Tuesday, February 10, 2015

IsoRay Could See Another Year Of Strong Gains (Stock Ticker: ISR) HOT STOCK


  • IsoRay was the fifth-highest percentage gainer among more than 2400 companies listed on the NYSE Group last year.
  • The gains were driven by the company's steady progress.
  • IsoRay continues to focus its efforts on increasing awareness of Cesium-131.

What is Cesium-131 Brachytherapy?

Cancer cell radiation come in 3 types - EBRT, or external beam radiotherapy, unsealed source radiotherapy, and sealed source radiotherapy, commonly known as brachytherapy. In EBRT, a radioactive beam is directed at the tumor from outside the body. In unsealed source radiotherapy, a radioactive substance is injected/ingested into the body. In brachytherapy, radioactive material in small capsules is placed directly inside, or adjacent to, the malignant tumor.
Compared to EBRT, brachytherapy is much more localized, causing less damage to adjacent healthy tissue. Compared to unsealed source, brachytherapy has better pharmacokinetics; unsealed source radioactive substance can get dissolved in the bloodstream and cause non-local damage, but in brachytherapy, the substance is either encapsulated or held by wire, so it stays where it is put.
Brachytherapy is the most logical, effective and safe way of delivering a radiation payload to a target tumor with minimal collateral damage. The technology has been used for decades. Although Iodine-125 is the most commonly used radioactive material, scientists have long known that Cesium-131 with its lower half-life and higher radioactivity was the better option. The problem was with getting hold of pure Cesium-131 in adequate amounts. However, with the development, at IsoRay Medical (NYSEMKT:ISR), of a technology to purify Cesium-131, that material will now slowly replace other radioactives as the treatment of choice for brachytherapy.
"Cesium-131 has a faster delivery of the total radiation dose than the other types of seeds currently on the market. It has a significantly higher dose rate than iodine-125, allowing for the delivery of more radiation in a shorter period of time," according to Lawrence Greenwood of Pacific Northwest National Laboratory, a US Department of Energy National Laboratory with whom IsoRay has been collaborating to develop Cesium-131 brachytherapy since 2000.
A comparative study of Cesium-131 with other brachytherapy agents like Iodine-125 or Palladium-103 shows that Cesium-131, due to its shorter half-life period, causes much less collateral damage than the other two, because it gets de-radioactivated more quickly. While Iodine-125 has a half-life of 59.4 days and takes over 600 days to get de-radioactivated, and Palladium-103's half-life is 17 days, Cesium-131 has a half-life of only 9.69 days and its radioactivity is over within 100 days.
Below is a comparison of efficacy study between Iodine-125 and Cesium-131 from Tomaszewski et al of the Department of Urology, University of Pittsburgh School of Medicine:
Total patient population
Pre-treatment mean PSA
6.9 ng/mL
6.9 ng/mL
Post-treatment mean PSA
0.9 ng/mL (range < 0.1-4.6)
1.2 ng/mL (range < 0.1-23.5)
Low-risk patients
Pre-treatment mean PSA
5.8 ng/mL
5.1 ng/mL
Post-treatment mean PSA
1.2 ng/mL (range < 0.1-4.6)
1.0 ng/mL (range < 0.1-2.9)
Intermediate-risk patients
Pre-treatment mean PSA
7.3 ng/mL
7.3 ng/mL
Post-treatment mean PSA
1.5 ng/mL (range < 0.1-2.9)
1.2 ng/mL (range < 0.1-4.6)
Prostate-specific antigen (PSA) is an indicator of treatment efficacy in prostate cancer. Lower the PSA, better the treatment efficacy in general. As can be seen, the mean results are comparable, being slightly better in intermediate-risk patients and almost the same in the low-risk patient cohort.
IsoRay has been very active in collaborating with major US medical schools, as well as national laboratories in developing and extending the application of Cesium-131. As already mentioned, the company has collaborated with the PNNL for prostate cancer. It also collaborated with the Weill Medical College of Cornell University to understand Cesium-131 efficacy in wedge resection operations in lung cancer. In general, wedge resection shows less local control of cancer compared to total lobectomy. However, patients with previous poor lung functions or previous lung surgery cannot undergo total lobectomy. For them, as well as for others, the inadequacy of the less destructive wedge resection sub-lobotomy surgery can be removed with Cesium-131 brachytherapy seeds. Not only does Cesium-131 have a lower half-life than Iodine-125, providing associated benefits, but its faster rate of radiation is more effective in treat fast-growing cancers like lung cancer. Although IsoRay has so far confined its marketing to prostate cancer, Cesium-131's efficacy in other cancers can open up new channels for the company.
In terms of the market, 2014 was an extremely fruitful year for IsoRay investors. The Richland, Washington-based company is the sole manufacturer of Cesium-131. Last year, its shares surged more than 190%, even as there was a sharp pullback towards the end of the year. The sharp pullback, though, was most likely due to profit booking rather than any fundamental reason. In fact, fundamentally, IsoRay looks even better this year. With the stock currently hovering at around $1.40, 2015 could be another year of strong gains for IsoRay.

What Sparked The Gains Last Year?

IsoRay has been around for a while. Its Cesium-131 was cleared by the FDA back in 2003 for the treatment of prostate, breast, liver, brain, head and neck cancers and other malignant disease. Since the clearance, IsoRay has been focusing on two main goals; increasing awareness of Cesium-131 among the medical and patient community, and making it the preferred radioisotope for brachytherapy treatment. Last year, the company's efforts began showing results, and this was the reason why investors were so excited about ISR.
Among the major developments last year was the FDA clearance for ISR's liquid cesium for use in its GliaSite® radiation therapy system. Another significant development last year was registered direct placement of 5,644,300 shares of ISR common stock at $2.60 per share. The company took advantage of the stock price appreciation to raise more than $14 million. The offering has significantly boosted ISR's liquidity position, and gives it a great deal of financial flexibility.
Dwight Babcock, chairman and CEO of IsoRay, had this to say on the offering last year:
"This equity offering, in conjunction with the recent receipt of over $5.9 million from exercises of outstanding warrants from prior offerings, has made a significant impact on IsoRay's long-term future."
Meanwhile, ISR continued its efforts in raising awareness about Cesium-131. Like I said before, ISR's radioisotope has major advantages over other radioisotopes due to its shorter half-life and superior energy. In fact, these unique characteristics of Cesium-131 make it suitable for aggressive forms of cancer, like brain cancer.
In August last year, IsoRay announced the publication of the first major peer-reviewed study that highlighted the superior results using Cesium-131 in the treatment of advanced brain cancer.
Another important development for IsoRay last year was the increase in prostate revenue in the September quarter. ISR's prostate revenue had seen a slowdown in 2013, but this slowdown was industry-wide and not specific to IsoRay. The slowdown has been attributed to a report from the U.S. Preventive Services Task Force, which recommended against routine PSA screening. According to BCC Research, the prostate cancer market can be divided into three segments; diagnosis and screening, surgical and radiation, and drug therapeutics. Brachytherapy falls under the second segment, and is an early-stage treatment option. However, the U.S. Preventive Services Task Force's recommendation against routine screening makes early-stage diagnosis virtually impossible, and thus takes early-stage treatment options like brachytherapy out of the equation. Not surprisingly, the recommendation had a negative impact on ISR's prostate revenue.
However, the prostate revenue in the quarter ended September 30, 2014 and October 2014 were encouraging, indicating that the prostate treatment market was returning to normal. I am not surprised by this development, as the U.S. Preventive Services Task Force's recommendation raises the risk of disease advancing before a diagnosis is made. While ISR is focused on making its Cesium-131 seeds a treatment solution for a number of cancers, prostate is still the company's key revenue generator. Therefore, an improvement in prostate revenue is a positive. It will be interesting to see if the trend continued in the December quarter.
All these developments made ISR register the fifth-highest share price percentage gainer in 2014 among 2417 companies listed on the NYSE Group, which includes the NYSE and the NYSEMKT. ISR rose 192% in 2014; however, the stock did give up some of its gains in the second half of the year. In the first six months of 2014, ISR gained 372.73%, crossing the $3 mark in June. In the next six months, though, the stock slipped more than 53%. The pullback was likely due to profit booking, and not any fundamental change at the company. In fact, in the second half of 2014, when the stock price depreciated, ISR announced that Cesium-131 produced excellent results in treating metastatic brain cancer. The results, which were published in the Journal of Neurosurgery, highlighted the fact that Cesium-131 could be effective in treating aggressive forms of cancers. A few other announcements made in the second half of the year further strengthened the case for using this radioisotope in other forms of cancer. So far this year, ISR has slipped another 10%.

Continuing Progress

IsoRay's progress has continued in the first three weeks of the new year. Earlier this month, the company announced that leading cancer specialists in the Russian Federation performed the first prostate implants at the Neftyanik Hospital in the city of Tyumen. This is a very important development, as it increases awareness of Cesium-131 among the international medical and patient community. While the U.S. is ISR's major market, increasing awareness outside the U.S. can provide a significant boost to ISR's top line. According to Transparency Market Research, the worldwide brachytherapy market is forecast to grow at a CAGR of 2.2% by 2017. Importantly, the treatment is likely to see high uptake in countries like India, China and Brazil. This makes creating awareness of Cesium-131 outside the U.S. very crucial to ISR's growth prospects.
Last week, IsoRay also announced that researchers at the University of Pittsburgh School of Medicine (UPMC) released peer-reviewed study results that once again highlighted the superiority of Cesium-131. ISR's prostate treatment not only provided strong cancer control, but also had lower side effects. The UPMC study is not only useful in creating awareness, but also in enabling ISR to promote the use of Cesium-131 in other forms of cancer, especially aggressive forms of cancer.
CEO Babcock expects such encouraging data to "spur interest from physicians inside and outside the U.S."
Add to these developments the fact that ISR's strong cash position minimizes the risk of dilution in the medium term. At the end of the September quarter, ISR had cash and short-term investments of $12.10 million. Meanwhile, the company has a burn rate of around $1 million per quarter, which means that the existing cash is sufficient to fund operations for the next three years, probably longer if the company's top line increases. For the most recently reported quarter, which was the company's fiscal first quarter (end of September 30, 2014), product sales totaled $1.04 million. Important to note, prostate revenue have shown signs of recovery, which means we could finally see top line growth.
Despite these positives, ISR's performance over the past three months has been a bit disappointing. But I think this is probably due to some profit-taking. Another reason holding back ISR is low institutional holding. However, there are still some big institutions holding ISR shares, giving the company a great deal of credibility. Among the institutions backing ISR are Vanguard Group, CALPERS, Bank of New York Mellon Corporation and Goldman Sachs Group Inc.
I expect institutional holding to continue to increase as the company makes progress on the operations front. Already, some prominent brokerages are taking note of ISR's progress. Recently, Jason Kolbert, healthcare analyst at Maxim, shared his thoughts on the peer-reviewed results on Cesium-131 released last week. In his research note, Kolbert, who has a buy rating on the stock with a $5 price target, said this:
"For Cs-131 and IsoRay, adoption by the medical community is the key to success. Cs-131 continues to build traction with key opinion leaders (KOLs) with the publication of another peer-reviewed study of Cs-131 in prostate cancer from the University of Pittsburgh School of Medicine. We see these peer reviewed publications as a critical part of the strategy to drive adoption, hospital by hospital and KOL by KOL."
Considering these factors, the pullback in ISR is certainly not justified. However, it does offer an attractive entry point. Going forward, the major drivers for the stock price will be a rebound in prostate revenue (it will be interesting to see the numbers for the December quarter), ongoing growth in the brachytherapy treatment market, more peer-reviewed studies and ISR's focus on expanding the use of Cesium-131 to other forms of cancers.
The major risk in the near term is if the prostate revenues fail to pick up. Although there was an increase in prostate revenues in the September quarter and in the month of October, the company was still a little cautious. Another risk is the lack of visibility, especially among institutional investors. Although some of the biggest names on the buy side hold shares of ISR, the company definitely needs to increase its visibility further among investors.

No comments:

Post a Comment