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Feb 15, 2006 (Vol. 26, No. 4)

CancerVax' Stock Rises with Merger

  • The stock price for CancerVax (www. cancervax.com) has been rising steadily this year and changed by +19.70% from its close in the second week of February, prompting Zacks (www.zacks.com) drugs analyst Chris Kallos to make a buy recommendation on the company.

    CancerVax is an emerging biotechnology company focused on discovery and development of novel biological products for the treatment and control of cancer.

    We believe the recently announced merger with Micromet establishes a valuable strategic alliance for CancerVax in the area of immunotherapeutics, states Kallos.

    Discontinuation of its lead cancer vaccine candidate, Canvaxin, which was in Phase III clinical trial for patients with Stage III melanoma, after analysis of the data from studies was deemed too weak to continue, was a major setback for the company, Kallos says. However, the companys new alliance is timely and enhances the product pipleine and potentially adds complimentary proprietary technology to the mix.

    Micromet is a privately held European biopharmaceutical company based in Munich, Germany. The merger agreement has been approved by both boards of directors and needs to be approved by each companys shareholders, says William R. LaRue, senior vp, CFO of CancerVax. Depending on the review process of the U.S. Securities and Exchange Commission and any other necessary government filings, the companies would expect their respective shareholder votes to occur in the second quarter of 2006.

    LaRue says the merger will create a transatlantic, NASDAQ-listed company with a drug development pipeline, focused on oncology, autoimmune, and inflammatory diseases, as well as a proprietary technology base for the development of antibody-based product candidates.

    The merged company will have a substantial product pipeline with two compounds in clinical development in three major cancer indications and several preclinical and research-stage product candidates, says LaRue.

    As recently as February 3, 2006, Micromet and the University of Basel, Switzerland, published findings of a study related to one of Micromets key drug candidates, currently in Phase II trials, targeting prostate and metastatic breast cancer with Serono.

    Also, prior to the merger, CancerVax was focused on antiangiogenic technology and several Mabs targeting epidermal growth factor receptor signaling pathway. The company will file an IND for D-93, its lead angiogenesis inhibitor, a humanized Mab, in 1Q06.

    Other key events for 2006 are the expected results for the Phase II trials of MT201 in metastatic breast cancer and prostate cancer and Phase I results for MT103 in non-Hodgkins lymphoma.

    In addition, Kallos believes that existing relationships with Big Pharma on both sides could increase the opportunities for potential co-development initiatives and out-licensing agreements further down the track.

    As an emerging biotechnology company, CancerVax does not generate revenue, explains Kallos, and hence, his valuation is book value per share. As a small-cap biotechnology company in its early stage of development, CancerVax faces a multitude of risks. Notwithstanding the usual operational and business risks, the company is exposed to both clinical development risk and general market risk, says Kallos. Yet, third quarter results were consistent with previous quarters in terms of R&D spend.

    The company underwent a signficant restructure, which included substantial downsizing of its workforce from 183 to 80 employees, following the cessation of Phase III Canvaxin trials in October 2005. We expect to see continuing losses but of a lesser magnitude.

    Kallos says it is important to note that Canvaxin had received fast-track designation for the treatment of advanced-stage melanoma, as well as orphan drug designation for the treatment of invasive melanoma from the FDA. Notwithstanding the companys other projects the process of FDA submissions in itself is valuable experience, which management can leverage going forward and one that would benefit the new merged entity given Micromet existing pipeline.

    That said, the landscape in late-stage clinical development for melanoma therapeutics and indeed angiogenesis-inhibitors is relatively crowded, Kallos adds. With the merger pending approval in 2Q06, I anticipate 2006 will be essentially a transition year for CancerVax.



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