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Wednesday,December 11,2013

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Can I Retire on a Biotech Stock?

Nearly everyone dreams of striking it rich in the stock market. That’s why people get into it, right? Well, it doesn’t happen every day, but it does happen more frequently than one might think for patient investors that ride market undulations with confidence in their investments, rather than panic. Even those that rode-out the market nosedive during the Great Recession have seen Wall Street rebound to record levels, including a 170% return from the S&P 500.

Looking at different industries and sectors, the biotechnology arena seems to deliver some of the most lucrative gains for small companies growing from “penny stocks” – generally defined as stocks under $5 per share – to firms with robust valuations, often times in the billions of dollars. The real beauty of biotech is that stocks can appreciate multi-fold in relatively short periods of time. The reason is simple; efficacious drugs and technologies command premiums like nothing else the markets have to offer. Moreover, the ideology of drug development levels the playing field as pharmas big and small all have to start at Point A and follow the same rules of the Food and Drug Administration.

To prove the power of potential biotech returns, take a look at just a couple companies that have delivered enormous returns to investors without even bringing a product to market, including Pharmasset, Inc. (formerly VRUS) and Pharmacyclics, Inc. (PCYC).

Pharmasset was the buzz of Wall Street about six years ago as it was developing a new oral drug to treat Hepatitis C as an alternative to the injectable interferon, the most common treatment for the disease today. As the drug, called PSI-7977, moved through early-stage and then mid-stage clinical trials, shares of Pharmasset soared from under $4 per share in mid-2007 to approximately $160 each before the Princeton, New Jersey-based company did a 2-for-1 forward split, giving shareholders one additional share for every share held, while cutting the share price in half. Shares rose again after the split, including Gilead Sciences, Inc.’s (GILD) buyout price of $137 per share in a deal worth $11 billion. At the time, PSI-7977 was still in Phase II trials and Pharmasset, which had no FDA-approved drugs, posted a $22.6 million loss in the previous quarter. That’s how valuable a novel drug can be to the industry. Apropos, investors who put $10,000 into Pharmasset around $4 and held until the Gilead acquisition recognized gains of about 6,750 percent, meaning the investment turned into roughly $685,000 in just over four years.

Pharmacyclics, a clinical-stage company developing drugs for cancer and autoimmune diseases, is still on the hot list of biotech players even though it has already produced tremendous returns in the past three years. The company was struggling with successfully maneuvering a drug down the regulatory pathway in the late 2000’s, but started finding success with its lead drug candidate ibrutinib as a new oral agent for white blood cell malignancies, such as leukemia and myeloma. Ibrutinib, a covalent inhibitor of Bruton’s tyrosine kinase (BTK), garnered the attention of Wall Street and Johnson & Johnson (JNJ) for its potential to treat a broad spectrum of lymphomas by silencing the B-cell receptor pathway that is a key to tumor cell survival. In 2011, JNJ dished-out nearly $1 billion to partner with PCYC on ibrutinib. Pharmacyclics submitted a New Drug Application to the FDA for ibrutinib and was originally expecting an answer in the first quarter of 2014. The decision came sooner than expected as on November 13, the FDA granted ibrutinib an accelerated approval for the treatment of patients with mantle cell lymphoma who have received at least one prior therapy. Since bottoming in early 2009 at 57 cents, shares of Pharmacyclics have stormed ahead to as high as $143.34 last month. For those counting, that’s a stunning return of nearly 25,000 percent in less than four years.

While those are some of the extreme cases and no one should be so brash to ever predict returns like the aforementioned companies have delivered, there are a handful of juniors on the upswing with disruptive technologies that carry with them strong potential for exponential growth in coming years. Of particular note is Nuvilex, Inc. (NVLX), a small biotech focused on development and commercialization of a cellulose-based live-cell encapsulation technology that could serve to bridge many areas of great unmet medical need.

Nuvilex has acquired worldwide exclusive rights to develop the technology, also known as Cell-in-a-Box™, for all types of cancer from SG Austria Pte. Ltd. Recently, Nuvilex finalized a deal with SG Austria’s subsidiary, Austrianova Singapore Pte. Ltd., for the rights to develop treatments using the Cell-in-a-Box technology for insulin-dependent diabetes patients. It is this true platform technology that is capturing investors’ attention because it can serve as a stand-alone therapeutic or in an adjunctive capacity to improve results from current standards of care for deadly – and costly – diseases.

For decades, scientists have been trying to harness the power of cell encapsulation to improve efficacy of drug therapy, but with limited success. The technology licensed by Nuvilex has overcome some of the limiting factors of the cell encapsulation processes used by other biotechs by employing cellulose (rather than other materials not native to the body) to create a “cocoon” approximately the size of a pinhead that can host about 10,000 cells, depending on the size of the cells. Using the proprietary cellulose formulation improves the technology on several fronts, including resiliency to external forces, ease of implantation, extremely slow degradation time and permeability features of cell walls to let waste and beneficial substances out and only essential nutrients to enter.

Research has demonstrated that the Cell-in-a-Box™ live-cell encapsulation technology used by Nuvilex has a strong safety profile while substantially increasing the longevity of the protection of the encapsulated live cells while in the body. Even after more than two years in the body, no immune or inflammatory response is caused by the capsules or by the cells within in the capsules and no damage is done to surrounding tissues.

The robustness of the cellulose-based capsules allows for freezing of the encapsulated cells within them for extended periods of time (years) and then subsequent successfully thawing the cells while retaining their viability. When needed, the encapsulated cells can be thawed for use, making the technology scalable and one that results in a true “off the shelf” product that can be shipped globally for use upon demand. This property allows the live-cell encapsulation technology used by Nuvilex to stand alone above the types of live-cell encapsulation technology used by other companies

Nuvilex’s use of the Cell-in-a-Box™ technology could span a wide spectrum of indications, but the company is first targeting pancreatic cancer, a leading cause of death worldwide with the annual death rate in the U.S. nearly paralleling the diagnosis rate in 2013. This is a prime indication for Nuvilex to focus its efforts on because there are very few approved therapies for pancreatic cancer, with most carrying severe side effects. This creates an opportunity for the company to pursue accelerated regulatory pathways offered by the FDA, such as a “Breakthrough Therapy” designation or a “Fast-Track” review that can hasten drug development.

Approved 16 years ago, Eli Lilly’s (LLY) Gemzar (gemcitabine) is the only single-agent therapy to receive FDA approval for treating pancreatic cancer. Other therapies are cocktails of drugs and usually include gemcitabine, except for Folfirinox, a four-drug combo used to treat the deadly disease.

In a small-scale Phase 1/2 trial, Nuvilex evaluated 14 patients with advanced, inoperable pancreatic cancer treated with the combination of the widely-used anticancer prodrug ifosfamide plus cells capable of converting the ifosfamide into its cancer-killing form that had been encapsulated using the cellulose-based live-cell technology. Ifosfamide is a widely used anti-cancer prodrug that, when administered without encapsulation, depends upon the liver to convert it to an active state as a cancer killer. Because of this activation by the liver, the cancer-killing form of the ifosfamide can enter the general blood circulation, which, in turn, can cause toxicity to organs in the body other than the pancreatic tumor. The trial was structured to test the hypothesis that, because the encapsulated cells can activate ifosfamide, by implanting them near the tumor site, the patients might be treated with much lower doses of ifosfamide than are typically used with this drug while yielding an excellent therapeutic benefit with limited side effects from the drug.

Upon completion of the trial, when the data are compared to historical data (results from Gemzar’s pivotal Phase 3 trial that were used to obtain FDA approval and that are part of the prescribing information for the drug) for the efficacy of Gemzar, the researchers discovered that patients receiving the encapsulation/ifosfamide therapy had a median survival of 11 months, compared to only 5.7 months for gemcitabine. The one-year survival rate was doubled from 18% for Gemzar alone to 36% for encapsulation/ifosfamide-treated patients. Tumor growth was stabilized in all 14 patients, including a reduction in tumor volumes of between 25 and 50 percent in four patients. Importantly, where there were severe side effects in patients treated with Gemzar, there were no severe side effects in patients treated with the live-cell encapsulation/ifosfamide combination, likely because the dosing level of ifosfamide was greatly reduced compared to what is usually used when patients are treated with this anti-cancer drug.

Nuvilex is in the process of preparing for the initiation of a randomized, large-scale, late-phase clinical trial designed to compare the effects of its treatment head-to-head with gemcitabine in patients with advanced, inoperable pancreatic cancer. As examples of these preparations, the ifosfamide-activating cells are currently being cloned to ultimately obtain the numbers of cells required for the clinical trial and possible CROs (Contract Research Organizations), who will assist in many of the preparations for and conduct of the clinical trial, are being evaluated. If investors follow the typical procedure with biotech investing and building positions in companies as trials commence, Nuvilex will be firmly on the radar of Wall Street as that milestone approaches.

Showing the effectiveness of ifosfamide in pancreatic cancer succinctly dovetails with other corporate initiatives to develop a new treatment for breast cancer. Of the 10 most-commonly-used treatments for breast cancer in recent years, nine use the anti-cancer prodrug cyclophosphamide, which happens to be a “sister” drug of ifosfamide. The same enzyme system in the liver that converts ifosfamide into its active state converts cyclophosphamide as well.

An early/mid-stage veterinary clinical trial was conducted using living cyclophosphamide-activating cells encapsulated using the Cell-in-a-Box™ technology to treat dogs with mammary tumors (a good model test system for breast cancer in humans). Here, the encapsulated cells were implanted into the tumors of some of the dogs and then all of the animals were treated with cyclophosphamide. The control arm of the study consisted of dogs treated with cyclophosphamide alone. The results showed significant reductions in tumor volumes in the dogs whose tumors were implanted with the encapsulated cells and then treated with cyclophosphamide compared to the control arm. Even more amazing, one animal, which had two tumors, had one tumor treated with the encapsulated cells while the other tumor was not. Cyclophosphamide therapy followed per protocol, with the encapsulated-cell-treated tumor shrinking by 70%, versus only 14% for the non-encapsulated-cell-treated tumor.

Following its successful capital raise at a premium to today’s price, Nuvilex secured the rights to use the cellulose-based live-cell encapsulation technology for the development of a new treatment for insulin-dependent diabetes patients. Statistics released in November by the International Diabetes Federation (IDF) show that diabetes has grown to pandemic proportions with a record 382 million patients living with the disease in 2013, up from 371 million in 2012. By 2035, the IDF estimates that diabetes cases will have soared to 592 million at its current growth trajectory, creating a dire need for new therapeutics and another opportunity for Nuvilex to develop its novel technology.

Groundbreaking research conducted in the early 2000s and termed the “Edmonton Protocol” has shown promise in transplanting pancreatic islet cells (cells that produce insulin) derived from human cadavers into diabetes patients to support a dysfunctional pancreas that is unable to properly produce insulin. The treatment comes with heavy costs however, as constant administration of potent and expensive immunosuppressive drugs is required to prevent rejection of the transplanted islet cells by the recipients’ immune systems; without them, the patients would be open to a myriad of opportunistic infections (viral, bacterial, and fungal). Furthermore, the supply of islet insulin-producing cells from donor cadavers is limited. Islet cells from pigs have proven a viable and effective alternative, but the degradation, over time, of capsules prepared with other than the cellulose-based material employed in the Cell-in-a-Box™ capsules used by Nuvilex, particularly capsules made using alginate (a seaweed derivative commonly used to encapsulate living cells), again triggers an attack by the body’s immune system on the encapsulated islet cells and limits the longevity of such non-cellulose-based capsules, and the cells within them, in the body.

In vivo lab research has shown the potency of the cellulose-based live cell encapsulation technology licensed by Nuvilex to overcome this degradation obstacle. The Cell-in-a-Box™ capsules were well tolerated by the host and remained intact for extended periods of time. Furthermore, the cells within the capsules maintained their capability to produce insulin throughout this period.

In preclinical studies, diabetic animals were implanted with insulin-producing cells encapsulated using the cellulose-based technology. This “proof of principle” research showed that, shortly after implantation of the encapsulated insulin-producing cells, blood glucose levels became normal and stayed normal for extended periods of time. The capsules protected the cells within them from immune system attack making the use of immunosuppressive drugs unnecessary. In one six-month study, when diabetic animals were implanted with encapsulated insulin-producing cells, the blood glucose levels in the animals became normalized and remained that way for the duration of the study. At the end of the study, the capsules were found to be intact and the cells were still functioning. In other words, the insulin-producing cells were still capable of producing insulin in response to elevated levels of glucose in their surroundings.

With the technology validated in clinical and laboratory research, Nuvilex has taken a page out of blue chip companies’ playbooks by hiring Kenneth L. Waggoner, Esq. to serve as CEO and President. Dr. Robert F. Ryan will move from those positions to Chief Scientific Officer, freeing him from distractions of day-to-day operations to directly focus on late-stage clinical development of the cellulose-based live-cell encapsulation technology. In addition to his previous position as VP and General Counsel for Chevron’s Global Downstream (CVX), Waggoner was a partner in the venerable law firm of Brobeck, Phleger and Harrison, named one of the top two law firms in the world for providing services to the biotechnology industry. In that role, Waggoner worked with leading pharmas such as Amgen (AMGN), Biogen Idec (BIIB), Chiron and many more. Waggoner should have a palpable impact on Nuvilex by delivering inroads to potential partners and providing leadership as a legal biotech expert.

It takes a discerning eye to pick a biotechnology company that has the potential for exponential growth in a relatively short period of time, but they are out there. To maximize the opportunity, a company must have a novel technology that addresses large areas of unmet medical need, which opens the door to lucrative partnerships and capitalizes on FDA initiatives for expedited development and/or extended periods of exclusivity for new therapies. Nuvilex has made moves in the past year that are fundamentally accretive as it prepares for a pivotal trial that can put it in an envious position with a true platform technology that can reward stakeholders, while providing a better quality of life for millions of people worldwide who suffer from serious, and even deadly, diseases. With every stock comes risk, but due diligence on Nuvilex at these levels is a no-brainer. With a likely pre-IND meeting with the FDA within the next 6 months, these price levels may never be seen again.


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