Dew Diligence saw that my repost of J&E's (Justice_and_Equality) reply, to the Pearson article (January 21, 2015) on “Seeking Alpha,” did not show a link to the source. As regards the source, J&E had written a shorter reply to Pearson and used the alias Justice Green (and I can't find it at the moment); however, he had been posting on a private Google ONCS board and stated that he had written a rebuttal to Pearson although he would not publish it on “Seeking Alpha” because he did not want to disclose his identity.
He opened a Google Doc page and put the ADXS/Pearson rebuttal there. You had to get his permission to get into the site but once in, he stated that anyone could modify his document and post it as his/her own on “Seeking Alpha.” I don't think anyone did. The live link to his Google Doc page has expired. I had copied the document on January 22, 2015 to refer to it and this is why I had still retained it, now for all on this board to read. It is a masterful and cogently written article and is about four pages long.
This article is written following the short-thesis article on Advaxis written by Richard Pearson (Jan 21, 2015, Seeking Alpha). It is noteworthy that the short-thesis was followed by the threat of legal investigation within hours.
Companies are dynamic entities. Circumstances surrounding them change. Especially true of an earlier stage biotech. Advaxis is a company that is past an inflection point. The author presents a passionate short-thesis on why ADXS is overvalued. However, most of his points appear to be based off the company’s past, and are, in my opinion, irrelevant to the current situation. The author does not seem to have objectively addressed the present strategic positioning of the company, which in my opinion, are the real reasons why Adage and other investors are excited about Advaxis.
Furthermore, the crux of the argument regarding vaccine efficacy and willful misrepresentation by the company is based upon a flawed foundation. How so? The author claims Advaxis reports tumor shrinkage in absolute millimeters. However, the waterfall plot he uses to make his case appears to be derived from a previous presentation that had a typo. In fact, the current Corporate Presentation (Page 10) on the Advaxis website clearly shows tumor shrinkage in percentage terms. It seems that this document may have been updated recently, possibly to rectify the millimeter typo. Even so, previous SEC filings filed back in 2014, such as Page 6 of this document also clearly show tumor shrinkage in percentage, not mm. Thus, the author’s claims of wilful misrepresentation and misleading of investors, based on misrepresentation of tumor shrinkage appears to be completely invalid! As an investor in the stock, I have never felt misled by the information published by the company. I would be surprised if anyone would have been misled by the data.
WHAT I THINK ADXS IS POSITIONING FOR
For years, immunotherapy has been misunderstood. For example, until a couple of years ago, it was commonly believed that only "certain" cancers responded to immunotherapy (Melanoma, Kidney). NSCLC was thought to be "non-immunogenic", meaning that it simply does not respond to the immune system. Bristol and Merck's Anti-PD1 drugs DEMOLISHED that old fallacy, showing reproducible ORRs (overall response rates) of 30%-40% in independent trials. Another data point demonstrating the universality of immunotherapy:- Last December, at the ASH conference, Anti-PD1 monotherapy was shown to have 90% ORR for Hodgkin's Lymphoma. The point is that many aspects of immunotherapy have been misunderstood for decades.
There is another crucial manner by which immunotherapy may have been misunderstood. The old pharma mindset has traditionally been about using ONE patentable drug to solve a problem. This is understandable because companies need to be able to patent or protect their product for exclusivity. Like trying to jam a square peg into a round hole, companies have pursued monotherapy solutions for decades. Now that anti-CTLA and anti-PD1 monotherapies have established efficacy of immunotherapy, the immuno-oncology community can now turn its attention towards improving efficacy. This involves combining more than one immunotherapy.
Today, leading cancer immunologists know that multiple factors need to be in place to successfully achieve tumor control. Hence, the buzz about "combination therapies". The astute investor will note that most, if not all major checkpoint blockade companies are pursuing combination therapies, because they realize that checkpoint blockade (PD1 etc) is only one piece of the puzzle!
Let's take a step back to briefly examine the prevailing view of how the immune system works:
Cancer cells express certain antigens (signatures). Some cancer patients have "pre-existing immunity" against these antigens. This means, the patient's killer T-cells are able to recognize tumor antigens as "evil". The T-cells surround and attack the tumor, but get "stuck" at the edge of the tumor. This is because tumors literally have defense mechanisms, including the ability to "shut down" incoming attacking T-cells. PD1 is a very important and common signal that tumors use to shut down T-cells. By blocking this pathway (with anti-PD1 drugs), the tumor is less able to defend against incoming T-cells. This is why 30% of NSCLC lung cancer patients who would otherwise die, now suddenly experience tumor regression.
What about the other 70%? Did they fail to experience regression because they didn't already have "pre-existing immunity" to their tumors? This is indeed one prevailing theory that many leading cancer immunologists hold.
This also potentially explains the recent increase in Advaxis’ stock price.
You see, Advaxis' Lm-LLO vaccine by itself has encouraging, but not “revolutionary” efficacy data. Phase 2 HPV cervical trial showed 11% responses (with around 38% disease control rate). One needs to understand a possible explanation of why the monotherapy results aren’t “more spectacular”.
LmLLO is a live-listeria vaccine. Listeria bacteria evokes an extremely strong initial immune response. When infused intravenously, the immune system "goes on high alert" and starts attacking the Listeria. This process is akin to someone getting sepsis (a blood infection). Advaxis' Listeria is genetically modified to express one of the cancer antigens (signatures). For example HER2.
The immune response is highly coordinated and beautiful. One well-understood mechanism is that of Dendritic Cell (DC) antigen presentation. During the attack on the Listeria bacteria, DCs learn to recognize the HER2 cancer antigen that was expressed by the Listeria. These DCs move to the lymph nodes. There, they stick out their "tentacles", and teach T-cells "who to go after" in the body. The end-result: Armies of killer T-cells that recognize HER2. These T-cells circulate the body, hunting for any tumors that express HER2. Unfortunately, they often get stuck at the tumor periphery. Why? Again, because of the tumor defenses mentioned earlier. Thus, it is NO SURPRISE why the previous vaccine monotherapy trials, including that of LmLLO, have had less-than-spectacular results. In fact, historically, the majority of cancer vaccines fail to evoke ANY tumor regression at all. The fact that LmLLO is able to achieve 11% ORRs (actual tumor shrinkage) is an indicator that it is a strong vaccine, in comparison to the majority of older generation (failed) vaccines that have near zero ORRs.
KEY POINT: In my opinion, a strong possible explanation for the recent upwards movement in Advaxis stock is the Combination PD1 prospects, not old monotherapy trial results. The author does not seem to have addressed this possibility. Let me elaborate why I think, based on my research, that combining an effective vaccine (such as Advaxis) with PD1 (which removes the defenses) has an excellent chance of achieving high synergies.
DR. DAVID MAURO
In Late 2014 (Oct), Dr. David Mauro moved from Merck to Advaxis to become their new Chief Medical Officer. Shortly after (in December), Adage Capital bought a huge chunk of the company. To some ADXS investors, this is a highly significant sequence of events. Dr. Mauro's role at Merck was as Executive Director, Section Head of Oncology Clinical Development. His responsibilities included evaluating the strategic future of the checkpoint blockade (PD1) program. In my opinion, this was a highly important role. It’s no secret that Merck is betting big on PD1. To be at the apex of the division responsible for PD1's direction is a huge responsibility. Why then did Dr. Mauro jump ship to Advaxis? In his previous role at Merck, Dr. Mauro was responsible for evaluating combination therapies. He might have seen something tantalizingly attractive about Advaxis.
EVIDENCE OF SIGNIFICANT SYNERGIES WHEN COMBINING VACCINATION + CHECKPOINT (PD1)
One example of a combination therapy is Amgen's Tvec (which was purchased for up to $1B back in 2011). Tvec is an oncolytic virus (engineered to emit GmCSF). Like Advaxis, by itself, efficacy is good, but in my opinion, falls under the category of “modest”. However, in 2013, Amgen revealed that Tvec + Yervoy (the “first generation” checkpoint blocker approved before PD1) had very high synergy. Yervoy monotherapy has only about 10% ORR in Melanoma. Yet, when combined with Tvec, ORRs reached 56% !! And this was with a "weaker" checkpoint blocker drug. Now, instead of pursuing a Phase 3 trial of Tvec + Yervoy, Amgen chose to quietly switch to Tvec + PD1. Why? The most likely explanation is because PD1 is widely known to have much better efficacy and less toxicity compared to Yervoy. The idea is that maybe Tvec + PD1 might achieve more than 56% ORR? Maybe 60,70,80%?? Those results would be extremely revolutionary, approaching CAR-T response rates. Of course, we will have to wait for the results. But that is the nature of investing.
Readers might note that Tvec is not the same as LmLLO. True, they are not the same product. However, students of cancer immunology will agree that the rationale to make this inference is sound. Basically, there are multiple approaches to achieving “vaccination”. Tvec is one approach. LmLLO is another approach. There are a huge array of all sorts of vaccines, some more efficacious than others. The evidence of 11% actual tumor shrinkage in the previous LmLLO Phase 2 trial provides a foundation for rational inference that the combination strategy is highly likely to yield synergies. Merck and MedImmune seem to agree. Otherwise, why would they have gone along with Advaxis’ combination PD1 trials?
The importance of combination therapies is discussed in a Nature Biotech article titled “Immune-checkpoint inhibitors march on, now in combinations". In that article, Dr. David Mauro, who was then still at Merck, was interviewed. The article states that Merck (like Amgen) was interested in evaluating Tvec + PD1. It also quotes Dr. Mauro saying the following: "I think that it’s still way too early to walk away from technologies, compounds and platforms that do not appear to be overtly active”. Perhaps, Dr. Mauro, like many other leading cancer immunologists, knows that the science clearly supports the idea of combining an antigen-priming strategy (such as a strong vaccine), that, by themselves, don’t seem to have particularly strong monotherapy efficacy, with PD1 (removing the defenses). Short of asking Dr. Mauro himself, one can only postulate. But this may be a good explanation for why he jumped ship from Merck to a relatively unknown company such as Advaxis.
Long time investors will note that from the time Dr. Mauro came aboard, he has helped pushed through combination clinical trials at an EXTREMELY RAPID pace. He is clearly adept at designing clinical trials and getting the FDA to approve them. He came aboard in October 2014. By December 2014, they had obtained 2 FDA approvals for combination PD1 trials!! One with Merck (for Prostate cancer), and a second one with MedImmune (for HPV cancers). Both these trials are combination PD1 trials that required coordination with external companies (Merck and MedImmune).
Astute investors will note that these trial approvals came about around the same time Adage bought a huge chunk of the company. In my view, it is highly possible that Adage took the large stake because they too believe in the potential for game-changing synergies in combining Advaxis' vaccine + PD1.
EASILY-MANUFACTURED, OUTPATIENT, FULLY-INTRAVENOUS, NON-TOXIC COMBINATION
One crucial distinction of LmLLO is that the bacteria is intravenously administered (Unlike Tvec, which requires injection into the tumor). This is an important advantage. The majority of cancer patients do not have accessible tumors that are easily injected by doctors or nurses. To do so safely may require CT-guided injection or surgery. This instantly makes the procedure more costly, and much less scalable to the masses. It makes sense to infer that Bristol and Merck would value something that's "easily deployed" to complement their PD1 drugs. The PD1 drugs are also intravenously administered. It would seem that LmLLO fits hand in glove with PD1 in this respect.
LmLLO monotherapy has proven low toxicity. PD1 has also proven low toxicity. It remains to be shown, but there's a strong possibility that combination LmLLO+PD1 will also have low toxicity. With a fully intravenous solution that has low toxicity, patients need only to go to the infusion center, where nurses can administer. This model lends itself to worldwide scale. This is in STARK CONTRAST to current CAR-T immunotherapy procedures by JUNO and KITE that may require hospitalization or even ICU for potentially life threatening side effects like the Cytokine Release Syndrome, Tumor Lysis Syndrome, or sudden off-target toxicities. (FYI, CAR-T companies are diligently working on a solution to solve these current limiting factors)
In addition, LmLLO is a live bacterial vaccine. This is EXTREMELY EASY and low cost to produce. Once engineered, you simply let them multiply!!
Putting all these together, one can see why LmLLO could be an extremely attractive complement to PD1. You simply pack and ship worldwide, even to places that don't have heavy duty hospitals and ICU support. In my view, this makes ADXS a very attractive partner or acquisition candidate to the PD1 players (assuming of course, efficacy and toxicity are validated in the PD1 combination trials).
Ask yourself - if LmLLO is proven to show step up synergies in combination with PD1, with the multiple indications being pursued by Advaxis, how much will this be worth to a potential PD1 acquirer? Balance this thought against the modest ~200m market cap of the company (as of Jan 21, 2015). You’ll see that the ADXS long thesis is by no means exuberant or “bubble talk” by any reasonable measure. Note that the ~200m market cap is less than 1/10th the market caps of the examples invoked by the author (JUNO and KITE)
RAPIDITY OF CLINICAL TRIALS
Another misunderstood aspect of cancer immunotherapy is that the cancer immunotherapy trials are moving extremely fast. The author mentions Advaxis' combination trials with Merck & MedImmune in passing, but says they are "simply" Phase 1/2 studies. However, the author fails to note that the dramatic efficacy & safety aspects of the PD1 drugs have led to extremely rapid approval. For example, the PD1 drugs have been earning breakthrough therapy status and extremely rapid approval. Perhaps simply because:-
(a) they accrue rapidly as patients are beating down doors to get into these trials
(b) they are so effective AND
(c) they have such low toxicity.
The author fails to note these significant aspects, coupled with the very rapid pace of seasoned Advaxis’ management in pushing these trials through the process. If proven safe and efficacious, commercialization will possibly come far sooner than the traditional process.
WHAT THE AUTHOR FOCUSES ON
The author fails to focus the discussion on the company's strategic and competitive positioning. Note that the author publicly states he is short. Here are some of the points the author raises, which I disagree with:
(1) ADVAXIS USES MILLIMETERS INSTEAD OF PERCENTAGE TO REPRESENT SHRINKAGE
This point has been debunked (earlier in this document)
(2) ADVAXIS JUMPING STRAIGHT TO PHASE 3 TO HYPE UP STOCK
This is a Phase 3 trial for Cervical cancer run by GOG Foundation. The GOG Foundation is an international non-profit held in highest regard for promoting excellence in research and treatment of gynecological cancers. The fact that GOG reviewers would even ALLOW a Phase 3 implies that after reviewing the science and the data, they see strong rationale for running such a trial. This is the most probable and most logical explanation for the direct move to Phase 3. Instead, the author accuses the company of “deciding for themselves” that a phase 3 trial should be run. He implies Advaxis is doing this for the purpose of pumping up the share price to raise money. This is irresponsible and slanderous language. GOG would not allow such a trial if they did not think there was good supporting data and scientific rationale. Their reputation and high standards of scientific excellence preclude this.
(3) DREAM TEAM EFFECT IS PROPPING UP STOCK
Author's states that quadrupling is clearly not due to major clinical progress, but due to heavy promotion. Objective Analysis of the stock price history reveals it languished until December 2014. Only after Adage's large purchase was revealed in December 2014 did the stock price start increasing (rapidly). Quadrupling happened most likely because other funds observed Adage's move, asked why, and decided to follow Adage in. The low float, and heavy volume (reflecting other funds following Adage in) are the most plausible explanation for why this stock has run up so quickly.
(4) STOCK SUDDENLY BECOMING LIQUID
This is a positive, not negative. It's a reflection of other funds taking notice of Adage's vote of confidence and following Adage into the stock. The sustained increase in average volume ever since the Adage purchase is approximately 10x the average daily volume of preceding months. The most logical explanation for this sustained daily volume in my opinion: ADXS is perhaps no longer just being sought after by mom/pop retailers, but possibly now by large funds who are following Adage and T Rowe Price into the stock.
(5) STOCK SUDDENLY QUADRUPLING AND WILL LIKELY DROP QUICKLY
The suddenly quadrupling is most likely because of (a) small float (b) overwhelming demand. The author puts forth another suggestion stating "if history is any guide, we will see a sharp decline in Advaxis stock very quickly". Without proper justification, this becomes a dangerous scare tactic, whether intentional or not. Instead, a more responsible question might be to ask whether the demand is based on solid factors, not hype. Again, the author has failed to discuss the company's strategic positioning, focusing on irrelevant past factors. He makes the argument that the stock price increase is primarily due to hype. On the contrary, Advaxis, with it’s relatively reasonable market cap (now in the $200m range) offers a compelling investment when balanced against the prospect of LmLLO being shipped alongside PD1 worldwide.
SUMMARY OBSERVATION OF THE AUTHOR'S PIECE
The author has failed to discuss the likely reasons that can easily explain why ADXS stock has risen so quickly. Instead, he speculates that the stock has been hyped up, but cannot offer any solid evidence to support this accusation. He points the reader to monotherapy efficacy data, misrepresenting that as a result of the flawed “millimeter argument”. In the process, he completely misses the investment thesis based on combination PD1. He fails to point out that ADXS is moving extremely rapidly into this highly important combination PD1 space. He fails to note that Advaxis is intelligently focusing on Orphan indications, and early stage treatment where probability of tumor control is even higher.
PERSONAL INTERPRETATION OF TODAY’S EVENTS
It is my personal opinion that the author, whether inadvertently or not, has put forth an extremely low quality short thesis. The low quality of the author’s analysis, combined with the curiously timed, near-simultaneous announcement of an investigation initiation by Wohl and Fruchter suggests the possibility of a coordinated short attack. This is of course impossible to prove and I would like to emphasize, is pure speculation on my part.
A coordinated short attack is a scare tactic believed to be used by hedge funds desperate to get their hands on stock owned by retail investors. This is particularly relevant to an “old” company such as Advaxis, where until yesterday, an overwhelming majority (~81%) of the stock was owned by retail investors (per Yahoo). In this situation, the attempt to buy stock ever since the Adage announcement has likely led to dramatic increase in volume, along with a share price that keeps going up. Simply put, funds can’t get enough stock at a low enough price. Every attempt to buy a decent chunk of stock causes it to spike upwards.
In order to achieve a lower basis for their purchases, funds could conceivably be putting together a coordinated short attack, using smoke and mirrors, with completely irrelevant arguments to scare uninformed mom & pop investors into selling shares cheaply. Again, this is purely speculation on my part.
If you are a retail investor, please exercise extreme caution. Do your own due diligence. Systematically analyze the accusations and see for yourself that there is completely no validity in the accusations brought against the company.
SUMMARY of ACCUSATIONS and REBUTTALS
Accusation: Management has a history of promotional and misleading activities, including heavy use of the Dream Team Group.
Rebuttal: Former CEO Moore was replaced with current CEO O’Connor in 2013. Objective analysis of stock price reveals it has done nothing since then, but languished all the way until December 2014. Stock price meteoric rise beginning Dec 2014 can be easily explained by Adage Capital declaring their stake, followed by evidenced based inference that other hedge funds are following suit. Evidence of fund buying can be seen by sustained average daily volume between 1-3 million daily (compared to 100-300K in the months prior to Adage). Low float + high demand has caused meteoric rise.
Accusation: Tumor response data for its lead candidate has been mis-presented to overstate effectiveness.
Rebuttal: Author has mistakenly used a typographically incorrect slide showing tumor shrinkage in mm. The “millimeter argument” is the crux of his accusation. Current corporate presentation on company website, along with older 2014 SEC filings clearly show tumor shrinkage in percentage NOT mm.
Accusation: ADXS-HPV has demonstrated notably inferior survival rates vs. alternatives.
Rebuttal: Author draws the reader’s attention to existing monotherapy data of the LmLLO platform. However, investors in the company know that the primary focus (and logical explanation for the stock price increase) is combination LmLLO + PD1.
Accusation: Over 3 million warrant shares are set to hit the market following registration by Advaxis.
Rebuttal: This is completely irrelevant. Dilutive warrants are a staple of biotechs. Investors in the company know all about the dilutive effect of the warrants. It is right there in the public SEC filings, downloadable from the company website. Investors have been discussing this actively in past weeks on Yahoo Board, as part of their effort to calculate stock price based on projected valuations.
Accusation: But Advaxis is not Kite, nor is it Juno. The underlying technology is fundamentally different, although this has clearly been lost on the mostly retail investor base.
Rebuttal: Whether deliberately or not, author lumps ADXS with KITE and JUNO, and then argues that “Advaxis is not Kite, nor is it Juno”. In fact, long investors know that it is a very different cancer immunotherapy play. The play is on combination therapy with Checkpoint Blockade. The idea is that if Combination PD1 can demonstrate significant synergies, with dramatically higher ORRs and DRs compared to monotherapy, it will be a low toxicity, completely outpatient, intravenously delivered solution amenable to rapid and scalable manufacturing and shipment worldwide. This will be a completely different approach to adoptive T-cell therapies from KITE and JUNO. Author fails to note these factors, instead invoking an emotional argument to “lump ADXS together with JUNO and KITE”. Furthermore, KITE and JUNO have fallen from the $3-4 BILLION market cap range. In stark contrast, Advaxis has fallen from the $300m range now down to $200m. Furthermore, what might BMY or MRK pay if LmLLO demonstrates dramatic synergies with PD1, and offers all the practical advantages above? This is one investment thesis that ADXS longs have been actively discussion for a long time now.
Accusation: Author infers ADXS has pushed the HPV cervical trial to Phase III primarily to hype up its stock price. Author implies that previous “Phase 2 clinical trial in India is highly problematic”.
Rebuttal: This is an irresponsible and slanderous accusation. In reality, GOG is a highly reputable, prestigious organization with the means and will to carefully control their trials. They simply would not allow Advaxis to jump straight into Phase 3 unless they saw compelling data or scientific rationale.
The author fails to address this side of the coin, instead focusing the reader on an unsubstantiable (and thus slanderous) claim that management is doing this primarily to hype up the stock price!
As for the previous India trial being “problematic”, there is absolutely no basis for this accusation (again primarily due to the author’s fundamentally flawed “millimeter argument”).
Accusation: Author spends a lot of time bringing up examples of other stocks that were hyped up by the Dream Team. Author implies that stock spike is purely due to promotional activity by the Dream Team. Author shows scary stock price plunges of unrelated stocks such as GALE and CYTR.
Rebuttal: A logical and most likely reason why ADXS stock has spiked is the promising and extremely aggressive moves by management into combination PD1 trials. These combination PD1 trials have been rapidly approved by the FDA (implying that supporting data and rationale have been vetted by the FDA). Furthermore, two of these combination PD1 trials with Merck and MedImmune were inked at the end of 2014, around the time of Adage taking a huge stage. The Author fails to discuss these highly pertinent points. Instead, he focuses the reader on scare tactics, highlighting completely unrelated companies (GALE, CYTR). He includes charts showing their scary stock price plunge.
Accusation: Author insinuates that company is quietly removing data from presentations to hide lower efficacy.
Rebuttal: Again, author fails to focus discussion on the current strategic positioning of the company. He focuses on past results (monotherapy results). A simple analysis of the nature of trials ADXS is prioritizing reveals they are strongly concentrating on combination PD1. Author is in essence comparing apples to oranges.
Written by JusticeAndEquality
Disclosure: I am an investor in ADXS
Disclaimer: I am a caregiver who has helped a family member survive a dismal cancer prognosis by employing immunotherapy for about 10 years now. I have self-studied immunotherapy on a personal basis in great depth and have talked personally with leading cancer immunologists, including immunologists from leading cancer centers such as MD Anderson Cancer Center. This article represents my personal views and research that has resulted from my personal circumstances. Although this article provides my opinions and hopefully some useful information, it does not contain recommendations or personal investment advice to any specific person for any particular purpose. Please do your own research or obtain suitable personal advice. Readers are responsible for their own investment decisions.
