“Hunt Down Cancer Cells and Zap them Dead” Access Group

By Travis Johnson, Stock Gumshoe, September 5, 2008

Today’s teaser ad is from Marc Lichtenfeld and his Access Group — they specialize in part on medical and biotech stocks, and the first two ads we’ve looked at them are in that area. The first one was for the “$4 Cancer Detection Device that could go to $196,” which you might remember turned out to be Electro-Optical Sciences (MELA) and their little handheld mole scanner that screens for skin cancer.

And no, it’s not at $196 yet. Though Lichtenfeld did get his ads rolling at a better price than Georges Yared, who has also been hot and bothered about this stock but was beaten to the punch by a month or two (at least on the ads, I don’t know when he actually started recommending it to his subscribers). There is much less than a million dollars worth of trading taking place in MELA shares on any given day, so perhaps it’s not surprising that the stock has bounced dramatically with the attention of the newsletter touts — it’s on another upswing in the $7.50 range, though you could have bought it for $9+ earlier in the Summer or for less than $6 just a couple weeks ago. No idea whether it’s going to break out and have a huge success, though $196 stills seems, shall we say, a bit optimistic.

But we’re not here to talk about MELA again — I’ve written about that one half a dozen times as it has gotten the attention of my readers and several newsletter editors, and we’ve probably talked it to death in this space.

No, today we’re here for a drug company — a biotech, really, that has a new drug that Marc Lichtenfeld says is nearing approval and released exemplary Phase II results just recently.

Let me begin my little investigation here with the reminder that I am not a chemist or a scientist of any kind, and I can’t judge for you the results of any drug trial. I’m just going to share what Lichtenfeld said in the ad, and share with you the name of the company. Assuming I’m up to the challenge.

Just kidding! This is the Gumshoe we’re talking about — I’ve got this one on the mats and I’m ready for that final pin, let me just walk you through the clues …

Lichtenfeld tells us that this drug is, first, a potential breakthrough melanoma, which is the really scary kind of skin cancer, the one that spreads quick and kills people. He thinks the novel mechanism this drug employs might easily represent a new “platform” for developing treatments that kill other cancers, too, but we’re starting with melanoma.

The promise? “Nothing can make you richer, faster, than when a little known biotechnology company develops a breakthrough drug for a disease that offers hope and relief to hundreds of thousands of people.”

Where are they in their drug development?

“Right now they have a potential breakthrough drug entering Phase III trials that could be the only drug in the marketplace to treat deadly melanoma skin cancer.

“In Phase II trials, this company’s drug was found to as much as quadruple a patient’s “progression free survival” – which is the industry’s way of saying the cancer did not get worse. In other words, it stopped the spread of melanoma – one of the fastest spreading cancers – dead in its tracks.

“But what was most significant about these highly positive results was that all Phase II testing was “blinded” – which meant the company, doctors and patients were not aware of which test subjects were getting the drug, eliminating all biases….

“It’s a strategy that should pay off nicely. Because the company’s drug enjoyed such great success in the more demanding “blinded” test in Phase II, Phase III trials are “confirmatory,” rather than exploratory – which tends to speed up the approval process as well as increase the chance the drug will gain FDA approval for sale in the marketplace.”

So that sounds pretty good. I couldn’t tell you what percentage of Phase II trials are designed to be double blind, but certainly it’s preferable if they are. Phase II is often (but certainly not always) where drugs stumble when toxicity problems are discovered, or where efficacy theories fall apart, because it’s the first time the drug has been exposed to more than the handful of folks who got it in the initial Phase I trial, so the fact that they had good results is certainly excellent news, all else being equal. Phase III is where the number of patients treated increases dramatically in most cases, so rare side effects and other problems certainly arise in Phase III, too, I don’t want to imply that this drug is out of the woods.

What do we learn about the company, other than the fact that they have this promising melanoma drug?

First, the “mechanism” of the drug, the way the drug works in the body — in Marc’s words:

“Consider how the drug works…

“Cancer cells have greatly reduced anti-oxidant capacity, and therefore sport much higher intrinsic levels of reactive oxygen species (ROS) than normal cells.

“When injected, this company’s drug quickly increases oxidative stress beyond their breaking point, causing the cell to, in effect, break apart and die – usually within six hours. (Picture blowing up a rubber inner tube too long with it eventually stressing out and bursting That’s roughly the “effect” this company’s drug has on a melanoma cancer cell…)

“And because normal cells can handle increased levels of oxidative stress, the drug has little or no impact on them.

“But here’s the most exciting thing about this process – something that bodes very well for millions of cancer patients as well as the company’s long-term drug pipeline…

“The process that’s been successful on melanoma test patients in Phase II trials could very well be successful on a long line of cancers… because of the drug’s ability to differentiate between cancerous and healthy cells and selectively “kill” the cancerous ones.

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“Best of all, this type of “selective cell destruction” technology is the company’s own proprietary property – and will be for the next 13 years. Based on my research – melanoma is just one of the cancer types the company could be targeting with this technology in the near future. There’s also talk about testing this proprietary process on hematological (blood), ovarian, breast, prostate and pancreatic cancers as well.”

OK, are we surprised that this still “sounds good?” It’s an ad, of course, it all sounds good.

So that’s what the drug does, how it targets the disease, why it’s exciting for the Access Group folks. How about the company, do we get any nice, specific, juicy clues to feed into the mighty Thinkolator?

Here’s one tidbit that was hiding in the text:

“… insiders still own 48% of the stock – and not one of them has sold a single share since the company went public roughly two years ago.”

Good, good.

The few Wall Street medical analysts who follow this one all give it a positive rating.

The product has “orphan drug status,” which is a nice plum for companies (they get an extension of marketing exclusivity, some tax breaks, and sometimes a bit of a break on the requirements for their clinical trials, in exchange for doing expensive research on a drug that has a relatively small market).

And …

“That’s why one of the largest pharmaceutical companies in the world struck a deal with this little company to manufacture and help market the drug once it passes FDA muster. With this little company eligible for up to $1 billion in milestones…and a healthy share of the profits – it’s one of the largest partnership deals in history for a drug yet to gain government approval.”

OK, so the Thinkolator is ready to work on this one. Sometimes it gets a little spitty when looking for biotech stocks, so stand back a bit …

Ah, very good. This company is …

Synta Pharmaceuticals (SNTA)

The partner for this first drug, which is called Elesclomol (before they named it the compound went by the appellation STA-4783), is GlaxoSmithKline (GSK). It did have positive Phase II Results released a few months ago, and it is currently in Phase III trials. It is exactly 48% owned by insiders, and their drug, Elesclomol, is a novel injectable drug that (they think) works by increasing oxidative stress in cancer cells. With all those clues matching perfectly, SNTA has to be our target here.

As I said, I’m no chemist or biotech analyst, and I can’t give you a lot of opinion about this drug (well, I could, but it would probably be wrong). I can tell you that the stock had a quick spike down after earnings were released about a month ago, mostly because everyone appears to have been surprised by how expensive these clinical trials are. The company is projected to lose a couple dollars a share both this year and next, which is saying something when your share price is down below $10, but that’s not unusual for early stage biotech companies with no products. Lichtenfeld was a bit optimistic when he said you could buy it “below $13”, since the shares have never been much over $11 in their two year history … you can pick them up now for about $9 if you like.

The things I like about this, at first glance, are the deal with deep-pocketed GSK, which should help in what I assume will be a very expensive Phase III trial, and the fact that SNTA is pushing this drug to the investme