The “Curing Cancer Portfolio” (Part One)

Sniffing out the Alex Daley's teasers from Casey Extraordinary Technology

I haven’t written about a biotech teaser pick or about any of the Casey newsletters for quite a while, so this one that many readers sent in recently looked like a fine target for the Thinkolator today …

The pitch is from Alex Daley, the “Chief Technology Investment Strategist” for Casey Research, and he’s trying to get folks to sign up for Casey Extraordinary Technology, which generally focuses on “breakthrough” and “fast moving” biotech and technology stocks (and costs $749 “on sale” at the moment).

And the inducement to subscribe is that he’ll name the four stocks in his “Curing Cancer Portfolio” — which sounds great, of course. Who hasn’t had someone in their family suffer from some variety of cancer? And perhaps more relevantly, what investor doesn’t salivate over the riches that flow to breakthrough cancer drugs? When it comes to building mega-drugs, going after widely-distributed diseases like many cancers is right up there with curing Alzheimer’s in the “unmet need leads to riches” category. Of course, biotech stocks are almost always hyper-risky, too, since most of them on the cutting edge have no revenue yet, and may never have revenue if they don’t get a drug approved or, on the path to approval, a lucrative partnership deal or buyout from big pharma.

Still, the lure of the mega-buyout or the shockingly effective product is always there — not many stocks, other perhaps than junior mining and energy exploration companies, can offer the potential (however far-fetched it may be in some cases) of a stock that could double overnight from one piece of news.

So what, then, are the stocks in this “Curing Cancer Portfolio” that they’re touting? Let’s start looking for ’em — clues, please!

“Pick #1: A company creating cancer-killing ‘smart bombs’

“Traditional chemotherapy poisons healthy cells along with cancerous cells. But this company is developing biotechnology that utilizes antibodies, a critical part of our own immune systems. What it does is link these antibodies – which are targeted to cancer cells – to potent cancer-killing drugs.

“These antibodies act like ‘smart bombs.’ And once they hit their targets, the cancer-killing drugs they carry are released into malignant cells.

“The result – the cancer is killed while surrounding healthy cells are spared.

“Phase II trials of this drug on 102 Hodgkin’s lymphoma patients have shown great promise:

  • 94% of patients in the trial showed reductions in tumor volume
  • 75% of patients achieved an objective response, including 34% with complete remissions
  • The drug was generally well tolerated, with only mild to moderate side effects

“Another Phase II trial on 58 patients with a different kind of lymphoma (ALCL) was even more impressive. In this trial, 53% of them got complete remissions and 97% showed a reduction in tumor volume.

“Last August, the FDA approved this revolutionary drug, clearing the way for the company to start marketing it as a new treatment for lymphomas.

“This firm also has other programs going for it, including two more cancer-fighting drugs.

“The stock’s already up 20% since we recommended it in March, 2011 but there’s still time to make a tidy profit if you act fast (our three-year target is a quadrupling of prices from our preferred entry point).”

Toss it all into the gaping maw of the Mighty, Mighty Thinkolator and we learn that this drug is brentuximab vedotin, and that it’s being developed under the brand name Adcetris by a company that we’ve seen in these pages before, Seattle Genetics (SGEN)

SGEN is a pretty big biotech company now, with a market cap around $2.5 billion, and Adcetris is their lead product and the only one that has been approved by the FDA (though the approval is still very limited, it was approved for truly desperate situations). Here’s how they list the indications for the drug right now:

“Hodgkin lymphoma (HL) after failure of autologous stem cell transplant (ASCT)
“HL in patients who are not ASCT candidates after failure of at least 2 multiagent chemotherapy regimens
“Systemic anaplastic large cell lymphoma (sALCL) after failure of at least 1 multiagent chemotherapy regimen

“The indications for ADCETRIS are based on response rate. There are no data available demonstrating improvement in patient-reported outcomes or survival with ADCETRIS.”

Adcetris uses SGEN’s proprietary targeting technology, which is what is really supposed to set them apart (they’ve also licensed that technology to Celldex for their new breast cancer drug, which apparently has shown some good results this week).

And beyond that, I quickly get out of my league. They have about a half dozen other trials underway for Adcetris as well (the drug is already partnered, by the way, with Millennium), with some encouraging results that seemed to give the stock a little pop earlier in the month but clearly weren’t considered overwhelming by investors. You can see the whole pipeline here. It’s good to see them with several drugs in development, and with at least “worst case” initial approval for their lead drug, and I do like that they have a number of partners licensing their cancer-targeting technology (they call it ADC, for targeting cancer directly without the toxic impact of chemotherapy on other cells), but valuing such stocks is an art as much as a science. Morningstar indicates them as having a “fair value” at $23 (with high uncertainty) and thinks they’re a buy around this price (near $20), partly because of the solid initial revenue numbers for Adcetris (in the $100 million/year range) under this initial approval.

The stock has just about doubled since a different newsletter touted it about four years ago as a favorite of Bill Gates and the Baker brothers, by the way, but that doubling of the share price came along with a quadrupling of the market capitalization thanks to a lot of dilution of existing shareholders. That’s certainly not unusual among biotech stocks, who almost all sell stock on a regular basis to fund their R&D in the years before they develop a marketable drug (assuming that they ever do). They do have enough cash right now to get by for a while, and r