4 Research Firms Generating Value Through New Drug Technology

Submitted by Morgan Smith as part of our contributors program.

According to the National Cancer Institute, “Based on rates from 2007 to 2009, 41.24% of men and women born today will be diagnosed with cancer of all sites at some time during their lifetime. This number can also be expressed as 1 in 2 men and women will be diagnosed with cancer of all sites during their lifetime.”

There are a number of companies that focus specifically on cancer research. Today, I will discuss some of the leading research companies that are moving forward with new drugs which could lead to strong growth opportunities for investors.

Senesco Technologies (SNTI) is a development stage biotech company that employs its proprietary eIF5A technology to regulate cell death and survival – with primary applications in cancer, ischemia, and inflammation.

Senesco is leading the way in eIF5A cancer research technology with a powerful gene regulation platform that focuses on eIF5A, a “master switch” for a natural growth control that functions in most (if not all) types of cancer. Senesco is pushing forward with a clinical study in multiple myeloma. Its lead therapeutic candidate, SNS01-T, targets B-cell cancers by selectively inducing apoptosis via eIF5A, which is believed to be a key regulator of cell growth and cell death. SNS01-T results from Phase 1b/2a trials in multiple myeloma have shown good safety and an effect at the lowest dose.

eIF5A is a highly conserved gene from plants to people. eIF5A has the ability to regulate programmed cell death and cell survival. Functioning as a switch, two eIF5A proteins, the lysine and the hypusine forms, respectively promote cell death and cell survival. Preclinical studies have shown that the lysine form of eIF5A promotes the elimination of cancer cells by up-regulating pro-apoptotic mechanisms through both the intrinsic and the extrinsic pathways.

In January 2012, Senesco held a public offering of 7.7 million shares of common stock, which raised approximately $3 million, with significant insider participation to support clinical development. At the end of the second quarter of 2012, Senesco reported a net income loss of approximately $6.7 million, but this was significantly lower than the net loss of roughly $9.9 million in the second quarter 2010. In the second quarter 2012, the company reported total revenue of $200,000.

Senesco possesses a strong executive leadership team that holds proven success in other therapeutic development and building companies. The leadership team has kept overhead expenses low and used successful outsourcing strategies in order to more carefully manage the company’s cash.

Incyte (INCY) is another company that is heavily involved in cancer research. In 2003, the company began a research and development program that focused on the exploration of enzymes known as Janua Associated Kinase, or JAKs. This entity plays a large part in a number of different cancers and associated chronic inflammatory conditions.

The firm’s primary product, Jakafi, focuses on helping patients that have debilitating progressive myelofibrosis. In late 2011, Jakafi was approved for use in patients who had either an intermediate or high-risk myelofibrosis.

Incyte sees their lead JAK program as a path to success. The drug is currently in Phase 3 trials, and in the first half of 2014, the firm plans to initiate an sNDA filing for the drug. In addition, Incyte will likely be receiving results from a fully recruited Phase 2 trial studying Jakafi in mid-2013. Due to Incyte’s extensive R&D efforts, the company also possesses a strong product pipeline that will help it to grow over the long term.

The company’s shares have a forward P/E of over 34. The stock has been trading close to its 52-week low, and could be a good potential growth play for investors who can pick up shares in the range of $15 to $16.

Another firm focused on cancer research in the area of anticancer therapeutics is ImmunoGen (IMGN). Immunogen uses its Targeted Antibody Payload, or TAP, technologies to deliver the company’s proprietary cancer-cell killing agents that are specifically targeted to eliminating tumor cells.

In the third quarter 2012, ImmunoGen had its share price rise by nearly 4% following a Cowen and Company analyst giving the stock an “Outperform” or Buy rating. At this time, ImmunoGen has no drugs on the market, however, it is expected that its first drug, T-DM1, a potential breast cancer treatment, will be approved by the FDA by mid-2013.

The drug is intended to be sold via Roche, the parent company of Genentech. It is projected that the drug may reach a sales level in excess of $5.4 billion – and ImmunoGen would also receive mid-single-digit royalties on the sales of the drug. Should this be the case, share price is expected to rise substantially.

Endocyte (ECYT) also focuses on cancer research. The firm went public in early 2011, with a share price of $6. By July 2011, shares were trading at over $14.50, although share price fell drastically in December 2012 when the company reported inconclusive results for a Phase 2b study.

During the second quarter of 2012, Merck (MRK) struck a deal with Endocyte to acquire the rights to develop and commercialize the firm’s investigational cancer compound, vintafolide. This drug is being developed in conjunction with etartfolatide, a diagnostic agent that focuses on identifying patients that have the biological or genetic traits that would increase their chance of receiving benefits from the drug.

It is reported that Merck paid approximately $1 billion for the vintafolide rights, along with two other Endocyte programs that are in Phase 1 development. Endocyte does intend to retain the rights to another related drug, etarfolatide. The company will be eligible for up to $880 million in milestone payments on the sales of the vintafolida drug.

Following the announcement of the deal with Merck, Endocyte stock doubled from $3.80 per share to over $7.60 per share. Earnings per share are currently negative $0.47, with a P/E ratio of -12.64, although the shares of Endocyte have recently been trading near their 52-week high.

As with many of the other big pharmaceutical companies, Merck is seeking to fill its product pipeline with new products following the expiring patents from older and more established products. These smaller start-up cancer research companies could provide the new products that are needed by big pharmaceutical firms.

Companies that successfully focus on cancer research and other diseases, such as diabetes and AIDS, can provide investors with a faster return on investment, especially in the area of R&D and licensing. Alternative investments could include holding shares of niche companies that possess “orphan drugs” that, if successful, could be protected from competition for several years.