Heroic, But Profitable For Investors?

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Editor's Note: The original article had the market capitalization incorrect for Senesco Technologies and Lorus Therapeutics. This version has been corrected and Motley Fool apologizes for the error.

Companies like Incyte (NASDAQ: INCY)Immunogen (NASDAQ: IMGN), Endocyte (NASDAQ: ECYT) and Senesco Technologies are putting their research efforts towards the eradication and control of cancers. Though their efforts are often ingenious and heroic, that does not necessarily make them recommendable investment candidates. Which, if any, are appropriate for investors?

Cancer Research Development

Incyte's focus lies in developing solutions for illnesses associated with inflammation and oncology whose medical needs have not been met. Cancer falls in this group of illnesses since it manifests itself in malignant growths. One of Incyte’s major achievements was the approval of the Jakafi (ruxolitinib) compound by the Food and Drug Administration (FDA) for use in the treatment of a type of blood cancer known as Myelofibrosis in November 2011. Jakafi works by prohibiting growth of the malignant cells and has been approved for commercial use in the U.S. and Europe.

Incyte signed a licensing agreement with Novartis (NYSE: NVS) to allow it to develop and supply Jakafi to areas outside the U.S. The company also developed IDO and c-MET. The IDO enzyme ensures that a person’s immune system is able to detect tumors. The c-MET inhibitor helps to control cancer of the breast, liver, stomach and brain by prohibiting tumor growth and cutting supply of nutrients to tumors to prevent them from spreading to other organs. Incyte is also working on LY3009104, a solution for a skin condition known as psoriasis (inflammation and scaling).

Senesco Technologies' key compound is SNS01-T, which focuses on B-cell cancers and selectively causes a cell death mechanism known as apoptosis. Accelerated apoptosis is crucial in the treatment of cancer, while delayed apoptosis may be beneficial for diseases like diabetes. A liquid tumor affecting the bone marrow and commonly referred to as multiple myeloma is one of the main targets of elF5A technology, though SNS01-T can be modified to work on solid tumors too.

SNS01-T is comprised of a polythylenimine (PEI), a DNA plasmid that increases apoptotic pathways in cancer cells, and a short interfering RNA that decreases anti-apoptotic proteins. SNS01-T is a gene therapy and has a 1.75 ideal dosage on a scale of 0 to 5, where the latter is lethal for humans. It has passed through Phase 1 trials, which seeks to establish the drug's toxicity in humans. It has killed cancer cells based on the Phase 2 study of efficiency. B-cell cancers are very common, and the focus of elF5A technology on them may be a great leap towards finding a cure for cancer.

Immunogen is known for its use of Targeted Antibody Payload (TAP) technology to control cancer. Antibodies that target tumors bind cancer cells, but they do not effectively control cancer, because they do not kill the cells. Experts at Immunogen attach agents to the antibodies that have the ability to kill cancer. This ensures that the antibodies targeting cancer tumors not only bind themselves to the cancer cells, but also kill the cells using the agents referred to as payloads. The payloads are thought to be better than chemotherapy agents, and they stay bound to the antibodies until cancer cells are identified.

Immunogen has a few drugs of its own that are going through various clinical trials stages. IMGN853 targets solid tumors, including ovarian cancer, IMGN901 targets multiple myeloma and small-cell lung cancer, and IMGN 529 targets Non-Hodgkin’s Lymphoma. Immunogen has also partnered with companies like Bayer, Roche Holding and Sanofi (NYSE: SNY) that have drugs targeting cancer in the pipeline. Among them include Bayer’s BAY94-9343 and Sanofi’s SAR566658, which focus on solid tumors, and Roche’s Trastuzumab emtansine, which targets breast and gastric cancers.  

Endocyte is also focused on developing cures for cancer and related inflammatory diseases. Endocyte is working on six drugs for cancer, and they are undergoing different clinical trials. Endocyte’s folic acid solution that is being developed for ovarian cancer received orphan drug status. Vintafolide and the radioactive imaging agent known as etarfolatide (EC20) are other therapeutics that have received orphan drug status and are being tested for use on women whose cancer of the ovary is platinum-resistant and has folate receptors. Folic acid is intended to be used as a pre-injection for vintafolide.

Rapidly multiplying cancer cells often express an excessive need for folate that is essential for cell division and vintafolide targets such cells. Vintafolide also ensures that normal cells - which normally do not over-express a need for folate - are not affected and thus makes treatment less toxic compared to normal chemotherapy. The company has signed a deal with Merck allowing the latter to commercialize vintafolide, which is also referred to as EC145, once the testing phases are completed. Other cancers like kidney, breast, colon and non-small-cell lung cancer may also benefit from the research on vintafolide because of the ability of the cancer cells to take up folate through folate receptors.

From Research to Investments

Investors should ask if any of these research stories are sufficient to make any of these companies a rational investment. Most of the firms focused on cancer research are not turning a profit and have incalculable price-to-earnings ratios:

<table> <tbody> <tr> <td> <p><strong>Ticker</strong></p> </td> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>P/E</strong></p> </td> <td> <p><strong>P/S</strong></p> </td> <td> <p><strong>P/B</strong></p> </td> <td> <p><strong>Market Cap (Millions)</strong></p> </td> </tr> <tr> <td> <p><span>INCY</span></p> </td> <td> <p><span>Incyte</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>11.89</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>$2,522</span></p> </td> </tr> <tr> <td> <p><span>SNTI</span></p> </td> <td> <p><span>Senesco Technologies</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>205.68</span></p> </td> <td> <p><span>20.5</span></p> </td> <td> <p><span>$18.70</span></p> </td> </tr> <tr> <td> <p><span>IMGN</span></p> </td> <td> <p><span>Immunogen</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>68.81</span></p> </td> <td> <p><span>7.83</span></p> </td> <td> <p><span>$1,232</span></p> </td> </tr> <tr> <td> <p><span>ECYT</span></p> </td> <td> <p><span>Endocyte</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>16.39</span></p> </td> <td> <p><span>3.35</span></p> </td> <td> <p><span>$335</span></p> </td> </tr> <tr> <td> <p><span>CLVS</span></p> </td> <td> <p><span>Clovis Oncology</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>NA</span></p> </td> <td> <p><span>3.23</span></p> </td> <td> <p><span>$492</span></p> </td> </tr> <tr> <td> <p><span>CELG</span></p> </td> <td> <p><span>Celgene</span></p> </td> <td> <p><span>27.13</span></p> </td> <td> <p><span>7.73</span></p> </td> <td> <p><span>7.23</span></p> </td> <td> <p><span>$41,313</span></p> </td> </tr> <tr> <td> <p><span>LRUSF</span></p> </td> <td> <p><span>Lorus Therapeutics</span></p> </td> <td> <p><span>43.04</span></p> </td> <td> <p><span>0.97</span></p> </td> <td> <p><span>1.48</span></p> </td> <td> <p><span>$13.65</span></p> </td> </tr> <tr> <td> <p><span>SNY</span></p> </td> <td> <p><span>Sanofi</span></p> </td> <td> <p><span>16.12</span></p> </td> <td> <p><span>2.67</span></p> </td> <td> <p><span>1.76</span></p> </td> <td> <p><span>$129,134</span></p> </td> </tr> <tr> <td> <p><span>NVS</span></p> </td> <td> <p><span>Novartis</span></p> </td> <td> <p><span>18.5</span></p> </td> <td> <p><span>3.08</span></p> </td> <td> <p><span>2.36</span></p> </td> <td> <p><span>$177,201</span></p> </td> </tr> </tbody> </table>

Conclusion

Investors who hope to play cancer treatments should consider the large capitalization stocks Sanofi and Novartis. Among smaller firms, Lorus Theraputics is profitable and trades at attractive price-to-sales and price-to-book multiples. Investors should avoid moving substantial amounts of their portfolios into any one name on this list.


BillEdson11 has no position in any stocks mentioned. The Motley Fool recommends ImmunoGen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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