NEW YORK, Jan. 27, 2016 /CNW/ - Biotech investing can be a challenging proposition. Typically, when investors research companies to invest in, what they're looking for is fairly straightforward. The list of boxes to be checked off for a potentially sound investment is no secret. It goes something like this:
✓ Strong management with a proven track record
✓ A product that fills a need
✓ Market growth potential
✓ Limited competition and strong barriers to entry
✓ A reasonable indication of revenue growth
Those are all pretty logical, right? It shouldn't be too hard for a good company to exhibit these five attributes to potential investors.
While that may be true for most industries, it's a different story for biotech companies.
The problem with biotechs, of course, is showing revenue growth. Because of the unique nature of the biotech industry, there are several hurdles a company has to go through before any significant form of revenue can be generated, including passing clinical trials and receiving FDA approval (in the US). Moreover, a biotech company typically needs to have investors secured before any revenue growth is even possible. That's because clinical trials cost money (sometimes a small fortune), especially as Phase 3 approaches.
These dynamics are why it can be very difficult to successfully invest in biotech companies. There's a certain amount of risk inherent in the process not found in many other industries.
However, the unique history of DelMar Pharmaceuticals makes it an intriguing candidate for investment. DelMar is a biopharmaceutical company focused on the development of new cancer therapies. The lead product candidate is VAL-083, a first-in-class small molecule chemotherapy being evaluated for treatment of glioblastoma multiforme (GBM), the most common and deadliest form of brain cancer.
DelMar has something just about every one of its competitors does not – historical clinical success for its lead product.
First let's look at how DelMar ranks in the other, equally important categories.
Management
The pedigree and experience of senior management at DelMar is obvious to see.
Chairman and CEO Jeff Bacha co-founded DelMar in 2010. He has nearly twenty years of experience in the life sciences industry, including building both public and private companies successfully. With his leadership background, Mr. Bacha has had the opportunity to raise capital in both public and private markets. Mr. Bacha has held senior positions at Inimex Pharmaceuticals (founding CEO) and Clera, while also serving as a consultant with several other companies in the field. Additionally, he served as a senior manager and director at KPMG Health Ventures.
Chief Scientific Officer, Dr. Dennis Brown, has been with the company since 2013. Dr. Brown has over thirty years of drug discovery and development experience and holds 34 US patents and applications. He founded ChemGenex Therapeutics in 1999, which merged with a publicly traded company and was subsequently bought by pharmaceutical giant Teva Pharmaceutical. He also co-founded Matrix Pharmaceutical (also acquired). Dr. Brown is the current Chairman of Cell Source Inc. and previously served as an Assistant Professor of Radiology at Harvard Medical School and Research Associate in Radiology at Stanford Medical School.
Product
As we mentioned earlier, DelMar's primary product is VAL-083. The small molecule chemotherapeutic has already been assessed in 42 Phase 1 and Phase 2 trials. Published clinical (and pre-clinical) data suggest the drug may be active against several different tumor types, including brain, lung, cervical, ovarian, and blood cancers.
Importantly, VAL-083 is already approved to treat lung cancer and chronic myelogenous leukemia (CML) in China. We'll get back to that later.
To understand what makes VAL-083 special, we need to understand the current process for treating GBM in the US.
As you may already assume, brain tumors are extremely hard to get to. This is true chemically (drugs) and physically (surgery). Once a patient is diagnosed, surgery occurs in an attempt to remove as much of the tumor as possible. This is followed up by radiation and chemotherapy. The standard procedure in the US is to use Temodar® as the chemotherapeutic.
Here's the problem, Temodar® is very effective when it works, but that's only about 1 out of every 3 patients. For the 2 out of 3 patients where Temodar® fails, the median survival rate is under 5 months. Typically, the patient is given Avastin® at that point, which helps with side effects but does not increase the survival rate.
What makes treatment so challenging is the potential presence of O6 Methylguanine methyltransferase (MGMT). A high level of MGMT is found in brain tumors in well over half the instances of GBM. Unfortunately for patients, MGMT causes Temodar® to fail. At the present time, there's no alternative in the US to Temodar® except for Avastin® (which, once again, does not increase the survival rate).
That's where VAL-083 comes in.
VAL-083 has shown activity in tumors despite the presence of MGMT. In other words, the MGMT resistance mechanism does not appear to impact the use of VAL-083 according to historical clinical data, and DelMar's recent research. When the patient is treated with a therapeutic dose of VAL-083 (after the failure of Temodar® and Avastin®), the median survival rate jumps from under 5 months to almost 9 months. To reiterate, VAL-083 nearly doubles the lifespan of the patient. Plus, it may be possible to use VAL-083 in conjunction with Avastin® or other therapies.
Already there's enough info to show this product fills a critical need. But, it only scratches the surface of the drug's potential.
The scenario we just described is known as Refractory GBM and it's the closest to the market. But what if GBM was used from the start instead of Temodar®? If a patient shows the presence of MGMT in a tumor, doctors could potentially replace the usage of Temodar® with VAL-083. This process could change the entire treatment paradigm for Front-line GBM on its head – and open up a sizeable market to the drug. Clinical trials on Front-line GBM treatment could begin as early as the first half of 2016.
As important as finding a better treatment for GBM is, the leading cause of cancer death worldwide is actually from lung cancer. In fact, non-small cell lung cancer (NSCLC) has a five year survival rate of just 15%.
The current treatment of NSCLC is with platinum-based chemotherapy. These drugs tend to be reasonably effective overall. However, there are some issues with platinum resistance in certain tumors. Once again, that's where VAL-083 comes in. Early indication from DelMar's research is that VAL-083 is active in NSCLC strains which show platinum resistance.
What's more, VAL-083 does not interfere with platinum-based chemotherapy. That means the two drugs can be used in conjunction to potentially create an even more powerful treatment. It also opens up several opportunities for partnerships.
Finally, VAL-083 could potentially be used in several areas of unmet medical needs. Ovarian cancer and cervical cancer are just two more areas where the drug has potential. Basically, any type of solid tumor could prove a future candidate for testing with VAL-083.
With all that being said, let's take a closer look at the numbers involved with the various treatment markets.
Market Growth Potential
According to Evaluate Pharma, here's the worldwide treatment spending in 2014 for certain cancer types:
| Treatment Type |
Market Size |
| GBM |
$1 billion |
| NSCLC |
$6.8 billion |
| Ovarian Cancer |
$200 million |
| Total |
$8 billion |
That's a market size of roughly $8 billion where VAL-083 can potentially be applied. Clearly, the usage for GBM alone is worthwhile from a financial standpoint. Nevertheless, there's obviously a substantial amount of expansion opportunities.
Competition And Barriers To Entry
GBM is a deadly disease and has been the culprit behind several high profile deaths. For instance, both Ted Kennedy and Beau Biden are victims of GBM. As such, there are certainly other companies researching GBM-related products. Some development stage companies with lead products in GBM are Celldex, Northwest Biotech, and Cytrx. Some big pharma companies like Bristol-Myers Squibb and Eli Lilly also have GBM products in the pipeline.
While the competition is certainly out there, it's to be expected. After all, a highly deadly disease with a $1 billion market size is certainly going to attract attention. Not to mention, only Temodar® and Avastin® are regularly being used to treat GBM in the US. There's obviously room for more products.
More importantly, DelMar holds five US patents and three international patents related to VAL-083. Additionally, VAL-083 has been granted orphan drug designation in the US and EU, meaning seven years of market exclusivity after approval in the US and 10 years in the EU.
Product History
As we started off saying, the one thing development-stage biotech companies cannot inherently have is revenue from their product. It has to pass both clinical trials and FDA approval, which can be costly.
So how does an investor counter the risk? One way is to invest in a company with historical clinical success. That's exactly what DelMar has with VAL-083.
In the 1970's and early 1980's, there was a major effort underway in the US as part of the "war on cancer" occurring at the time. The National Cancer Institute (NCI) hosted a multitude of researchers looking for any promising cancer-fighting products. The most promising products were then picked up by Bristol Myers, who was the only big pharma company in the space at the time. However, because of limited resources of having just one company involved, several intriguing drugs were left behind to languish at the NCI. Eventually, many of these drugs were forgotten as resources subsequently shifted to combat HIV. VAL-083 was one of those drugs left behind.
VAL-083 showed very promising results at the time. However, in part due to complicated patent issues, the drug was passed over. Fortunately, DelMar management was able to dig up historical records on VAL-083, and resuscitate the studies – as well as secure several new patents.
In what amounts to a very fortunate turn of events, VAL-083 is already approved in China for the treatment of lung cancer. (Keep in mind, DelMar has intellectual property rights on VAL-083 in the US and Europe).
There are a couple significant benefits to this scenario. First off, China serves as a huge, de facto test market for the drug. Results from patients using the drug in China will serve as a proof-of-concept in support of development of VAL-083 as treatment for NSCLC. What's more, DelMar is collaborating with the Chinese manufacturer, which could serve as a major cost benefit for late-stage trials.
Reasons to invest in DelMar
Now that we've gone over the major attributes of DelMar Pharmaceuticals, and why it's a top-notch company, let's move on to why DelMar shares could get a boost in the coming months.
Valuation
The table below shows DelMar's closest competition. Some of these companies are focusing on GBM products, while others are late-stage oncology companies. While DelMar's research may vary significantly from the other firms listed here, the only notable difference is that DelMar is a little earlier in the clinical trials process.
In other words, the current market caps of these companies are very realistic goals for DelMar moving forward.
| Company |
Exchange |
Category |
Market Cap |
| Celldex |
Nasdaq |
GBM |
$1.1 billion |
| Northwest Biotherapeutics |
Nasdaq |
GBM |
$247 million |
| CytRx |
Nasdaq |
GBM |
$128 million |
| Exelixis |
Nasdaq |
Oncology |
$1 billion |
| Progenics |
Nasdaq |
Oncology |
$302 million |
| TG Therapeutics |
Nasdaq |
Oncology |
$482 million |
| Del Mar |
OTCQX |
GBM |
$36 million |
For comparison purposes, the average market cap of the companies (not including DelMar) is $543 million, or 15x than current price of DelMar shares (ref. $0.92).
While share pricing is a more complex scenario than basic comparisons make it seem, the primary point is clear. With VAL-083 already having a strong track record and several catalysts coming up in 2016, DelMar appears to be highly undervalued today.
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SOURCE The Financial Press
Video with caption: "DelMar's fight against Cancer". Video available at: https://www.youtube.com/watch?v=l0RHX-F7POw
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