|Fire Up the Immune System to Fight Cancers and Boost Portfolios: John McCamant|
|By George S. Mack of The Life Sciences Report|
|Wednesday, 13 May 2015 18:23|
An immunotherapy revolution is rocking biotechnology, and investors are searching for just the right way to play the new trend. Do you go with an unknown company where the upside could be unparalleled? Do you go with an older name that has established partnerships with major pharmas? John McCamant, editor of the Medical Technology Stock Letter, has performed some serious diligence, and tells The Life Sciences Report about a handful of names with a range of market caps and the potential to achieve significant investment upside.
The Life Sciences Report: You're quite well aware that investors are looking hard at immunotherapeutics in oncology today. Do you think these initiatives to employ cellular and humoral responses in cancer therapies could be the final frontier, to use a dramatic term?
John McCamant: You never know where you've been until after the fact. But major breakthroughs in understanding different components of immune response to cancer, and how the cancer itself can affect different pathways in the body, are being made. We're getting more tools. So far we've been very focused on killing tumors, but now we understand how to perhaps prevent recurrence via immune surveillance. The ability to reprogram or turn back the immune system is changing the paradigm in cancer treatment.
TLSR: For many years now the first line of attack against cancers has been via the cytotoxic route. It seems we always start with chemotherapies, which actually work against the immune system. I wonder if you think these chemo/cytotoxic therapies might decrease the effectiveness of the immune therapies being developed.
JM: Possibly. More research on that topic is coming out of the American Association for Cancer Research (AACR). My focus right now is to look at some of the newer agents that could make cytotoxic therapies more effective, and also minimize their side effects. We may not completely eliminate cytotoxic drugs, because when they do work they have very strong effectiveness. But we might find ways to use them much more effectively, in lower doses with less toxicity.
Another point I'd like to make is that sometimes these drugs will be sequenced. We'll end up using multiple oncology drugs, and one of the keys we may see come out of AACR is how to use these drugs in certain combinations. Down the road, we believe three- or four-drug combinations may be used, so safety is going to be very, very important. Combinability, as you know, is really tricky. It's hard enough to make sure one molecule is safe, but two molecules can be even trickier.
TLSR: Is it fair to say that immune technologies are still nascent ideas as drug therapy?
JM: Some yes, some no. Some PD-1 and PD-L1 inhibitors are approved now. Merck & Co. Inc.'s (MRK:NYSE) PD-1 inhibitor Keytruda (pembrolizumab), a monoclonal antibody, was granted accelerated approval last September. It was the first PD-1-blocking drug to be approved. The big pharmas are dominating the PD-1 and PD-L1 inhibitor class of drugs, and we don't see a lot of investment opportunities there, but we've been able to identify other investment opportunities, specifically in companies like Incyte Corp. (INCY:NASDAQ), which is combining its small molecule IDO inhibitor epacadostat with proteins from the larger companies. Incyte's drug is currently in a bunch of proof-of-concept trials that will be in registration trials within 12 months.
TLSR: These new immunotherapeutic drugs will be considered first-generation therapeutics, right?
JM: Absolutely. But I would point out Bristol-Myers Squibb Co.'s (BMY:NYSE) anti-CTLA-4 antibody Yervoy (ipilimumab), which is about 15 years old, and now has second and third generations. AstraZeneca Plc (AZN:NYSE) has a second generation that may be less toxic.
TLSR: As drug, antibody and cellular therapeutics become more specialized to specific or orphan diseases, the costs of the therapies will go up as the specific patient population goes down. Are the Centers for Medicare & Medicaid and private payers going to pay these higher rates if the patient can be treated more effectively the first time?
JM: Yes. Over the long term, we'll have a bigger question. We will be so effective at treating patients with the specific diseases that we will have to make difficult decisions when it comes to allocating resources. But I really believe that the cost of goods sold (COGS) will be very important. We discussed this topic in the April 30, 2015, issue ofMedical Technology Stock Letter, particularly when it comes to immunotherapy or combinations of three, four drugs. A small molecule inherently gives the investor and, of course, the patient, a much better cost of goods than almost any other therapeutic modality. Small molecules also tend to be safer, and they offer convenience in that you may be able to keep cancer patients out of infusion centers for many years. We think small molecules are going to be one of the keys to making immunotherapy more accessible and more broadly available, because of their cost and ease of use.
TLSR: Let's stay with the issue of COGS for a moment. Dendreon Corp. (DNDN:NASDAQ) filed for bankruptcy protection in November of last year. What have we learned from its experience in developing Provenge (sipuleucel-T), the first cell therapy—an autologous technology—ever approved as a cancer therapeutic? Was this about COGS? Was it about marginal efficacy? Also, what positives can we take from Dendreon's experience?
JM: The positive is that a cellular therapy can be approvable as a cancer treatment or vaccine. The flip side is that we want these therapies to give us better efficacy and maybe a lower COGS. That was clearly a challenge for this new business model of personalized medicine, where the patient's own cells had to be processed ex vivo and then returned to the patient's body. This is not an off-the-shelf drug, and that was obviously key here.
"The ability to reprogram or turn back the immune system is changing the paradigm in cancer treatment."
This is a classic, textbook case of being the pioneer, and the company took a lot of shots being the first one in. But at the end of the day, if that drug had been more effective and, also, if we had not seen two other prostate cancer competitors come out into the space—Medivation Inc.'s (MDVN:NASDAQ) Xtandi (enzalutamide) and Johnson & Johnson's (JNJ:NYSE) Zytiga (abiraterone acetate)—things may have been different.
TLSR: A few years ago, investors were excited about the idea of allogeneic, off-the-shelf, technologies because of COGS issues. However, it seems that now, with the advent of immunotherapeutic cellular therapies, the autologous model is here to stay. Is that fair to say?
JM: Sure; this is basically what happened. The cart got ahead of the horse for a while. But we are proving that these therapies can work on an individualized, personalized medicine basis.
Some of these companies also have gone after too large a market. Celladon Corp. (CLDN:NASDAQ) is a classic example, with its recent blowup over Mydicar, a gene therapy targeting heart failure. It's biting off more than it can chew. You need to go into more specific, even niche, indications, and then show that your therapy works there—provides a benefit to patients—before going after cardiovascular disease or some other large chronic disease. Safety is always going to be a big deal here. Whether it's gene therapy or other modalities, companies have to be very careful.
TLSR: Let's talk about the companies. Go ahead.
JM: Cellular Biomedicine Group Inc. (CBMG:NASDAQ) is a recently transformed company. Its goal is to create gene therapies for oncology and stem cell products for chronic disease in the Chinese market. Eventually, it could also be a player in markets outside of China, and we like its specific CAR-T cell oncology focus. We think the cancer therapy market is huge, but when you look at the opportunity in China, which is huge for healthcare in general, you can see where cellular therapies would be potentially an answer to treating a large population at a lower cost over time. We are not as excited about the company's stem cell program in osteoarthritis of the knee.
TLSR: Cellular Biomedicine makes no secret about the fact that it's trying to develop a market in China, yet it is running FDA trials. Can you explain that?
JM: The trials are international protocol, and so that's how the company is running its Phase 2s in the stem cells and Phase 1s with CAR-T cells in oncology.
TLSR: Tell me about the pipeline.
JM: The company just started accumulating different cancer assets—four different CAR-Ts targeting leukemia and lymphoma antigens CD19, CD20, CD30, as well as EGFR (HER1) in lung cancer. Its partnership with one of the leading hospitals in Beijing, the Chinese PLA General Hospital, which is going to allow access to a bunch of the CAR-Ts, leads us to believe that these therapies are going to be developed in China initially. Also, I don't see the cost of goods being quite as much of a problem in China, which could become the perfect market for these types of products—they won't be overpriced because of Chinese government intervention. The products could be streamlined to the market, so to speak.
TLSR: There's a lot of noise around this company. An anonymous short seller wrote an article published on April 7 at Seeking Alpha, and the company has lost more than a third of its market value since then. That doesn't scare you off?
JM: No. I think Cellular Biomedicine made a very clean, to-the-point response. That article dredged up old U.S. Securities and Exchange Commission documents concerning a previous company before it merged into its current state as a drug developer. We're very comfortable with Cellular Biomedicine's response and its execution since the article was published, and on April 10 we saw the company upgrade to list on the NASDAQ Global Market. We will have Phase 1 data in blood cancers later this year. People will ultimately realize real science is being developed at Cellular Biomedicine, and will understand that CAR-Ts are CAR-Ts, whether they are being developed by this company or another company. We have a high level of confidence that science conducted in China will be able to hold up to FDA and international scrutiny.
TLSR: Does the negative attention from that article give you any cause for concern? That kind of capital market activity could damage the company's ability to raise funds in the future, couldn't it?
JM: Short term, yes. But none of that matters if Cellular Biomedicine doesn't deliver data. If it doesn't deliver, the company will not be able to raise money on attractive terms. But we don't have to wait three years for Cellular Biomedicine to develop something. We will see some data soon.
TLSR: Another name?
JM: I'd like to talk about Sangamo BioSciences Inc. (SGMO:NASDAQ). Why is bluebird bio Inc. (BLUE:NASDAQ) worth five times more than Sangamo? Why is bluebird a $5.4 billion stock while Sangamo is a $875 million ($875M) stock? It doesn't make any sense when I compare the two.
What are the two companies' lead programs? Beta thalassemia and sickle cell disease. It looks like both companies have effective approaches to these diseases, which have very large market opportunities, yet Sangamo has probably one of the best corporate partners in the business. Biogen Inc. (BIIB:NASDAQ) has fully validated the Sangamo program and chose it, over bluebird's, in both sickle cell and beta thalassemia.
TLSR: Sangamo's stock is basically flat versus one year ago. What moves the stock from here? Could it be the Phase 2 data in HIV/AIDS?
JM: It could. Sangamo has an extremely broad pipeline, but the bigger picture is this: Who's going to be advancing these indications in gene therapy? We think the safety profile of Sangamo's zinc finger technology is more proven.
"A small molecule inherently gives the investor and, of course, the patient, a much better cost of goods than almost any other therapeutic modality."
A lot of companies have been talking up a gene editing technology called CRISPR (clustered regularly interspaced short palindromic repeats) for the last two years, but now there's a voluntary moratorium on CRISPR use in human studies. We're really making progress in changing genes inside of human cells. This is something that scares regulators—and it should—but that's why we like companies that have been around longer, created bigger safety databases, and that are coming out with multiple shots on goal. Gene therapy is cutting-edge science fiction, and it's becoming a reality.
TLSR: It is indeed. But I think the name Jesse Gelsinger will linger in the minds of regulators for quite some time to come.
JM: Yes, it will. It's important not to forget that young man's name; your readers will recall that a gene therapy experiment went wildly wrong and killed an 18-year-old patient who wasn't that sick to begin with. But I really think that with Sangamo, when investors add up the amount of years it's been developing its technology, the way it has built out its platform, how it's been validated, and its safety profile, they will understand that its valuation is quite low today. Not only does Sangamo have platform validation from Biogen, but it also has three preclinical programs with Shire Plc (SHPGY:NASDAQ; SHP:LSE) in hemophilia A, hemophilia B and Huntington's disease.
The other thing we know is that bluebird is not going to sail forward from being a $5.4B company to being a $20B company without bumps in the road. If nothing else, the risk/reward is unfavorable with bluebird versus Sangamo, which has a market valuation below $900M.
TLSR: Go to the next name, please.
JM: Let's look at Ziopharm Oncology Inc. (ZIOP:NASDAQ). All the initial CAR-T work was done in hematological cancer patients, but we need these treatments to work a little more off the shelf, and we definitely need to start working our way toward solid tumors. Ziopharm has two unique tools that I think completely differentiate it, potentially from everyone in the entire space. Its RheoSwitch technology allows it to titrate CAR-T and gene therapies and turn them off immediately with a pill if the gene therapy is going to kill the patient, which gives it a huge safety advantage. The company also has the non-viral Sleeping Beauty delivery system, which will allow for multiple dosing opportunities versus viral vectors that are limited to one use because of safety concerns. No public biotech company that I know of has those two tools, which are going to be critically important in delivering gene therapy for cancer.
TLSR: Although Ziopharm's shares have been nearly flat over the past three months, this company has tripled its share price in the past six months, and it now has a $1.2B market cap. What moves it from here?
JM: The partnerships that the company had done earlier were only fringe deals. It had no corporate access to the Sleeping Beauty transposon until the M.D. Anderson Cancer Center deal in January. Then it entered the Merck Serono (a unit of Merck KGaA [MKGAY:OTCPK]) and National Cancer Institute (NCI) deals in the same week, back at the end of March. Everyone yawned because Merck Serono is not considered a monster cancer player. But there will be many more deals to do.
The deal with the NCI happens to have Dr. Steven Rosenberg on board, the No. 1 CAR-T player in history. He signed up with Ziopharm specifically to use its tools for solid tumor treatments. Other companies might not have the right tools to actually access solid tumor markets like Ziopharm does. Ziopharm and Intrexon Corp. (XON:NYSE) will be equal partners. This deal provides funding for two immunotherapeutic programs for Ziopharm, and the company could receive milestones and tiered royalties on product sales by adding CAR-T technology to the Merck Serono pipeline. The company just hired M.D. Anderson immuno-oncology guru, Dr. Lawrence Cooper as its new CEO. This is clearly a coup for Ziopharm, as Cooper could have worked for any biopharma company considering his outstanding pedigree.
TLSR: It sounds like you are waiting for bigger catalysts, bigger deals. Does that mean the start of a Phase 2 study in glioblastoma or a Phase 1 study in leukemia or lymphoma is not really going to move this valuation up?
JM: No. It's just early for those other programs. Down the road, all could be major events. We just don't have the full validation yet, where everyone can say, "Hey, this one works, let's get the other one to work too." But when you have this kind of a platform, it's not just about the partnership news flow. It's going to be the clinical trial data. It should be very impressive.
TLSR: Go ahead with a last name.
JM: Let's look at Anthera Pharmaceuticals Inc. (ANTH:NASDAQ), a company with a drug candidate that's in one of the hardest areas to tackle—one that has been a really difficult area for biotech, which is systemic lupus erythematosus. This company has an approximate valuation of $170M, with two Phase 3 trials testing blisibimod (formerly AMG 623) or "b-mod," an antagonist of the cytokine BAFF (B-cell activating factor), which is an activator of, and is vitally important for the survival of, B cells. The CHABLIS-SC1 trial is a 400-patient, double-blind, placebo-controlled trial, and final data collection for the primary endpoint will occur in October of this year. The other Phase 3 is the CHABLIS-SC2 trial, which has not begun enrolling. It is also a 400-patient study, and is expected to complete in the late summer of 2016.
"Gene therapy is cutting-edge science fiction that's becoming a reality."
While there is some risk in Anthera, we like the risk/reward profile and do not know any other Phase 3 names out there with this type of valuation. Rather than do the traditional subset analysis, what Anthera has done is to smartly work with the key opinion leaders to combine the largest clinical trials in lupus. A lot of these lupus trials have been close, and by combining the data and looking at what types of patients responded, Anthera believes it has found the clinical trial design that will create a positive result. This company has had problems in the past, but has a dedicated management team, and the team members believe they have a turnaround story. If one of these Phase 3 trials works, you're looking at a nice multiple move in valuation. And, to repeat, it's rare to find a Phase 3 company that has a very good shot on goal with this kind of low valuation.
TLSR: Anthera has a $170M market cap right now. Is this large enough for institutions to start taking positions?
JM: It is on the edge right now. Given the Phase 3 nature of the story, we are seeing some institutions begin to nibble at Anthera, basically because they see the valuation disconnect. You have a Phase 3 name that's out of favor, and if b-mod does work, the risk/reward is outstanding.
TLSR: Thank you, John.