a phase 3 trial of DCVax-L in glioblastoma and report topline data in 2H, 2015.

There has only been one phase 3 trial with a dendritic cell vaccine; this was with Provenge. The phase 3 trial showed that Provenge extended median overall survival metastatic prostate cancer by 4.1 months and that 3-year survival rates were 31.7% in Provenge treated patients vs. 23.0% in the control arm. There are two other companies in phase 3 trials with dendritic cell cancer vaccines. Neostem is starting a phase 3 in patients with either stage 4 or recurrent stage 3 metastatic melanoma and Argos Therapeutics is in a phase 3 trial in metastatic renal cell carcinoma. Argos is also in phase 2b with a vaccine against HIV.

Engineered Autologous T-Cell Therapies: CAR-T and TCR Therapies

For the last two decades, there has been extensive work going on at the NCI and academic centers on engineering T-cells to combine their killing power with the specificity of antibodies. This has the promise to be a transformative therapy. This technology engineers an artificial receptor onto a T-cell that is specific to a cancer antigen.

T-cells are removed from the body and a viral vector is used to insert genes into the genome of the T-cell that expresses a surface receptor on that T-cell that recognizes a cancer antigen. These receptors give T-cells additional specificity to recognize and kill cancer cells which express that antigen. This is referred to as engineered Autologous T-Cell Therapy or eACTs. There are two broad platforms of eACTs of which the most clinically advanced is chimeric antigen receptor (CAR-T) therapy and the second is T cell receptor (TCR) therapy.

CAR-T cells have produced some amazing early results in blood cancers such as non-Hodgkin’s lymphoma (NHL), acute lymphocytic leukemia (ALL) and chronic lymphocytic leukemia (CLL). These were in very small numbers of patients in experiments conducted at the National Cancer Institute and academic centers. There were dramatic responses that appear to be close to cures for these hematological cancers in which patients had failed all other treatment options.

CAR-T cells, as you might imagine can cause cytokine storms that can result in severe auto-immune like disease. Their mode of action in the case of NHL, ALL and CHL is to attack all B cells that express CD19. Both healthy and normal B-cells that express CD19 are destroyed. The loss of antibody producing B cell means that patients are susceptible to infections which may necessitate prophylactic antibiotic and gamma globulin treatment to guard against infections. While there is excitement about efficacy, this approach has worrisome side effect potential.

Kite Pharmaceuticals plans to start a trial with a CAR-T product in third line diffuse large B cell lymphoma (aggressive non-Hodgkin’s lymphoma) in 2015 and hopes for approval in 2017. Novartis has been awarded breakthrough status for a CAR-T product that is being developed for the treatment of refractory ALL and is hoping for approval in 2016 or 2017 if the trial is successful. The private company Juno Therapeutics may be on a similar timeline to Novartis for a treatment for ALL. There are wide spread development efforts going on at other companies in numerous types of cancers.

Tumor Infiltrating Lymphocytes (TILs)

There is another T-cell therapy that captures autologous T-cells that have infiltrated a tumor and are attacking it but have not been able to eradicate it. These tumor infiltrating lymphocytes (TILs) are isolated from resected tumor tissue and are expanded outside the body into a much larger number of cells. These are then re-infused into the body. The idea behind this technology is to identify T-cells that have already been trained to attack the tumor, significantly expand their numbers and then re-introduce them into the body.

This is also potentially a transforming technology. However, it is not being pursued as aggressively as eACTs. The small company Lion Biotechnologies is pursuing this technology and hopes to be in a phase 3 trial in malignant melanoma in 2015 or 2016.

Stem Cell Therapies

Because of FDA concerns about safety, clinical trials with stem cells have proceeded very slowly. However, the agency has become more comfortable with safety and the number of clinical trials and patients enrolled is increasing dramatically. Neuralstem has produced some dramatic results in ALS patients and will start a phase 2/3 trial in 1H, 2015 that potentially could be the basis for registration. Stem Cells will begin phase 2 proof of concept trials in 2014 in chronic spinal cord injury and dry age related macular degeneration.

Companies Mentioned in This Report

Northwest Biotherapeutics (NWBO, Buy, $3.98, $240 million market capitalization)

I continue to believe that Northwest is one of the most attractive stocks in my universe. I am greatly encouraged with the validation provided for DCVax-L by approval for the early access program in Germany and probable approval for early access in the UK. The DCVax Direct early phase 1 results in inoperable sarcoma and pancreatic cancer are also encouraging. These very positive developments in 2014 have been blunted by a savage short attack on the company. However, this short attack has drawn the interest of the Washington Post and Citizens for Responsibility and Ethics in Washington, both of which are calling for an investigation for possible stock manipulation; if there is an investigation we could see an enormous short squeeze. Aside from the short attack, the major factor holding the stock back is the need to do a financing.

Neuralstem (CUR, Buy, $2.95, $260 million market capitalization) Investigators continue to be very positive on results of neural stem cells in the ALS trials. Results suggest that in a small number of patients, ALS has been stabilized for periods of months or years, which in ALS is an amazing result. The issue is whether these results are specific to just a small group of patients or, as most of us hope, will help a broad range of patients.

Studies using the same neural stem cells are being investigated in phase 1 trials in chronic spinal cord injury, acute spinal cord injury and ischemic stroke. A phase 2/3 trial in ALS should start in 1H, 2015 that potentially be the basis for registration.

Agenus (AGEN, Hold, $2.61, market capitalization $165 million) My investment thesis is driven by the belief that this company will likely be taken over in a period of two to three years by a larger company wanting to establish a strong position in checkpoint modulation. This area of research is the hottest in oncology. I think that all of the large biopharm companies will want to have broad platforms in checkpoint modulation. Agenus can instantly give that presence.

I am concerned in the near term about the ability of the company to partner its heat shock protein programs in glioblastoma and herpes simplex so that this could result in their being put on the shelf. If so, this could cause weakness in the stock which would be a buying opportunity. I am maintaining my position in the stock, but not recommending it aggressively for the reason just cited.

NeoStem (NBS, No opinion currently, $4.98, market capitalization $176 million)

I like the broad positioning of this company in the field of living cell therapies. This starts with its being one of the leading manufacturers of living cell products through its Progenitor Cell Therapy subsidiary. This could become a major business and might be sufficient reason to own the stock if I am right on the potential for living cell therapies. It also has a stem cell trial in the treatment of myocardial ischemia that will read out in November 2014. I currently lack confidence in judging the outcome of this trial and this keeps me on the sidelines. NBS is also starting a phase 3 trial for its dendritic cell cancer vaccine in malignant melanoma. I am very interested in this company and will do more work.

StemCells (STEM, No opinion currently, $1.16, market capitalization $80 million) I consider Stem Cells and Neuralstem to have comparable technologies and both could emerge as leaders in stem cell product development. My buy on Neuralstem is based on its being farther along in the development of their stem cell product for ALS. I am very interested in STEM and intend to do more work. It is starting phase 2 proof of concept trials in chronic spinal cord injury and dry age related macular degeneration. After years of frustration with the pace of clinical development of its neural stem cells, the pace is stepping up dramatically.

Kite Pharma (KITE, No opinion currently, 32.56, market capitalization $1.3 billion)

Kite is a leading participant in the field on engineered Autologous T cell Therapy and the first pure play company to come public. It plans to start a trial in 2015 that could be the basis of approval for the treatment of diffuse large B-cell lymphoma patients who have failed all other treatment options. This drug development area is attracting a lot of investor attention and KITE is a closely watched company. It has a market valuation of about $1.2 billion.

Inovio Pharmaceuticals (INO, Hold, $10.04, market capitalization $606 million)

The Company was successful in establishing proof of concept in a phase 2 trial in cervical pre-cancer conditions as its lead product VGX-3100 reached its primary endpoint. However, the confirmatory phase 3 trial won’t begin until 2016 and will probably not report results until 2018. This is a long period to wait for news. I will do more work on the Company.

Protalix Biotherapeutics (PLX, No opinion currently, $2.20 market capitalization $206 million)

This looks to be a very interesting company that manufactures therapeutic proteins using plants rather than bacterial or mammalian cells. The lead product for the Company is Eleyso, which is a competitor in the treatment of Gaucher’s disease to Sanofi/ Genzyme’s Cerezyme that is produced in mammalian CHO cells and AbbVie/ Shire’s Vpriv which is produced in human cancer cells. These products are projected to achieve worldwide sales of $750 million and $400 million respectively in 2014. Eleyso has a significant advantage in cost of production that allows it to compete on a price basis. I believe that it can carve out meaningful share of the Gaucher’s market with this strategy. It is working on developing other lower priced drugs to compete against established drugs in other orphan diseases and also developing an oral delivery system for protein drugs. This is an interesting company.

Pluristem (PSTI, No current opinion, $3.08, market capitalization $213 million)

My initial impression is favorable as I think that its living cell products derived from placenta tissues may have significant potential for inflammatory and ischemic diseases. This looks like an interesting company, but meaningful clinical results are some time off. I plan to do more work on the Company.

Advaxis (ADXS, No current opinion, $2.71, market capitalization $53 million)

The Company has dynamic new leadership that is attracting investor attention. I need more data to reach a better conclusion on the prospects for the technology.

Lion Biotechnology (LBIO, No current opinion, $6.50, market capitalization $178 million)

The Company is being run by managers who previously led ImmunoCellular Therapeutics. It has a leadership position in the development of tumor infiltrating lymphocytes. It has a number of clinical trials planned, but first needs to gain GMP status for manufacturing. I am interested in this stock.

BrainStorm Cell Therapeutics (BCLI, $4.00, No current opinion, $61 million market capitalization)

My main interest in looking at this company was that it is developing an autologous stem cell product for ALS that potentially is a competitor to Neuralstem. I think that the outlook for the technology is hard to determine and it some years behind in ALS clinical development.

Stem Cells; A More In-Depth Overview

The most common cells in the human body are specialized cells which make up the internal organs, skin, bones, blood, and connective tissue; there are more than 200 types. These specialized cells are the differentiated products (spring from) of stem cells. Stem cells have unique properties that distinguish them from specialized cells: (1) they can divide and create duplicates of themselves, sometimes after they have been dormant for long periods, (2) they do not perform any direct function in the body as do specialized cells, and (3) they can turn into specialized cells in a process called differentiation. Specialized cells can only replicate into identical specialized cells.

Stem cells do not perform specialized functions such as heart cells, e.g., which work in conjunction with neighboring heart cells to pump blood. However, they can change into specialized cells like nerve, heart muscle and blood cells. The therapeutic goal in stem cell therapy is to transplant the appropriate type of stem cells into damaged organs ort at more distant sites from which they can migrate to damaged organs. Once located, they then differentiate into specialized cells and treat disease and injuries that have been difficult or impossible to treat effectively with current drugs.

At a casual first glance, stem cell therapy could appear to be straightforward. Why not just find the appropriate stem cell, deliver it to the area such as the spinal column or heart where you want to grow new cells and let things happen? It is infinitely more complex than this. Stem cells are not so easy to isolate and expand. Moreover their action in the body is not well understood as they interact with both surrounding and distant cells, which communicate with stem cells through chemical messengers that determine how the stem cells differentiate into various types of specialized cells.

Stem cell therapy holds the promise of being a major step forward or a paradigm shift in treating human disease. In my opinion, this is inevitable, but the question is how long will it take and will the small companies now pioneering the technology be winners or historical footnotes? Like monoclonals and recombinant DNA, it could take decades for this technology to become a commercial driver for the biopharma industry.

Embryonic and Adult Stem Cells

There are numerous types of stem cells but they are broadly classified into two categories: embryonic and an “all other” category called adult stem cells. Embryonic stem cells can ultimately differentiate into all of the cells that make up the body such as the heart, lung, skin, sperm, eggs and other tissues. They are obtained from the human embryos created through in vitro fertilization procedures, not from eggs fertilized in a woman’s body. Unwanted embryos that would otherwise be destroyed are obtained with the informed consent of the woman. However, because these embryos have the potential for life, they are the focus of ethical issues on stem cell research.

Adult stem cells are found residing in tissue such as bone marrow, muscle, and central nervous system and typically generate the cell types of the tissue in which they reside. While embryonic cells can potentially lead to the creation of any cell in the body, adult stem cells generally give rise to specific populations of specialized cells. They can generate replacements for cells that are lost through normal wear and tear, injury or disease. For example, hematopoietic stem cells create red and white blood cells that circulate in the blood and neural stem cells can create neurons, astrocytes and oligodendrocytes that make up the central nervous system.

Manufacturing Is Key Because Living Cells are the Product

The manufacturing process for living cells like stem cells is significantly different from small molecule drugs that are made through chemical processes. They bear more similarity to monoclonal antibodies and recombinant DNA produced products in which living cells produce drugs which are then harvested. However, the growth, expansion and preservation of living stem cells produce new and major challenges. The cells are grown in cultures and the living cells produced are the product. The challenge in manufacturing is to reproduce stem cells without allowing them to change into specialized cells. For example, embryonic stem cells tend to clump into embryoid bodies and spontaneously differentiate into various specialized cells when grown in culture.

Adult stem cells primarily form the specialized cell types of the tissue in which they reside. They can divide when needed and can give rise to mature cell types that have the characteristic shapes, specialized structures and functions of that particular tissue. Specific types of adult stem cells and the specialized cells into which they develop are as follows:

• Hematopoietic stem cells in bone marrow: red blood cells, B lymphocytes, T lymphocytes, natural killer cells, neutrophils, basophils, eosinophils, monocytes, and macrophages.
• Mesenchymal stem cells in bone marrow: bone cells (osteocytes), cartilage cells (chondrocytes), fat cells (adipocytes), and other kinds of connective tissue cells such as those in tendons.
• Neural stem cells in the brain and spinal cord: neurons, astrocytes and oligodendrocytes. Neuralstem’s and Stem Cell’s technology is based on neural stem cells.
• Epithelial stem cells in the lining of the digestive tract: absorptive cells, goblet cells, paneth cells, and enteroendocrine cells.
• Skin stem cells in the epidermis and at the base of hair follicles: keratinocytes, which migrate to the surface of the skin and form a protective layer, epidermis and hair follicles.
• Transdifferentiation. Certain adult stem cell types can differentiate into cell types seen in organs or tissues other than those expected. For example, neural stem cells in some situations can differentiate into blood cells.

Typically, there is a very small number of stem cells in each tissue, and once removed from the body, their capacity to divide is limited, making generation of large quantities of stem cells difficult. The goal in product development is to generate a line of genetically identical cells that can then give rise to all the appropriate differentiated cell types of the tissue in which they are found. There is proof of principal in using adult stem cells as stem cells gathered from the bone marrow have been used in bone marrow transplants used to treat leukemias and lymphomas for over 40 years.

The basic role of adult stem cells in creating and repairing tissue gives hope that they can be used to treat innumerable diseases and injuries. In the case of neural stem cells which are the focus of Neuralstem, they are being clinically tested in ALS with plans to test them in other central nervous system diseases such as Parkinson’s disease and Alzheimers. They will also soon be tested in patients who have suffered trauma to the central nervous system such as those with spinal cord injuries and stroke. The company Stem Cells, Inc. has proof of concept trials under way in acute spinal cord injury and age related macular degeneration.

Both Neuralstem and its close counterpart Stem Cells have passed over a major hurdle. The FDA has been so concerned about safety of implanted stem cells that clinical trials have been painfully slow. Typically, a patient is treated and then watched for several weeks or months for any signs of safety issues before allowing another patient to be implanted. I believe that the FDA has become more comfortable on the safety issue as the cells of both companies have been shown to be safe in their phase 1/2 trials. This means that both companies can now run trials like more normal biologics companies with quicker enrollment and more of a focus on efficacy. This is a watershed time for both companies as the number of clinical trials and patients enrolled is expanding rapidly.

Stem Cell Companies In More Depth

Neuralstem

Investor focus is on the ALS trials for Neuralstem’s adult neural stem cells; these are allogeneic cells. The company has completed enrollment of 18 patients in its phase 2 trial and with the six months follow-up required for each patient, we should see the final topline results in early 2015. The lead investigator for this open label trial, Dr. Eva Feldman, has already signaled that the results are impressive; she has stated publicly that she is working day and night on the protocol for the phase 2/3 study that could start in 1H, 2015. This potentially could be a pivotal trial. Stay tuned for the details on the trial. Dr. Feldman will likely give an update on interim results at the American Neurological Association in October 12 to 14.

The phase 2 trial for the small molecule drug NSI-189 could start in late 1Q, 2015. The Company has estimated that it will enroll about 150 patients and take about one year to complete. If this trial is successful, the drug will be partnered. Depression trials require thousands of patients and expertise in trial management beyond what CUR is capable of. This is a big event potentially for mid-2016.

The enrollment in a phase 1 study of the same neural stem cells used in the ALS trial in chronic spinal cord injury has begun. Stem Cells (STEM) has completed the phase 1 safety studies and is set to begin a phase 2 proof of concept study in chronic spinal cord injury; it is ahead of CUR in this indication. Neuralstem also has an ongoing ischemic stroke trial in China. The Company seems to indicate that we probably won’t see interim results on this trial. Finally, a trial in acute spinal cord injury could start in South Korea late this year.

My enthusiasm for Neuralstem is increasing as all signals point to the probability that its neural stem cells will work in some as yet to be determined number of ALS patients. My working assumption is that the technology of Neuralstem and Stem Cells is very comparable. I am recommending CUR currently because they are close to a pivotal trial in ALS. Stem Cells is just entering phase 2 proof of concept trials in chronic spinal cord injury and dry age related macular degeneration so we are probably more than a year from seeing proof of concept results.

StemCells

This company is quite comparable to Neuralstem. Both use allogeneic adult neural stem cells to treat central nervous system disorders. Stem Cells is suing Neuralstem for patent infringement relating to the technology used to produce these cells. I have previously written that in the worst case that I think that Neuralstem might have to pay a small royalty to Stem Cells and that this would not much affect the investment outlook for either company. However, it does underline how similar their technologies are.

The early clinical going in stem cell research was exceedingly slow. There was great concern by the FDA about safety as there was tumor formation (teratomas) associated with embryonic stem cells and the agency was concerned about the same thing happening with adult stem cells. Because these cells become integrated into the host, there is irreversible risk if problems arise. The FDA wanted to proceed slowly; it would allow the transplantation of a patient and would then require STEM to wait to see what the outcome was. As a result, they could only treat one to two patients at a time and the going was slow. Overall, they have now transplanted over 36 patients in the eye, brain and spine and the safety has been excellent. This is extremely important as they can now begin to enroll patients as rapidly as normal biologics trials. This is a watershed event for both Stem Cells and Neuralstem.

STEM has conducted phase 1 trials in dry age related macular degeneration and chronic lumbar spinal cord injury. In the latter case, cells were implanted above and below the site of injury. While phase 1 studies are primarily for safety, there were signals of efficacy in some patients in both trials. The Company is now planning phase 2 controlled studies in both of these conditions in the latter half of 2014 with the aim of establishing proof of concept. This is a pretty exciting development, but we probably won’t see topline results until 2016 or later.

I know investors are inclined to try to choose between Neuralstem and StemCells and are trying to determine which is going to be the winner. In my opinion, both companies can win. This is a revolutionary technology and they are two leaders in the field. At this point, CUR has developed strong data in a phase 1 and 2 trial of ALS that drives my recommendation of the stock. STEM is ahead of CUR in chronic spinal cord injury as it has completed phase 1 and is going to begin a phase 2 proof of concept study. CUR is just starting phase 1. STEM is about to start a phase 2 proof of concept study in dry age related macular degeneration. CUR is not active in this area.

I am obviously interested in Stem Cells and will do more work. However, I am more attracted by Neuralstem because of the promising results seen in the phase 1 and 2 trials in ALS and the potential that a pivotal trial could begin in early 2015. The phase 2 proof of concept trial results in dry age related macular degeneration and chronic spinal cord injury are perhaps two years or so away for STEM and these seem to be the major value creating events for the Company. This doesn’t mean that I might not choose to recommend the stock, but for the present I am neutral.

Neostem

Neostem is broadly involved in immunotherapy and living cell therapy and fits very nicely into my long term thesis. Its lead product is NBS 10. This is a bone marrow derived, autologous mesenchymal stem cell that is being studied for use in reducing the damage to the heart following a heart attack.

Stem cells expressing CD34 and CXCR4 are injected through a catheter about 6 to 9 days after a heart attack. Damaged cells in the heart send out signals that are detected by the CD34 receptor and the mesenchymal cells then migrate to the region of damaged heart tissue (infarcted area). The hypothesis is that they will embed in this area and help form new blood vessels that will deliver more oxygen to areas damaged by the heart attack and reduce the damage to the infarcted and surrounding areas of the heart.

This is obviously a dramatic new approach to treatment of severe heart attacks. In phase 1, NBS 10 did appear to reduce the size of the infarcted region and also seemed to maintain ejection fraction which is a key measure of the amount of blood being pumped. This was encouraging. However, I just don’t have a feel for the potential success of this treatment. The trial is scheduled to read out results in 2H, 2014 and obviously this is a huge binary event. Baxter had a similar program that used CD34 stem cells that was successful in a phase 2 trial and was progressed to phase 3. Because of a change in strategic focus, this phase 3 trial was stopped.

NeoStem is conducting the PRESERVE phase 2 study in 160 patients that is randomized 1:1 with NBS 10 plus standard of care versus standard of care. The primary endpoint is cardiac perfusion as measured by SPECT imaging from baseline to six months. The enrollment in this trial has been completed and topline results will be released in about the November 2014 timeframe.

Earlier this year the company acquired a dendritic cell cancer vaccine, NBS 20, that is being prepared for a phase 3 trial in malignant melanoma. The approach to loading the dendritic cells is different from Northwest and ImmunoCellular. The dendritic cells are pulsed (loaded) with antigens from irradiated cancer cells. NBS states that it separates the cancer stem cells from the differentiated cancer cells so that its vaccine is primarily targeted at cancer stem cell antigens. Northwest Biotherapeutics uses tumor lysate and ImmunoCellular uses a group of six synthetically produced antigens. Which of these approaches is best or whether each approach produces acceptable therapeutic results remains to be seen.

NBS 20 has produced phase 2 results which indicate that two year survival for treated patients was 72% versus 31% for control in malignant melanoma patients. The Company is now planning a phase 3 trial in patients with either stage 4 or recurrent stage 3 metastatic melanoma. This will be a 250 patient study that is randomized 2:1. The primary endpoint is overall survival and the study is powered to show a 37.5% reduction in the risk of death. The company has an SPA from the FDA which means that the agency acknowledges that this is a valid endpoint for registration. This trial will probably report out in 2017.

The Company also has a program that uses autologous regulatory T cell infusions to dampen the activity of overactive effector T cells. The latter condition is a cause of autoimmune diseases. The first target indication will be in recently diagnosed type 1 diabetes in which there remain some functioning islets of Langerhan’s cells. A phase 2 program will begin in 4Q, 2014.

These drug development efforts are all high risk programs. However, there is another aspect of the Company that promises to be a major commercial success regardless of the outcome of the therapeutic drug trials. Though its PCT division, Neostem is a leading manufacturer for living cell therapy products. It produced Provenge that was used in clinical trials and has been involved in 50 other regulatory filings in the US and EU. If I am correct in projecting an enormous expansion in development of living cell based therapies, this Company’s PCT manufacturing subsidiary could be the sole basis for owning the stock.

BrainStorm Cell Therapeutics

This is an Israeli biotech company that may be looked at as a competitor to Neuralstem in targeting ALS using stem cell technology. Their approaches are meaningfully different. Brainstorm derives its cells from mesenchymal stem cells that are found in the bone marrow. These cells are then transplanted using either an intrathecal administration (into the spinal fluid) or intramuscular injection. The hope is that they will migrate into the spinal column and secrete neurotrophic growth factors that will slow or prevent nerve destruction that is the hallmark of ALS. This is hypothesized to be the mode of action for Neuralstem’s cells as well.

Brainstorm has some early stage data on efficacy that is inconclusive and is still engaged in safety trials. It is probably two years or more behind Neuralstem in demonstrating proof of concept. At this point, I am not overly impressed with the technology, but I will watch the company. I met with the CEO recently in New York.

Autologous T-Cell Therapy: CAR-T and TCR

T-cells are integral to the body’s adaptive response to cancer, but cancers often find a way of escaping or blocking the attack of T-cells. Over the last two decades, the NCI and academic centers have come up with engineered forms of T-cells which can enhance or restore their efficacy and this has created considerable excitement in both the scientific and investment community. This is referred to as Autologous T-Cell Therapy or eACTs. There are two broad platforms of eACTs of which the most clinically advanced is chimeric antigen receptor (CAR-T) therapy and the second is T cell receptor (TCR) therapy.

Both CAR-T and TCR start with the collection of a cancer patient’s T-cells. The genomes of these cells are then molecularly engineered outside of the body to allow the T-cells to express receptors on their surface that recognize an antigen specific to a cancer cell, hone in on that antigen, attach to the cell and then unleash the innate killing mechanisms that T-cells employ to destroy cancer cells. These cells are then re-infused into the patient and remain in the patient for a period of time and provide sustained control of the cancer in some patients. For both CAR-T and TCR, there are essentially five steps in the manufacturing process that leads to the final living cell product.

1. T-cells must be collected and then isolated outside of the body.

2. The isolated T cells must then be activated through cytokines.

3. Genes that encode for receptors on the surface (that recognize tumor antigens) are introduced into the genome of the T-cell with a viral vector.

4. These genetically transduced T-cells are then proliferated outside of the body

5. The resultant cells are then infused back into the patient. Because the cells can be frozen, they don’t need to be immediately infused. They can be thawed for later use.

This is an extremely complex process. However, if antigens that are specific to a disease state can be identified, it is theoretically possible to engineer a receptor that is specific to that antigen. This would allow these cells to attack virtually any cancer as well as bacteria, viruses and solid tumors.

CAR-T Cells

CAR-T cells are engineered to express a receptor, one component of which is an antibody fragment that recognizes specific cancer antigens. This provides the honing ability that allows the T-cell to find and attach to the cancer cell. Once the CAR-T cell attaches to the cancer cell, it does what nature designed it to do. It releases a flurry of cytokines that attack and destroy the cancer cell. CAR-T cells can only recognize cancer cells that express antigens on their surface. These are mainly hematological tumors such as lymphoma and leukemias.

CAR-T cells add the specificity of antibodies with the functional killing power of a T-cell. Once the CAR-T cells recognize and bind to their targeted antigen, intracellular domains activate the CAR-T-cells. They proliferate, release cytokines, and lyse the membrane of the targeted cell. A CAR-T cell can theoretically be targeted against any antigen which is expressed on the surface of a cell. However, it is estimated that up to 80% of proteins which are associated with cancer are intracellular and inaccessible to CAR-T therapy.

TCR Cells

TCR uses a different approach in which the patient’s cells are engineered to express a receptor that recognizes cancer cell proteins that are presented on cancer cell’s surface via the MHC complex. This means that TCR therapies can be designed against intracellular antigens that can’t be targeted by CAR-T. They can recognize peptides presented by each of the MHC classes. MHC class I molecules generally present peptides expressed within the cancer cell. MHC class II molecules are generally expressed by professional antigen presentation cells such as dendritic cells and macrophages which present cancer antigens obtained via phagocytosis.

TCR therapies must recognize a specific MHC complex so that they must be matched to the HLA-type of the patient. Different TCR sequences are capable of recognizing different subsets of MHC proteins which means that a patient’s MHC genotype has to be matched to particular TCR constructs that are encoded in the genome. This means that the TCR constructs for patients will differ from patient to patient according to MHC status. This complicates the logistics.

CAR-T and TCR cells undergo rapid expansion and generate a cytokine storm. In the NCI trials, this resulted in fever, low blood pressure, and kidney dysfunction, all of which can result from an excessive cytokine storm. This is akin to an auto-immune reaction and in some cases requires treatment with an immune suppressant drug like those that are used to treat rheumatoid arthritis. a meaningful number of patients also experience confusion, neuropathy, and somnolence. In the early days of CAR-T experimentation side effects caused by the cytokine storm were quite severe and caused dangerous toxicities and could lead to hospitalization. With time, techniques have been developed to manage better these toxicities.

Engineered Autologous T-Cell Therapy Companies

Kite Pharma

Kite Pharmaceutical was the first small biotechnology in the eACT space to come public. Kite’s lead product is KCE-C19 which is a CAR-T with extracellular antibody fragment that binds CD19; this molecular complex or antigen that is expressed on the surface of B-cells. It was in-licensed from the NCI. The presence of CD19 expressing B cells will cause KTE-C19 cells to proliferate, produce cytokines and/or exhibit cytotoxic activity. The cytotoxic activity exerts the clinical effect of clearing all B cell lineages expressing CD19 from a patient following administration of KTE-C19. The patient will be devoid of these B cell lineages as long as the KTE-C19 cells remain in their body.

KCE-C19 therapy is intended to eliminate all B-cell lineages that express CD-19; this includes normal as well as cancerous B-cells. As long as KCE-C19 cells are circulating in the blood at high levels, the B-cell compartment of the adaptive immune system is wiped out. Early data suggests that CAR-T cells last about 2-3 months. Sustained B-cell depletion increases the risk of infections which may require the use of antibiotics and/or immunoglobulin supplementation. While this sounds ominous, this B-cell depletion is the mechanism by which the CD 20 targeted antibody Rituxan works and Rituxan is obviously very well tolerated. The issue may be that KCE-C19 is more potent in depleting B-cells. At this point, it is not clear how long it will take to replenish B-cells after KCE-C19 cells are no longer circulating.

Once a CAR-T or TCR recognizes its target antigen the natural intracellular signaling machinery of the T-cell is engaged to generate effector functions (release of cytokines and/or cytotoxic molecules). This signaling is subject to the T-cell’s natural inhibitory mechanisms including PD-1/PD-L1 signaling which lead to upregulation of inhibitory molecules such as PD-1. As a result, eACT cells could become less effective over time due to tumor immunosuppression although this hasn’t been an in issue to date. It may be necessary to combine eACTs with the checkpoint inhibitors currently being developed by other companies.

Clinical Data

Kite has just released topline results on the second cohort of a group of 15 patients in an NCI trial of an anti-CD19 CAR T cell therapy in advanced B-cell (hematological) malignancies. Two of these patients were retreated patients from the first cohort. These patients received a conditioning regimen of chemotherapy (cyclophosphamide and fludarabine) followed one day later by a single infusion of anti-CD19-CAR T cells.

Thirteen of the 15 patients were evaluable for responses. There were 7 evaluable patients with chemotherapy-refractory DLBCL patients. In this group there were four complete responses and two partial responses. Of the patients who achieved a complete response, three have had duration of response from 9 to 22 months. Third line DLBCL patients like these are generally only given palliative care or sent to hospice. It is estimated that they have a median survival of about 6 months. Hence the complete response rates and durations of response as seen in the NCI data are very encouraging.

There was a 100% objective response rate in 4 patients with chronic lymphocytic leukemia and 100% in two patients with indolent lymphomas. Three of 4 patients achieved complete responses in the CLL group and 1 of 2 patients achieved complete response in the indolent lymphoma group. All patients continue to be monitored and there will be ongoing updates.

There was not much detail on toxicities. The authors just said that as has been seen in other studies, infusion of anti-CD19 CAR T cells was associated with significant, acute toxicities, including fever, low blood pressure, focal neurological deficits, and delirium. In earlier studies, there have been reports of severe toxicities that in some cases required months of hospitalizations.

Kite plans to file an investigational new drug application (IND) in 4Q, 2014 to initiate a trial in in third line DLBCL patients. This will be a phase 2 single arm study in perhaps 40 patients who have either failed R-CHOP (the standard of care) and subsequently a platinum containing regiment or those patients who have relapsed within 12 months of an autologous stem cell transplant. Enrollment is anticipated to begin in 1H, 2015 and continue through 1Q, 2016 with preliminary data available during 2015.

Management believes a 30% response rate may be sufficient for accelerated approval in 3rd line DLBCL if the NCI data can be replicated. This would raise the possibility for approval in 2017. Simultaneous to the IND application, Kite plans to use the NCI Phase 1/2 DLBCL patient data to apply for breakthrough status. To facilitate the accelerated approval, Kite plans to initiate a randomized phase 2 study in second line DLBCL.

Additional trials for several other eACTs directed at other cancer antigens are planned for 2015. Antigens being targeted include NY-ESO-1 (sarcoma, other solid tumors), MAGE-A3 (epithelial cancers), SSX2 (HCC, other solid tumors), and EGFRvIII (glioblastoma, head & neck cancer).

Manufacturing of KTE-C19 is Different from NCI Process

Kite is transitioning manufacturing from NCI to a new more scalable process. The living cell product that will be produced by this new manufacturing process will be called KTE-C19. The current NCI production process contains multiple inefficiencies and/or steps containing unnecessary risk factors. It will require refinement. Kite has also developed a cryopreservation protocol that it believes will allow for long term storage of CAR T cell products. There is the risk that these changes could result in changes to the living cells that could alter the efficacy and safety of KTE-C19 relative to the living cell product used in the NCI trials.

Kite is not altering the gene construct or the expression vector from the NCI trial. Therefore, as long as Kite can demonstrate that the end products are consistent the FDA should accept the NCI trial data in conjunction with the Kite trial data in DLBCL. Kite has chosen Progenitor Cell Therapy (owned by Neostem) to help develop and then conduct the manufacturing process for KTE-C19. GMP certification is expected to be completed by late 2014 allowing for the filing of the IND for the phase 2 trial.

Kite Competitors in the eACT Space

The compelling nature of the clinical datasets created by NCI and academic centers has prompted several companies to jump into the effort to commercialize eACTs. There are a number of small and large competitors in the eACT space. They are attracted by the wide-open opportunity in cancers and potentially infectious disease. The playing arena is so vast that there is room for multiple companies to operate if this technology can be commercialized. It is far beyond the scope of this report to go into the business plans of these several entrants, but here is a capsule of each.

Novartis/Penn

Novartis formed an R& D partnership with the University of Pennsylvania in 2012 to develop CAR-T therapies. Novartis obtained rights to a CD 19 specific CAR-T product which it has named CTL-019, and additional products. CTL-019 achieved a 47% response rate in 32 patients with refractory CLL and in 90% of patients with refractory ALL. Based on this, the FDA has given CTL-019 breakthrough therapy designation. Novartis plans to start a pivotal trial in 2014 in ALL and has targeted an NDA filing in 2016. Novartis is also enrolling patients in phase 1 trials in mesothelioma and pancreatic cancer with a CAR-T product called MesoCART. A CAR-T product based on EGFRvIII   is expected to begin a Phase I trial in glioblastoma in 2014.

Juno Therapeutics

Juno is a privately held company that is developing both CAR and TCR based autologous eACTs using technology Memorial Sloan Kettering Cancer Center, Fred Hutchinson Cancer Research Center, and Seattle Children’s Research Institute. Each of these three academic centers has developed a CD19 CAR-T cell. The Fred Hutchinson construct contains a suicide gene to mitigate the risk of excessive CAR-T cell expansion and/or allow for the eventual return of B cells to a patient’s peripheral blood. This product is called JCAR15. In a phase 1/2 trial in ALL, it has generated 16 complete responses in 21 evaluable patients (76%). JCAR14 is another product that is being studied in phase 1/2 trial in non-Hodgkin’s lymphoma and chronic lymphocytic leukemia. There is also work going on in TCRs.

Adaptimmune/Glaxo

Adaptimmune is a private company based in the UK that is partnered with Glaxo. Its lead product is a TCR that is specific for NY-ESO-1 and is being developed under a non-exclusive license from NCI. Studies conducted by NCI have been conducted in synovial cell sarcoma and melanoma. NCI reported that  objective responses in 10 out of 15 (67%) synovial cell sarcoma patients as well as in 10 out of 19 (53%) metastatic melanoma patients. In June 2014, GSK entered into a collaboration agreement with Adaptimmune to codevelop Adaptimmune’s NY-ESO-1 product and additional unspecified TCR products.

Cellectis/Servier/Pfizer

Cellectis is a French company that is developing allogeneic CAR-T cells. This approach could produce an off the shelf product that would avoid the complexity and cost of autologous living cell manufacturing. The company is trying to knock out the components of T-cells that lead to graft versus host disease by gene editing of the donor cells.

Cellectis’ lead product is an anti-CD19 CAR construct that will be targeted at hematological tumors. Management expects to initiate a Phase I trial in 2015. In February 2014, Cellectis entered into a partnership agreement with Servier for this construct along with 5 undisclosed targets. In June 2014, Cellectis signed a collaboration agreement with Pfizer to develop CAR T cell therapies for up to 15 oncology targets selected by Pfizer.

bluebird bio/Celgene/Baylor

In March 2013, bluebird entered into research collaborations with Baylor College of Medicine and Celgene to develop CAR T cells. Details on the development plan are expected in 2015, with an initial candidate expected to enter the clinic by 1H, 2016. Much of the technology comes from work at Baylor University. There are few details on the technology approach the partners will take.

Tumor Infiltrating Lymphocytes and Lion Biotechnologies

Lion Biotechnologies

Lion Biotechnologies, Inc. is an emerging biotechnology company focused on developing and commercializing adoptive cell therapy (ACT) using autologous tumor infiltrating lymphocytes (TILs) for the treatment of metastatic melanoma and other solid cancers.  ACT utilizes T-cells harvested from a patient to treat cancer in that patient.  TILs are a kind of anti-tumor T-cell that is naturally present in a patient’s tumors, are collected from individual patient tumor samples. The TILs are then activated and expanded ex vivo and then infused back into the patient to fight their tumor cells.

Autologous cell therapies using TILs was developed by Dr. Steven Rosenberg, Chief of Surgery at the National Cancer Institute (NCI).  Lion has acquired a worldwide, non-exclusive license for various adoptive cell therapy technologies.  It intends to support the in vitro development of improved methods for the generation and selection of TILs, develop approaches for large-scale production of TILs, and conduct clinical trials using these improved methods of generating TILs for the treatment of metastatic melanoma.

Lion is also in discussions with the NIH to license additional rights to next generation T-cell technology that may have higher potency, persist over a longer period of time, require fewer cells, and have a lower manufacturing cost.

Treatment Regimen

The manufacturing process begins with the surgical resection of the patient’s tumor which is then sent to a manufacturing facility. Autologous TILs are then isolated from the patient’s metastatic melanoma tumor.  This population of autologous TILs is then multiplied ex vivo to greater than 20-50 billion TILs under conditions that overcome the immunosuppressive influences that exist in the cancer patient due to the presence of their cancer.

About six to eight days prior to infusion of the TILs, the patient returns to the hospital. They are given nonmyeloablative chemotherapeutic to reduce suppressor T-cells that regulate and dampen the activity of effector T-cells like the TILs. The TILs are then re-infused into patient along with a high dose of interleukin-2 (IL-2), a protein that stimulates the immune system. The patient remains in the hospital for 8 to 10 days after the infusion to allow the immune system to rebuild.

Technology

Tumor infiltration lymphocytes or TILs are an immunotherapy that was developed at NCI. The premise is that in the early stages of cancer T-cells are activated and migrate to the tumor and launch an attack. However, this effect is blunted by mechanisms that the cancer uses to evade immune detection and suppress the immune response. The goal of TIL therapy is to overcome the tumor’s immunosuppressive effects.

The technology captures T-cells that are embedded in resected tumor tissue and then expands these cells over a manufacturing period of five weeks. The patient is preconditioned to remove all suppressive influences prior to infusion of cultured TILs to enhance therapeutic outcome. The patient is given chemotherapy to deplete normal lymphocytes and then the autologous TILs are infused in combination with IL-2 to help them proliferate.

Manufacturing

The current TILs manufacturing process is currently labor intensive, costly, and time-consuming, which has limited its widespread application. Lion has entered into a manufacturing agreement with Lonza to develop a GMP process for TILs. Lonza will manufacture, package, ship and handle quality assurance and quality control of TIL therapy.  Lion anticipates that this manufacturing will be completed in mid to late 2015.

Clinical Data

The data on TIL therapy comes from clinical trials that have been physician sponsored trials at the National Cancer Institute and the leading cancer centers M.D. Anderson Cancer Center, and the H. Lee Moffitt Cancer & Research Institute. Lion was not directly involved in these trials. The Company has acquired non-exclusive license to patents held by the NCI.

These trials of TILs focused on stage 4 metastatic melanoma patients who were refractory to all other therapies. Of 146 patients treated, objective response rates of 50% and complete response rates of 10% have been shown. These are impressive when compared against older chemotherapies and cytokine therapies that produced 2% to 5% objective response rates. Treatment of this type of cancer has now shifted to checkpoint inhibitors like Yervoy (ipilimumab), nivolumab and pembrolizumab. It is difficult to compare response rates of TILs with Yervoy and the anti-PD1s nivolumab and pembrolizumab because these drugs do not necessarily cause early shrinkage of the tumor. Responses were durable as some 30% of patients achieved seven years survival.

Clinical Trial Plans

The first TIL product candidate of Lion will be in malignant melanoma and will draw on studies previously conducted at NCI. Lion acquired non-exclusive rights to develop TILs for melanoma, ovarian, breast and colon cancers by in-licensing the patents covering these technologies on a non-exclusive basis.

Before Lion can conduct clinical trials, it will have to develop a manufacturing process that meets FDA guidelines for manufacturing cell based products. The manufacturing process used at NCI and the cancer centers does not qualify. In order to do this, Lion will have to get an IND and treat patients at a number of centers with this process.

Lion plans to begin a phase 3 trial in malignant melanoma in 2016 and to be in phase 2 trials in cervical cancer and head and neck cancer also. NCI is now enrolling a phase 2 trial in 101 patients in second line metastatic melanoma and a phase 1 trial in metastatic melanoma in combination with vemurafenib. It is also conducting phase 1/2 trial in head and neck and cervical cancer and a phase 1 in lung cancer. Lion will be filing an IND in 2014 for its manufacturing process.

Other Companies With Interesting Technologies

Inovio

Inovio’s technology starts with identifying an antigen specific to a disease causing agent like human papilloma virus, which is the cause of cervical and other types of cancers. The Company inserts the genetic code for that antigen into a DNA plasmid (a circular piece of DNA), which is then injected into muscle. Electroporation is then used to enhance the uptake of the plasmid in muscle cells. This increases the amount of plasmids taken up by the cell as compared to other “naked DNA” vaccines like those of Vical hthat do not use electroporation.

Once the plasmids are taken up in the cell, cellular mechanisms in the cytoplasm lead to the expression of the antigen in large quantities. This leads to the activation of T-cells that are specific for attacking virus particles that express this antigen. It is all about stimulating T-cells specific to the antigen.

The Company was successful in establishing proof of concept in a phase 2 trial in cervical pre-cancer conditions. Its lead product VGX-3100 reached its primary endpoint. It was able to cause regression of CIN 2/3 lesions to CIN 1 in 49.5% of patients (53 of 107) versus 30.6% (11 of 36) control patients for p<0.025. It also achieved the secondary endpoint of achieving HPV clearance and regression of CIN 2/3 lesions to CIN 1 or no disease in 40.2% of patients (43 of 107) versus 14.3 % of control (5 of 35) for p<0.025.

Invasive squamous cell cervical cancers are preceded by a long phase of pre-invasive disease that is referred to as cervical intraepithelial neoplasia (CIN). CIN is categorized into grades 1, 2 and 3 depending upon the proportion of the thickness of the epithelium showing mature and differentiated cells. The severity of dysplasia as determined by CIN, is determined by a biopsy of the cervix; the three categories are: CIN 1, mild dysplasia: CIN 2, moderate to marked dysplasia; and CIN 3, severe dysplasia to carcinoma in situ (which means on site or local).

The lead program VGX-3100 focuses on HPV associated pre-cancers and cancers. A phase 3 program in cervical pre-cancer following on the successful phase 2 trial will begin in 2016. There are other trials being planned for cervical cancer, oro-pharyngeal cancer and anogenital cancer. It may be 2018 before we see the results on this phase 3 trial. This is a long time to wait for results and while I am very interested in the Company and the technology, this is just too long a time period to wait.

Inovio now has the cash resources to begin this phase 3 trial and conduct some part of it. It ended the second quarter with $103 million of cash. They have also just filed an S-3 that allows the issuance of equity to raise up to $175 million. The Company had previously issued guidance that it had cash to last until 2017. However, this did not take into account doing a phase 3 trial in cervical dysplasia. Conducting a phase 3 will require a partnership or an incremental cash raise. If it decides to go the partnership route, its cash position puts Inovio in a strong negotiating position.

Agenus

This is a company that has completely transformed itself this year through the acquisition of 4-Antibody. That company’s Retrocyte Display Platform for creating monoclonal antibodies makes Agenus a very meaningful player in checkpoint modulation which is the hottest area for cancer research on the planet.

Agenus has six checkpoint modulators in pre-clinical development and will begin filing INDs in 2015/ 2016. It has four checkpoint inhibitors which prevent cancers from downgrading the n body’s immune response to cancer; these are monoclonals against CTLA-4 (the target for Bristol-Myers Squibb’s Yervoy), PD-1 which is the target for Bristol-Myers Squibb’s nivolumab and Merck’s pembrolizumab), TIM-3 and LAG-3. There are also two antibodies that stimulate the immune system by agonizing GITR and OX-40 receptors.

In addition to these checkpoint modulators, there are literally hundreds of other targets to explore. Agenus has one of the broadest current portfolios in checkpoint modulation and its technology allows it to quickly address other checkpoint modulators as their function is discovered. This is an extremely attractive asset for Agenus.

Agenus has long been known for its heat shock protein vaccine technology. It currently has Prophage in a clinical trial in recurrent glioblastoma and is ready for a phase 3 trial in newly diagnosed glioblastoma. It also recently completed a trial of HerpV in genital herpes. The Company has commented that it is having difficulty in enrolling the Prophage trial in recurrent glioblastoma which compares Prophage plus Avastin to Avastin alone. It said that doctors are reluctant to give Avastin to these patients because of concern about its lack of effectiveness.

Agenus does not have the resources to pursue the checkpoint modulation program and the heat shock vaccine program. It ended the second quarter with $63 million of cash and has made it clear that it will devote all of its resources to checkpoint modulators. It will advance the heat shock protein cancer vaccines only through partnering.

The problem that I see for the stock in the near term is that I am not sure that the current data will allow it to partner the heat shock protein vaccines. There may come a time when it has to announce that these products have effectively been put on the shelf. This will probably impact the stock when this occurs. It is also unlikely that Agenus will have the resources to take any one of its checkpoint modulators through the clinic on its own and will have to partner the products. However, this should be relatively easy.

I think that the prospects for the stock could be a little rocky in the intermediate term if I am correct on the heat shock vaccines and because the first of the checkpoint inhibitors won’t get into human trials until 2016 or so. However, I think that in the longer term of three to five years that Agenus has a very high probability of being acquired by a much larger company that has missed the early stages of the checkpoint modulator research explosion. Agenus would quickie make any such company a player in this area. So that is the investment thesis. You have to be patient with this stock. I have a modest position and intend to hold my stock, but I am not inclined to add more until I can identify some near term catalysts and the heat shock vaccine issues are behind us.

Pluristem

This is an Israeli biotechnology company developing cell based products derived from the placenta. You may recall that MiMedx, Osiris and Derma Sciences are all involved in collecting amnion from placental tissue and using it in wound healing. This has led to significant sales for these types of products; in 2014, combined sales could amount to $250+ million.

Pluristem is relying on the demonstrated ability of placental tissue to help wound healing but has a somewhat different strategy. It extracts cells from the placenta following child birth. They are then expanded in the company’s three dimensional manufacturing process. Most cell expansion is done on the two dimensional surfaces of a culture. Pluristem feels that it’s three dimensional process improves the qualities of the cells. The cells are then frozen and later thawed for injection in the body to aid wound healing similar to amnion tissue.

The company is investigating these cells in beginning phase 2 trials in intermittent claudication and pre-eclampsia. It is working with United Therapeutics in a phase 1 trial in pulmonary arterial hypertension. The CEO of United Therapeutic, Martine Rothblatt, has called this the most transformative of that company’s products.

This looks like an interesting company, but meaningful clinical results are some time off. I plan to do more work on the Company at some future point.

Protalix

The technology of this Israeli company is based on the use of plant recombinant DNA expression systems to produce proteins as opposed to mammalian cell expression systems. As I noted earlier the latter are responsible for $75 billion of worldwide sales.

The lead product for the Company is Eleyso, which is a competitor to Sanofi/ Genzyme’s Cerezyme which is produced in mammalian CHO cells and AbbVie/ Shire’s Vpriv which is produced in human cancer cells. These products are projected to achieve worldwide sales of $750 million and $400 million respectively in 2014. Eleyso has a significant advantage in cost or production that allows it to be priced at a discount.

Pfizer has worldwide rights for Eleyso except for Israel and Brazil in a collaboration in which profits are split 60/40. The product is approved in the US, Brazil, Israel and Chile and other markets soon. In Israel, Eleyso reached sales of $5 million in 2013. Protalix agreed to transfer its technology to Brazil in return for an agreement that Brazil will buy $280 million of Eleyso on terms that require the purchase of at least $40 million per year until the $280 million is reached. The first shipment of $40 million will be in July 2015.

The next product in the pipeline is PRX-102 for Fabry’s disease which will compete with Sanofi/ Genzyme’s Fabrazyme with AbbVie/ Shire’s Replagel. These products are projected to reach $550 million and $600 million respectively of worldwide sales in 2014. PRX-102 is beginning phase 2.

Protalix believes that it can use its technology to engineer proteins that can be delivered orally. The plant wall cellulose serves as a protective agent against gastric acid and may allow the delivery of proteins as. The first such product is PRX-112 which is administered as a liquid formulation of carrot cells. This is in phase 2.

This is an interesting company.

Advaxis

The Advaxis technology platform is based on a novel approach immunotherapy approach to treating cancer. The essence of the approach is that the body’s immune system is trained to attack the cancer as if it were a bacterial infection. Advaxis starts with the gram positive bacteria Listeria monocytogenes (Lm) which is ubiquitous in the environment. Human infections due to Lm are usually caused by ingestion of contaminated food products. It penetrates the intestinal tract to cause systemic infections of the central nervous system, blood and the gastrointestinal tract that are very difficult to treat.

The first step in product creation is to delete a key gene in Lm that is critical to causing infections. This keeps the Lm alive but its ability to cause infections is greatly reduced or eliminated; this is called attenuation. The next step is to introduce a plasmid into the DNA of the attenuated Lm. These plasmids are circular pieces of DNA that contain a gene that encodes for a fusion protein. This protein is a combination of the highly immunogenic toxin listeriolysin O or LLO and a cancer antigen that is specific to the cancer target. The resultant cells are administered by the hundreds of millions through an IV infusion.

In the ordinary course of events, infectious bacteria are engulfed by antigen presenting cells, principally dendritic cells, which digest them into small molecular pieces or antigens which are presented to circulating T-cells via the MHC complex. However, Lm is unique in that it avoids this digestion process and escapes into the cytoplasm of the antigen presenting cell. Here it secretes the fusion protein where is then transported through the MHC system to the surface of the antigen presenting cell and presented to circulating T-cells.

The human immune system has a memory of Lm from prior exposure to the bacteria and recognition of LLO causes a very strong reaction in which T-cells are rapidly differentiated to fight Lm infections. The presence of the cancer antigen on the fusion protein further activates the immune system to attack cancer cells containing that antigen with the same ferocity as if they were attacking an Lm infection. The technology is very versatile in that by adding on any of a broad number of antigens, an immunotherapy attack can be launched against any cancer that expresses that antigen.

Therapeutic Programs

The lead product of the Advaxis clinical development program is ADXS-HPV which targets cancers associated with human papilloma virus infections. About 99% of cervical cancers are the result of HPV infections and it is also involved in head and neck and ano-genital cancer. This is the same therapeutic target as Inovio’s VGX 3100. Both approaches attempt to stimulate a strong T-cell attack on HPV caused cancers using quite different technologies.

Advaxis has presented data on the safety and efficacy of ADXS-HPV with and without cisplatin in recurrent cervical cancer. The phase 2 trial was initiated in November of 2010 in India; it involved 110 women treated at 22 sites. All patients randomized to the trial have been previously treated with chemotherapy, radiotherapy or both, and their cancer has progressed subsequent to treatment and has been confirmed by CT or radiologic scan. The trial was randomized 1:1 and the primary endpoint was 12 months survival. Naprosyn and oral promethazine were given as premedications and a course of ampicillin is given 72h after infusion to clear any residual vector.

The 12 month survival was 36% (39 of 110 women) and 32% in the ADXS-HPV group and 39% in the ADXS-HPV plus cisplatin group. The survival data was about the same as reported in the 2004 2004 Moore Phase III study of cisplatin alone and cisplatin plus paclitaxel in recurrent cervical cancer patients with the same initial performance (health) status (0-2). In that study, 12 month survival was presented as 35% for cisplatin alone and 32% for the combination.

The Company has indicated that it has had an end of phase 2 meeting with FDA and intends to seek an SPA for a phase 3 registrational trial. I haven’t spoken to management as to why they are intent on going forward with the survival results seen in phase 2 appearing comparable to those achieved with chemotherapy.

Advaxis has also completed a trial of ADXS-HER2 in dog companion animals. HER2 is expressed in bone cancers (osteosarcomas) in dogs. The University of Pennsylvania Veterinary School did a dose ranging study in 18 dogs with osteosarcoma and compared results to historical control. Statistically significant median overall survival at a p value of 0.0005 was shown. Based on this the company filed for approval for the treatment of osteosarcoma in dogs in July 2014.

Advaxis has also aggressively jumped into the checkpoint modulator arena. It is felt that combining cancer vaccines with checkpoint modulators should be highly synergistic. The Company is combining its ADXS-PSA product with Merck’s pembrolizumab in the treatment of castrate resistant metastatic prostate cancer in a phase 1 trial of about 50 patients that will begin in 2015. Similarly, it will combine ADXS-HPV with Astra-Zeneca’s anti PDL-1 drug MEDI 4736 for treating v cervical and head and neck cancers. This will also be a 50 patient phase 1 trial that will start in 2015.

Some investors have mistaken the Merck and Astra-Zeneca deals as licensing agreements for the Advaxis drugs. They are not. Merck and Astra-Zeneca will supply their drugs and Advaxis will be responsible for the cost and execution of the trial.

I am interested in all immunotherapies. I will continue to monitor progress.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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