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The Common Cold Uncommonly Close To Cancer Coup
BY JAMES DUNN - 26/02/2014 | VIEW MORE ARTICLES BY JAMES DUNN

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VLA - VIRALYTICS LIMITED


Viralytics is commercialising its lead product, CAVATAK, a proprietary formulation of the oncolytic virus, Coxsackievirus A21, a form of the common cold. It was first developed at the University of Newcastle, New South Wales, in 1999.


An Australian life science stock that is garnering attention is anti-cancer virotherapy firm Viralytics Limited (VLA), which is working in one of the “hottest” areas in biotech, virotherapy.

Virotherapy is an experimental form of cancer treatment that uses biotechnology to convert viruses into therapeutic agents, by reprogramming them to treat diseases, either in their own right or by stimulating a response from the body’s immune system. Viralytics is commercialising its lead product, CAVATAK, a proprietary formulation of the oncolytic virus, Coxsackievirus A21, a form of the common cold. It was first developed at the University of Newcastle, New South Wales, in 1999. Viralytics holds the IP rights to the virus under a recently renewed contract with the university.

An oncolytic virus is a virus that preferentially infects and kills cancer cells. CAVATAK is targeted to a specific receptor over-expressed on cancer cells (ICAM-1). It kills local and metastatic cells by oncolytic and immune-therapeutic activity. Being able to be used intra-venously as well as intra-tumoural, CAVATAK has potential application across a range of common cancer types, including prostate, lung, melanoma and bladder cancer.

CAVATAK has ‘orphan drug’ status from the US Food and Drug Administration (FDA), which may be granted to a therapy that been developed specifically to treat a rare medical condition: it is easier to gain marketing approval for an orphan drug.

The virus also has Investigational New Drug (IND) approval from the FDA for a Phase II melanoma trial. Under this approval, a Phase II single-arm, open-label trial called CALM (CAVATAK in Late-stage Melanoma) is in progress at 11 cancer clinics in the US, assessing the impact of the treatment in 54 patients with advanced melanoma.

The CALM trial’s interim efficacy milestone of three or more complete or partial response responses in the first 35 patients has already been achieved. CAVATAK has also been able to reduce tumour sizes, which will help in combination with other therapies, and could be an early path to commercialisation.

Viralytics’ trial program also includes two other major clinical trials, the Phase I/II STORM (systemic treatment of resistant malignancies) trial in solid cancer patients and the Phase II randomised trial in advanced melanoma patients.

The Phase II STORM trial commenced in February at three UK cancer centres, with the bulk of the work to be done at Royal Marsden Hospital, where Viralytics scientific advisory board member Dr Kevin Harrington is clinical oncologist. About 30 late-stage patients with melanoma, prostate, lung or metastatic bladder cancer will be dosed intra-venously, with and without standard chemo-therapy. Results are expected to flow by the end of the year, with final results by early 2016.

The Phase II randomised trial in advanced melanoma patients is expected to begin in the third quarter of 2014 and be completed by the first quarter of 2017.

The trial program is being funded mainly by a $27.1 million capital raising announced by Viralytics in January, achieved through a two-tranche placement and a rights issue. The company is offering existing shareholders a one-for-six entitlement offer to raise $4.1 million, and a two-tranche institutional placement raising $23 million. Viralytics says the raising will fund its clinical trial program through to the end of 2016.

The capital raising grabbed plenty of attention in the Australian biotech sector, for several very good reasons. Firstly, the raising will almost double Viralytics’ market capitalisation, from $28 million to $55 million. Secondly, from having no institutional investors on its share register before the issue, Viralytics will have up to a dozen specialist biotech investors as shareholders when the issue is bedded down.

The first tranche ($6.1 million of stock) is not subject to shareholder approval, but the second tranche ($16.9 million of stock) will be put to a shareholder meeting on March 6. After the second tranche, Viralytics says four leading biotech investors will own more than 5% of Viralytics’ stock each, and under Australian Securities Exchange (ASX) rules will be deemed to be ‘substantial investors,’ and must identify themselves to ASX by lodging a ‘substantial shareholding notice.’ The company says eight other specialist biotech funds will also be on the register, but will be able to sit anonymously under the 5% limit. Clearly, Viralytics’ story has impressed some very hard-headed life science investors.

One of the factors that might have impressed these specialist biotech investors is that stimulating immune-responses to treat cancer is a very “hot” space in biotech. The commercial value of oncolytic virotherapy was demonstrated in 2011 when multi-national pharmaceutical company Amgen paid US$1 billion ($425 million upfront, with $575 million in potential milestones) for BioVex, the developer of the TVec (talimogene laherparepvec) virus-based drug. TVec, which is based on a genetically modified herpes virus, has shown positive results in Phase III trials, in which it has been injected directly into tumours.

From the Viralytics point of view, the most pertinent part of the BioVex comparison is that Amgen was convinced to shell out US$1 billion by results from a 50-patient open-label Phase II trial - ‘open-label’ meaning that both researchers and patients know the treatment being administered – whereas Viralytics’ trial involves 54 patients, and will be followed-up with a randomised study, in which subjects are randomly allocated to receive one or other of the alternative treatments under study, or a placebo (the ‘control’ group.) This is considered to give higher-quality clinical data than an open-label trial.

It is fairly obvious that the BioVex/Amgen precedent played a big part in the success of the ‘roadshow’ that Viralytics undertook around the specialist biotech investment funds in Sydney, London, Boston, New York and San Francisco. All of those investors would have done their own due-diligence study of Viralytics’ clinical data, looked at Viralytics’ tiny market cap, and compared it to the potential for a sale to ‘big pharma,’ as BioVex achieved. This may be one of those cases where retail investors can draw their own conclusions.
 



View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



 

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