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 Comments on Agenus, ImmunoCellular, Discovery Laboratories, Neuralstem, Kite and Juno

About the Mailbox:

My mailbox comments are brief notes on stocks in which I am involved. They can come from recent events or from subscribers’ questions. Comments are meant to address specific issues about these stocks and are not full and balanced reports. Please refer to the Reports section of my website for more complete analyses.

Agenus Comments on Big Pharm/Big Biotechnology Interest in Partnering a Phase 3 Program for its Prophage Cancer Vaccine (AGEN, Buy, $8.95)

I listened to the Agenus second quarter conference call and among a number of things that caught my attention was their comment that they plan to start a phase 3 trial for Prophage in newly diagnosed glioblastoma multiforme later this year and that they anticipated that the costs would be funded by a partner. The reason that this caught my attention was that big pharma/ big biotech until recently appeared to have zero interest in cancer vaccines.

I asked management if they were highly confident that they could do a partnering deal with Prophage and the answer was a resounding yes. I then asked about the breadth of interest in partnering and if there was broad interest or just interest from one or two companies. They said that there was broad interest in potential partnering of the phase 3 Prophage trial from big pharma, big biotech and very interestingly from financial firms.

I read this as meaning that there appears to be a newly forming consensus that cancer vaccines are a potentially important treatment paradigm for cancer. I think that we may see much greater aggressiveness from big companies in forming collaborations and partnerships with emerging biotechnology companies that are developing cancer vaccines. This is supportive of my recommendation of Northwest Biotherapeutics which everyone knows about. However, it this factor which caused me to go to a buy on ImmunoCellular Therapeutics.

ImmunoCellular Therapeutics (IMUC, Buy, $0.52)

The basis of my IMUC recommendation was largely that a rising tide catches all boats and that some large company may want to partner with IMUC to gain access to its cancer vaccine technology. IMUC only has a $45 million marker capitalization so that any expressed interest or partnering from big pharma could lead to asymmetric upside. A more in-depth analysis ImmunoCellular Therapeutics: Is There an Investment Case to be Made? can be found on my website.

Agenus and Adam Feuerstein

When I write on Agenus, I often reflect back to late 2003 when Feuerstein wrote a blistering attack blog disparaging Agenus's management, the Company’s “tired and old” technology and threw  in a personal attack on me for good measure. Since then Agenus made a brilliant acquisition of 4-Antibody to vault into a leadership position in the checkpoint modulation space. Kudos to CEO Garo Armen for this strategic move. Central to my investment thesis on Agenus is that a larger company will acquire it at some future point for its checkpoint modulation assets. If Agenus were for sale now and it isn’t, I think that it would generate enormous interest from any number of large companies that desperately want to be strategic players in the checkpoint modulation field.

The QS-21 Stimulon Adjuvant program is now living up to its promise as Glaxo may launch its malaria vaccine in 2016 and its shingles vaccine in 2017, both of which use QS-21. And as described above, Prophage is re-emerging as a driver for the stock. It looks like all cylinders are firing.

I wrote this rebuttal to the Feuerstein blog. In the period since late 2013, Feuerstein has been pretty much inactive on Agenus. I would think that he would reiterate his short sell recommendation. The stock must be a better short at $8.95 than it was at $2.85. Tongue in cheek.

Discovery Laboratories: Alerting you to a New Report (DSCO, Buy, $0.565)

My policy is not to have a position in a stock before I write a report recommending purchase. I wait two days before initiating a position. Just to let you know I bought a substantial position in Discovery Laboratories two days subsequent to my recommendation. I put my money and mouth in lockstep. You should definitely read my recent report to understand my investment thinking. This is a controversial stock but an interesting asymmetric investment opportunity.

Neuralstem Appears to Have Won the Patent Infringement Case Brought against it by Stem Cell (CUR, Buy, $1.93)

It was announced on July 23 that a US District Court of Maryland ruled in favor of Neuralstem in the patent infringement case brought against it by Stem Cell. The case was dismissed with prejudice as the court ruled that a third-party scientist is a co-owner and co-inventor of the patents-in-suit.  As a result, StemCells, Inc. lacked standing on its own to bring its patent infringement claims against Neuralstem, Inc. and the case was dismissed with prejudice.

I had never taken this threat seriously as the patents in question are generally old and expiring. I also thought that even if Stem Cell won, the result would be a modest royalty requirement for Neuralstem. However, there were some (lunatic fringe) investors who suggested that there would be much more severe penalties. It is good to have this behind Neuralstem. If you would like more information please refer to my August 26, 2014 report on this issue.

Question from Subscriber on Northwest Biotherapeutics and Neuralstem

One of the subscribers to my website raised some questions which I think may also be on the minds of other investors. He commented:

“NWBO has been moving up steadily (and I've been selling down gradually my over-sized position) and now has a fully diluted market cap of over $1b.  At what point is fair value both for this market and "normal" times?  The stock seems to go up when the volume is heavy and down when it is light which I guess should be expected when prospects are improving.

Of importance to me is the German reimbursement news.  It would seem to be way overdue from the 1 year that was guided (was that the company or you?) last spring.

Next is CUR.  I've shifted some from NWBO to CUR over the past two months anticipating the academic article clarifying the Phase 2 data.  I even bought some short-term call options which were quite cheap.

This was my answer:

“I am constantly reflecting on the market valuation of NWBO as it approaches $1 billion. One thing I can say is that in my humble opinion the fundamental outlook is much better for NWBO than KITE which is valued at $3.1 billion. I note that another peer company Advaxis which is considerably behind NWBO in terms of data support and timing of clinical development has a market capitalization of $600 million. On a relative basis, NWBO is not overvalued. However, this doesn't mean that all three aren't overvalued on an absolute basis.

I think that with success in the phase 3 trial of DCVax-L we are looking at a $25 to $40 stock and we will know the trial outcome by 1H, 2016. DCVax Direct remains an intriguing wild card, but let's ignore it for a moment and assume that it has no value. With this assumption, If DCVax-L produces really bad data, we are probably looking at a $2 stock. However, DCVax Direct could be as important to the investment story as DCVax-L and we should see proof of concept phase 2 data in some solid tumors in 2016 as well.

I think that NWBO's German reimbursement discussions have taken longer than expected. However, I think that we are only weeks or months away from wrapping up the discussions with the Insurance (sick) funds. Remember that NWBO dealing with several sick funds and hospitals at the same time and probably have to reach agreement with all before making an announcement. Obviously, an announcement would be a big boost for the stock

I like CUR. I think it has been manipulated by hedge funds and is selling at a depressed level. I am awaiting data on the start of the next trial in ALS and also for Eva Feldman's paper to be published in a peer reviewed medical journal. The latter should address the poor responders in the phase 2 trial that were the catalyst for a hedge fund shorting attack on the stock. My guess is that the poor responders were bulbar patients. I think occurrence of these two events will clear the air and boost the stock.  I thought that both would have occurred by now.

Have you looked at DSCO? I just bought a large position two days after my report was published as is my policy. This is not a stock for historians with its "beyond abysmal" past results. However, I just think that Aerosurf could be a huge product and there were signals of efficacy and no safety concerns in the phase 2a trial. Meaningful data on the two phase 2a expansion studies could move the stock. Please refer to my just published report for my more detailed thinking on DSCO.”

Novartis Comments on Its CAR-T Program Provide Needed Perspective to Assess Juno and Kite

Novartis began its pivotal phase 3 trial in pediatric relapsed/ refractory acute lymphocytic leukemia (ALL) in March 2015. It has a meaningful lead over Juno’s and Kite’s CAR-T products for the ALL indication. A pivotal trial of its CAR-T product for the treatment of diffuse, large B-cell lymphoma (DLBCL) will start in 2H, 2015. DLBCL is the lead indication for Kite which will be starting a phase 2 trial in 2H, 2015.

Novartis expects to file for the ALL indication in late 2016 and DLBCL in 2017. In the initial phase of CAR-T development Novartis, Kite and Juno are targeting the same disease targets. At this point it looks like Novartis will be first to market. A Novartis CAR-T product targeting the EGFRvIII mutation in glioblastoma is expected to enter the clinic in 2H, 2015. This mutation occurs in about 25% to 30% of glioblastomas. Celldex’s cancer vaccine rindopepimut also targets EGFRvIII. Additional CAR-Ts targeting multiple myeloma and acute myeloid leukemia are expected to enter the clinic in 2H, 2015.

Despite the enthusiasm around CAR-T in hematological malignancies, Novartis cautions that finding a safe target in solid tumors is challenging. Most targets overexpressed in solid tumors have some levels of expression in normal tissue and their targeting can lead to severe side effects. For example, HER₂ is expressed at low levels in the lining of the lungs and a CAR-T approach against HER₂ in breast cancer led to severe respiratory toxicity.

In comparing Juno and Kite to Northwest, I think it is important to understand that June and Kite are in a competitive battle with Novartis in the CAR-T space while Northwest is in a commanding lead in the development of its dendritic cell cancer vaccines. Juno and Kite might successfully develop their lead CAR-T products but completive pressure could limit their commercial potential. With Northwest, there is no direct competitive threat. Very importantly, current CAR-T technology may not have much potential for treating solid tumors which are the primary diseases targets of DCVax-L and DCVax Direct.

Wall Street has gone google eyed over Juno and Kite as they have market capitalizations of $4.7 billion and $3.1 billion respectively as compared to about $1 billion for Northwest. In high school, I played the trombone in the marching band and my mother used to remark that everyone in the band was out of step except for me. I appear to be out of step in feeling that Northwest has more promising fundamentals than Juno and Kite.