Source: National Cancer Institute.
When perusing the biotech sector, investors have more than 300 publicly traded companies on reputable exchanges that they can choose from. It's almost overwhelming, and it can make finding a company that really stands out a challenge.
However, clinical-stage biopharmaceutical company Advaxis (ADXS +0.00%) has had no trouble garnering the attention of Wall Street and investors since last November. Advaxis' share price has more than quintupled since then. Though shares are off around 45% from their all-time intraday high of $30.13 set on June 8, they've still more than doubled since the year began.
Why investors can't get enough of Advaxis
What's made Advaxis the talk of the town is its focus on cancer immunotherapies, or vaccines designed to boost the body's immune system to more effectively and efficiently fight cancer. Specifically, Advaxis' pipeline of immuno-oncology vaccine hopefuls revolves around HPV-driven cancers, prostate-specific antigens, or PSAs, and solid tumors with HER2 expression, such as breast, esophageal, and gastric cancer.
Advaxis' immuno-oncology approach is unique in that it uses its proprietary Lm Technology, in reference to Listeria monocytogenes, to effect a response from a patient's immune system. Without getting overly technical, bioengineered live Listeria strains are used within the body to secrete specific fusion proteins that activate T-cells in the body, which are responsible for alerting your immune system to an antigen and/or destroying the antigen in question.
Source: Advaxis.
At the American Association for Cancer Research's annual meeting in April, Advaxis announced both clinical and preclinical data that appeared to have impressed investors.
Among its presentations, ADXS-HER2 demonstrated delayed tumor progression and prolonged pet survival in canines that presented with spontaneous osteosarcoma. The canines were also concurrently given palliative radiation treatments. Although Advaxis' goal is to bring its immuno-oncology products to humans, the study nonetheless demonstrated the potential of ADXS-HER2 in fighting tumors.
Its two preclinical presentations at AACR involved ADXS-HPV. One study combined ADXS-HPV with an anti-PD-L1 antibody, with the combo demonstrating greater tumor growth suppression than the monotherapy anti-PD-L1 antibody arm among mice. The other study involved ADXS-HPV in combination with anti-OX40 and anti-GITR, which also led to suppression of tumor growth and prolonged survival in mice models.
This is big news that can't be ignored
However, earlier this month an even bigger potential story emerged for Advaxis and its shareholders -- and it had nothing to do with Advaxis' cancer immunotherapies (or should I say it wasn't entirely based on its pipeline).
Based on a 13G filing with the Securities and Exchange Commission on Aug. 6, hedge fund Broadfin Capital, managed by Kevin Kotler, had more than doubled its stake in Advaxis to 1,655,314 shares, or 5.27% of outstanding shares. This was an increase of nearly 850,000 shares from its last 13F filing with the SEC.
Source: Flickr user www.vpsi.com.
Why does this matter? Kotler, who's currently managing a $1 billion-plus portfolio of assets, has become more active within the past year in identifying perceived-to-be undervalued assets and making potential calls for change.
Kotler, who has made a habit of specializing in small-cap biotech companies, moved into an activist role for the first time in his hedge fund career in November, when he called upon shareholders of Cardica to reject the company's proposed board of directors at an upcoming annual meeting. Kotler and his team issued an extensive open letter that suggested Cardica's board had poorly managed its technology, and boasting a roughly 17% beneficial ownership stake in Cardica, Kotler and his team called for shareholders to take a stand.
Seeing activist investors stand up for change isn't anything new; but seeing Kotler and his team issue their first open letter demanding change would imply that Broadfin won't be any pushover, with 5.27% ownership in Advaxis. If anything, Kotler and his team could champion for partnerships or a buyout, which is what activist hedge fund investors are probably best remembered for.
Of course, Broadfin isn't Advaxis' only supporter. Adage Capital Partners, founded by Phil Gross and Robert Atchison, owns in excess of 5.6 million shares of Advaxis common stock, and it has regularly been a proponent of buying Advaxis' stock at a substantial premium to its current price. That may not seem like a wise idea on Adage's part, but it was also a major shareholder of Puma Biotechnology before its stock shot into the stratosphere.
Can you now safely buy Advaxis?
With two substantial hedge fund positions now comprising close to a quarter of Advaxis' outstanding shares, you might be wondering if it's time to click the buy button on Advaxis. Although I do believe investors may be underestimating the drive these hedge funds can exert on Advaxis' board to increase shareholder value, I don't believe their presence provides anything of a guarantee for investors that Advaxis' stock could head higher.
Source: Flickr user Mike Poresky.
The thing that could haunt Advaxis for the time being is its ongoing losses. Even though the company has sufficient capital that should fund its operations through 2017, the chances it will launch a product before 2018 are slim to none. This means an occasional milestone payment, private secondary offering, or dilutive common stock offering are the only ways Advaxis has of raising capital. In other words, investors have to factor these losses into Advaxis' already aggressive valuation of $515 million-plus.
We also don't have a lot of tangible statistical data to fall back on. Thus far Advaxis has been demonstrating that ADXS-HPV, ADXS-HER2, and ADXS-PSA are safe and/or well tolerated in clinical studies, but we haven't seen much in the way of tangible comparative statistical data -- and we probably won't for a number of months until a handful of its midstage studies are complete. This isn't to say these studies won't succeed so much as investors could be putting too much weight in Advaxis' pipeline before the important data has rolled in.
For now, my suggestion would be to hang out on the sidelines until we have more definitive mid- and late-stage efficacy data on its ADXS-HPV-related trials.
