March 3, 2000
StockHouse News Desk
By Carol A. Hood (chood@stockhouse.com)
StockHouse Columnist
Lorus Therapeutics: An Undervalued, Biotech Diamond In The Rough
Lorus Therapeutics is making significant progress in developing anti-cancer drugs. The Markham, Ontario-based company's efforts are backed by the National Cancer Institute, and it has partnered with the Harvard Medical School. Lorus has three very promising cancer-fighting drugs that have received US patents, and the company is in strategic alliance talks with numerous US pharmaceutical companies, as well as in the process of bolstering its genomics department. With a market cap of only a quarter of comparable biotechs, and a full NASDAQ listing likely later this year, Lorus has promising potential.
Toronto, ONT, March 3 /SHfn/ -- Before December of 1999, Lorus Therapeutics [T.LOR] / [LORFF] was very uninspiring, as there was very little activity in the stock. The company has since been riding the biotech wave.
But given its prospects, and its valuation at a quarter of comparable US biotechs, Lorus is still substantially undervalued, something that will not go unnoticed for much longer. The fact that the company is additionally moving into the genomics area, and is aiming for a full NASDAQ listing, adds to its potential.
Lorus is mainly focused on the research and development of new drugs that can be used, either alone, or in combination, to successfully manage cancer.
Unlike some of the biotech companies that have set sail recently because they are in a sector that happens to be the flavor of the month, Lorus actually has a sound and impressive portfolio of products to combat cancer. According to Lorus' president and CEO Philippe G. Lacaille, the strategy "is to build critical mass in our company, to consolidate the cancer biotech industry in Canada. Cancer is not one disease, it is hundred's of diseases, very complex, none of these diseases are addressed by silver bullets, there are no cures today. Our vision is to build a diversified pipeline of products that could attack cancer from different angles, we are truly unique in Canada in pursuing this kind of strategy. We have today according to a number of analysts the richest pipeline in Canada for cancer drugs."
Lorus has 3 families of drugs:
Immunomodulators: products that use your immune systems to fight off cancer;
Antisense drugs that came with the acquisition of GeneSense Technologies in October of 1999; and
Small molecules.
According to Lacaille, the breadth and depth of Lorus' portfolio "will ensure a steady flow of new products as the company matures, and as it does that from an investors standpoint, it will allow investors to have multiple hits in terms of hitting milestones; it also mitigates the risk for both investors and the company because not all products will make it to the patient in the end.
Among the first types of Lorus' anti-cancer drugs is Virulizin, which has just completed phase II trials and is being touted as one of the most exciting discoveries. The most interesting aspect about Virulizin is that, in clinical trials, it doubled the survival time of patients who had pancreatic cancer. Virulizin is currently approved in Mexico for use in treating the skin cancer Melanoma and has just completed 3 phase II trials in both Canada and the US. Being approved in Mexico provides Lorus with a constant stream of revenue. The company is ready to move into phase III trials as soon as it locks in a strategic partner for North America. " We are in serious discussions with a number of large companies in the US and we are hopeful by the first half of this year, we will be in the position to secure this partner on our side." This medication plays in a market that is valued at about $500 million, which is considered a very attractive niche market, because presently there is only one product that sells in this market called Gemzar and it is sold by Eli Lily [LLY]. Lacaille goes onto explain, "The product (Gemzar) is anything but a panacea; it's chemotherapy, it is more toxic than our product."
The second family of products is the antisense drugs; these products were acquired along with GeneSense Technologies. Antisense drugs are interesting because they work upstream of typical cancer drugs. Typical cancer drugs will inhibit the activity of a protein that is linked to a certain disease. But what antisense does is prevent the formation of the protein. The key in antisense, Lacaille explains, is that one "must have the right target; it's like a lock and key mechanism, if you have the right key and the wrong lock, it won't work." Lacaille goes on to explain that along with the GeneSense acquisition, the company was very fortunate to receive an outstanding research group that is led by Dr. Jim Wright, who is their current president and chief scientific officer. Dr. Wright spent 27 years at the University of Manitoba researching cancer drugs, and was a Terry Fox scientist for many years.
Lorus strongly believes that cancer drugs should be safe first; current cancer drugs have a very high level of toxicity. On Feb 28, Lorus announced that its two leading anti-cancer drugs, GTI-2040 and GTI-2050, had shown extremely positive results in reducing the size of tumors in mice containing human prostate cancer cells. In addition to these findings, Lacaille says, " These drugs were very, very active in 10 different diseases; we have shown also that in combining this drug with chemotherapy, we regressed certain cancers completely, which means we made the cancer disappear." He goes on to add, "The most striking results were observed in renal cell carcinoma (kidney cancer). Kidney cancer is very difficult to treat today. One drug used is called IL2, which is so toxic that many oncologists don't prescribe it to their patients, the side effects could literally kill them." If Lorus can duplicate the great results they had in their animal model trials, in humans, it is most likely that the FDA would have a hard look at the data and might fast track the drug to the market. What Lorus researchers observed in GTI 2501, was that as a stand-alone therapy in animal models, it completely regressed breast cancer and kidney cancer. "We don't know of any drugs that have shown these kind of results" says Lacaille. In another test to determine what would happen if they stopped the drug treatments in the mice bearing human cell models, they found that after 50 days of stopping treatment, the mice after 3 months saw no re-growth of cancer. "It is absolutely striking and we certainly hope that we can get close to these kinds of results in human trials. This drug is now in toxic study, and that is the last hurdle to prove to the FDA that you can actually start the clinical trial." Lorus is hopeful that it will be starting clinical trials for this second drug by the end of this year. These two drugs have a market potential of well over $2 billion, says Lacaille. In the US alone, there has been in the last four years, over 900,000 new cases of prostate cancer, which is one of the most common cancers in North America
Phase I /II human clinical trials for the Lorus drug GTI-2040 are presently in progress in Chicago. Lorus plans to submit to an application to the FDA in the US to start phase I/ II of the human clinical trials for the anti-cancer drug GTI-2051 and the trials should be concluded by the end of 2000. Lacaille say he anticipates "interim results early in the fall and the final results will be compiled and the biostats will be ready probably very early in 2001."
The third family of drugs is a drug that originates from a well-known anti-fungal drug. NC381 NC83 and NC84 came to the attention of the US National Cancer Institute (NCI); they tested and put these drugs through numerous rigorous tests. The end result was the NCI approached Lorus with an offer to help them financially develop the drug up to the clinical trials. This proposal was very advantageous in two ways; it decreased Lorus' burn rate by millions of dollars for the next two years and secondly, it validated their technology. The NCI chose to fund Lorus' drug for the mechanisms of action, which are very unique. The first one is the Anti-Angio Genesis. The way it works is that for a tumor to grow past the size of a pea, it must send signals to build new vessels that will come and feed the tumor; if you find a drug that actually stops the formation of these new blood vessels you actually "choke" the tumors. If you can do this, it regresses back to the size of a pea and if you have an oral drug like a pill that is safe enough to take on a regular basis, then this gives the doctor a tool to manage cancer patients. The second form of action is it stops the proliferation of the cells, it stops the cell division at the very early stages and forces the cell to commit "suicide." "When you die of cancer, you rarely die of cancer because of the primary tumor, you die of cancer because the cancer spreads in the body to other organs; these drugs stop the spread of cancer, we have done that in animal models." Lacaille concludes by saying, "This family of drugs has a very high potential, I would say blockbuster potential." In addition to the NCI, Lorus has a research partnership with the Harvard Medical School as a result of the great potential of these drugs.
Lorus has 4 other programs of interest, but most notably are a "gene therapy program" and "functional genomics program", although Lacaille refuses to elaborate. Lorus has spoken very little about the genomics program, because Lacaille says he does not believe in "hype." In fact, it is not even mentioned in the annual report. Lacaille explains, "At Lorus, we are very conservative and we only like to speak publicly about what we are doing when we are advanced enough in our programs and when we can replicate the science." When asked why he had not mentioned anything about the genomics program yet, Lacaille replied, "We will talk about our gene therapy program and our functional genomics program probably in the second half of this year. Our vision is not to hype the company, it is to have a sound company with real technologies and real products that will make a difference for patients, that is how we think and how we announce data. Our intentions are to enhance our current functional genomics program internally before we announce what we have."
A comparable company to Lorus in the US is called EntreMed [ENMD], which has a drug that has shown very positive results and very similar to what Lorus is showing with their drugs GTI 2040 and 2501. EntreMed, which recently began phase I/II clinical trials, has a market cap of close to $2 billion (compared to $500 million for Lorus) and EntreMed only has one drug in clinical trials. Lacaille surmises, "Compared to the depth of our product portfolio which incorporates a product that is approved today, we have a product that is at the end of phase II, another one in phase I/II, another almost in phase I/II, and other products in research, we have a much richer product pipeline than this company. Compared to EntreMed, we are drastically undervalued." Another example can be found on the Canadian market called AEterna Laboratories [T.AEL], which has one product in phase III clinical trials and has a market cap close to half a billion dollars. "We are solicited almost every day by US investors who believe that Lorus is a good value play, an undervalued situation." Lacaille concludes.
Lorus was listed on NASDAQ over 2 years ago. However, NASDAQ has changed its rules since. Lorus met every criteria except the US $1.00 minimum price requirement, which resulted in them being demoted to the bulletin board. The new re-listing rule requires a minimum price of US$4 and Lorus is presently trading close to this. "It is our intention to re-file on the NASDAQ main board as soon as we are allowed to when we reach US$4. We certainly hope to be back on the NASDAQ before the summer." In terms of announcements this year, Lacaille says Lorus will have a very busy year. "We will have very significant announcements hopefully throughout this year. We hope that early in the fall we will have the interim results of these trials reported and the final results will be communicated early next year."
For the year of 1999, Lorus spent about $4 million in research and development alone and will spend about $6 million this year. The company presently has approximately a 2-year supply of cash on hand.
While Lorus has 120 million shares outstanding, a lot of these shares are escrowed; 36 million shares were issued to GeneSense last year in a 1,2,3 year escrow agreement, 51% of their shareholders are institutional shareholders, this equates to about 60 million shares. This is very positive, because institutional shareholders are usually not active traders and are more likely to implement a buy and hold strategy. Management owns 18% of the company and out of this, 15% percent belongs to Dr. Wright and one other individual and these are in escrow.
Technically, this is a stock that seems to have built a good base of committed investors. This stock does not have cantankerous mood swings from day to day. Volume and stock price are committed members in this relationship. Every day since January 19, Lorus has traded well over 1 million shares per day and this liquidity has increased steadily to date. Lorus may encounter some profit taking in the upcoming lull between its last announcement and upcoming events. However, it is not likely that the stock will be able to be picked up for much less than C$3.75, any pull back should be seen as an opportunity to average down. This is a very undervalued biotech company that is almost unheard of in the market at present.
Their future looks so bright, you might want to wear shades. |
