Theralase: A Cancer Cure To Market By 2016?

Biotechnology investors often take a chance on a not-yet-approved treatment based on the huge reward they stand to gain if the treatment is successful in its clinical trials. However, the problem with this strategy is if the treatment is not successful, there is often very little downside protection to the value of their holdings. The "holy grail" of biotech investing therefore, is a company with a large amount of upside potential and a downside limit that will help a stock maintain value in the event of FDA failure, a company such as Theralase Technologies Inc., (TLT).

Theralase is a biotechnology company with two focus areas. The first is the design, development and manufacture of super pulsed, cold laser technology to treat chronic pain, sports injuries and wounds. The second is the commercialization of patented cancer treatment utilizing patented, light sensitive PDCs.  

Cold Laser Therapy

Theralase's current laser offerings fall under its TLC-1000 range, which generates approximately C$1.6M annually and is projected to generate approximately C$6.2M annually going forward. The TLC-1000 lasers use a technology called super-pulsing to deliver subcutaneous light therapy. To understand how this therapy works, and to address its benefits over alternative laser therapies, here is a quick introduction to the technology and the science behind it. Tissue reparation, on a fundamental level, is just cell reproduction. Cell reproduction requires energy, which the cell mitochondria use to produce a key component in cell reproduction called adenosine triphosphate ("ADP"). A damaged cell however, only has a small amount of energy to fuel ADP production. This is where the laser comes in. Light energy from a laser speeds up ATP production, which results in faster cell reproduction.

There are currently three commercial methods of delivering this light energy to damaged cells. These are continuous wave, pseudo pulse and true pulse. A continuous wave is just a constant laser output, with no change in intensity over time. A pseudo pulse laser is the same as a continuous wave, but with a systematically interrupted flow. A super pulse laser has an extremely high impulse function, simply meaning it is a very strong laser, which delivers light in short bursts (2 nanoseconds for the TLC-1000 range).

The delivery method dictates the depths at which each laser is able to treat damaged cells. A simple continuous wave LED will reach a subcutaneous depth of 0.5 inches and the pseudo pulse system will reach a maximum depth of 1 inch. A super pulse laser on the other hand, will penetrate 4 inches into tissue. This extended reach is the major benefit of the TLC-100 range over the laser products of Theralase's competitors.

A second advantage lies in treatment time. Super pulse lasers deliver 100% of the photons to the target area compared to 5-6% for an LED system, and at a much higher wavelength (50,000 mW versus 10 mW). The combination of improved accuracy and laser strength reduces treatment times by more than 90%.

The TLC-1000 range has FDA, Health Canada and CE approval, and thousands of practitioners already use the technology to treat millions of patients each year. During Q3 2013, TLC-1000 laser and accessories generated C$313,020 and during the nine months ended September 30, 2013, C$1,165,216.

During Q4 2014, Theralase plans to launch a second-generation laser treatment technology, the TLC-2000 range. The company expects to sell 400 units by the end of the year at a cost per unit of $15,500.

TLC-3000: A Breakthrough Cancel Treatment

The cold laser therapy described above, and the revenue growth implications of the TLC-2000, will likely be reason enough for many investors to seek exposure. However, the real growth potential lies in the company's cancer therapy operations.

Theralase has spent the last 17 years developing PDCs, which are light activated anti-cancer drugs. From a portfolio of thousands, Theralase has chosen four lead PDCs, which the company is currently trialing for use in the treatment of bladder cancer.

One of the primary drivers behind the aggression of cancer cells is their inability to undergo apoptosis. Apoptosis is a sort of cell "suicide" process that non-cancerous cells undergo when they detect disease or damage. Theralase's PDCs attach themselves to cancer cells and, when exposed to the laser light, induce apoptosis. These are the biological processes that underpin PDC therapy.

Theralase has completed a mouse model trial and is currently carrying out a rat model trial to validate the results of the mouse trial. To carry out the first of these trials, researchers at Princess Margaret Hospital, Toronto, injected cancerous cells into a mouse. The cancerous cells induced a tumor of approximately 5mm in size. The researchers then injected a PDC called TLD1633 into the tumor and activated the PDCs with the TLC-3000 laser technology. Within 24 hours, the tumor cells started to undergo apoptosis, and the mouse survived 20 months post treatment with no tumor recurrence. Twenty months is the full life of a normal mouse, meaning the PDC treatment completely cured the cancer.

Theralase reports TLD1633 treatment to be 668,000x more effective than ALA treatment and 198x more effective than Photofrin, both of which are current, FDA approved photo dynamic treatments (PDTs).

Upon successful completion of the orthotopic rat trial, in which the company will induce cancer in the bladder of a rat, Theralase plans to initiate a 30 patient Phase 1/2a clinical trial in Q1 201, for which the company is fully funded. Theralase's treatment meets the initial two criteria for breakthrough designation, which are that it targets a deadly disease and that the disease has no known cure. This is important because it means all the company needs to do is demonstrate safety and efficacy in a small sample of patients—the purpose of the planned Phase 1/2a trial—in order to get commercialization approval for the FDA. This could lead to the PDC treatment being available to patients by year-end 2015. Even if the FDA requires further data after the initial trial, a Phase 2b trial would likely cost less than $15M, which would be minimally dilutive to Theralase stock. Post approval, the ultimate goal is a partnership with big pharma during 2016.

A Recent Announcement

On Thursday, February 13, Theralase announced that a recently published scientific paper demonstrated that its PDCs significantly destroyed two types of bacteria in low oxygen atmospheres. This is a major breakthrough, not just for the company, but also for the entire solid tumor oncology field.
One of the main problems practitioners have in treating solid cancers is their tendency to be hypoxic, meaning they have been deprived of oxygen. This deprivation leads to aggressive metastasis and, in most cases, resistance to traditional standard of treatment (chemotherapy and radiotherapy). The ability of Theralase's PDCs to treat these hypoxic tumors presents the company not just with the opportunity to serve as a substitute treatment but also complimentary, as a post standard of care "sterilization" treatment to mitigate the chances of recurrence.

Risks

Theralase already generates revenues from its TLC-1000 technology, which serves to offset much of the risk normally associated with biotechnology companies seeking FDA approval. The company is well financed as the result of an oversubscribed $3.15M equity financing round in November last year, has no debt and, assuming breakthrough designation for its PDC therapy, will not need to fund a drawn out approval process.

There is however, still a certain amount of risk associated with the company's stock. Primarily, this risk lies in the company's potential for failure to gain FDA approval for its PDC therapy. While breakthrough status reduces the cost of the process, it by no means eliminates it. Treatments that demonstrate efficacy in mouse trials often fail to replicate this efficacy in human trials.

Conclusion

Theralase's two-tier operations affords investors exposure to a potentially explosive growth opportunity, while also offering the benefits of a revenue generating, long established business. The company has demonstrated the efficacy of its breakthrough treatment in a mouse and, if the therapy receives FDA approval, could strike a high value partnership with big pharma within two years. Overall, Theralase looks dramatically undervalued at its current market capitalization.