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Biotech / Medical : Stressgen (VSE: SSB) -- Ignore unavailable to you. Want to Upgrade?

To: Heat Shock who wrote (127)	7/1/2000 10:39:12 PM
From: Heat Shock	Read Replies (1) \| Respond to of 236

To all: here is the text of a StressGen report from Goepel posted on stockhouse.ca bullboards, stockhouse.ca This is a well thought out discussion of ideas surrounding StressGen which are known to knowledgeable StressGen investors, but is worth including here for those not following the company seriously. Speculation; Strongly Reiterating BUY We are strongly reiterating our BUY recommendation for StressGen and including a near target price range from $13.50-$23.50 per share. StressGen announced that based on a review of positive clinical data and interim analysis of the Phase II anal dysplasia (AIN) trial, the company will immediately proceed to a Phase III study with their lead compound, HspE7. Anal dysplasias (as well as related cervical dysplasia (CIN), anal cancer, cervical cancer, some head and neck cancers, and genital warts) are caused by the Human Papillomavirus (HPV). The advancement to a Phase III trial implies there are no detrimental side effects and there is sufficient evidence to support a clinical response from the drug even in the limited patients accrued to date. We view this as extremely positive. AIN is underdiagnosed but very common in homosexual men or men that are HIV+. CIN affects in the order of 1.5 mln women per year in the United States. Cervical and anal cancers affect approximately 20,000 men and women per year in the U.S., but cervical cancer is second only to breast cancer as the most common cancer in women worldwide. Up to 24 mln patients in the U.S. are infected with HPV, a disease that exists in 30-50% of the sexually active population. StressGen’s drug HspE7 is designed to alert a specific group of cells within the immune system to actively remove cells that are infected with virus. Important notes are as follows: Observation: AIN and anal cancer are not widespread diseases, but genital warts are extremely common and are caused by the same virus. Implication for StressGen and HspE7: AIN is often associated with external genital warts and, if there is a significant response to AIN,there is likely a significant response to genital warts. StressGen has, for the first time, indicated that it intends to expand the indication for HspE7 to include genital warts. Published Phase I data indicates there is a stimulation of cytotoxic T cells within two weeks of treatment with HspE7. Independent publications suggest the type of response generated in StressGen’s Phase I trial is associated with HPV clearance. We believe there is a substantial likelihood the investigators of the Phase II study could be reporting the clearance of these external warts, and that this has prompted the expanded program. The company intends to present this data in Barcelona at a HPV conference from July 21-28. Observation: AIN and anal cancer have no standard of care and there exists the potential for orphan drug status. Implication for StressGen and HspE7: The potential for the approval of a drug for AIN is high, and approval would give you off-label access to the extremely large patient population indicated above. If orphan drug status were obtained, the approval process for the drug would be substantially reduced. StressGen has indicated that, with favourable trial results, HspE7 could be approved for sale in 2003. We believe this type of therapeutic can lend itself to clear and unequivocal results very early in the trial process, substantially reducing both company expense and investor risk. Observation: StressGen is a company with a "Platform Technology". Implication for StressGen: If StressGen’s heat-shock fusion protein technology works for HPV, there is a strong possibility that the approach will prove useful for the delivery of antigen from diseases such as HIV and Hepatitis. StressGen is potentially sitting on the tip of an iceberg in the world of treating infectious diseases. We believe StressGen is working in one of the most fundamentally import areas of molecular biology. Target Price: We have had maintained our BUY recommendation for StressGen but have not included a target price due to the volatility of a specific U.S. peer group company, Antigenics (AGEN-Q). As of today’s release, we are no longer valuing StressGen as a discount to U.S.-based Antigenics and now believe StressGen should trade at a premium. In this regard, we would be comfortable with StressGen trading above $13.50 per share in advance of the data expected in Barcelona. What are some pro-forma numbers if the Barcelona data unequivocally demonstrates HspE7 cures HPV? HspE7 drug is poised to enter a multi-billion dollar market with little or no therapeutic competition and is validating a technique that could be extended to a host of other diseases. If we consider only the AIN and CIN indications, and capture one-third of the U.S. patients, the annual treatable population is about 500,000. A conservative estimate of US$300 per patient treated, and a 30% net royalty rate, gives an estimate of annual royalties on the order of $65 million by the third year of sales (product launch estimate is 2003). If we include the genital warts indication, the patient pool could increase fourfold or more. Including the rest of the world could add another 30% to these sales estimates. It is becoming evident that the data presented in Barcelona could be of sufficient calibre to substantiate a valuation of StressGen based entirely on the internal drug development pipeline. We prefer this valuation method, based on discounted cash flow or a relative multiple of earnings, and believe StressGen is approaching this key inflection point. Unequivocal clinical trial data would also be central in a partnering negotiation if StressGen chose to partner HspE7. In advance of this trial data, we believe healthy speculation is warranted and believe in the near-term, StressGen could easily obtain a $1 bln dollar market capitalization, representing $23.50 per share. It must be noted that speculation in advance of concrete data has inherent risk. However, based on what we believe are well structured, informative clinical trials and a world-class clinical development team, we believe StressGen warrants attention from investors who prefer to invest in companies with products in the later stages of a clinical trials. We are in the process developing a comprehensive milestone and valuation profile for StressGen and will include this shortly. Now we wait to see if the "Barcelona data unequivocally demonstrates HspE7 cures HPV" at the HPV conference from July 21-28. Happy Canada Day. Heat