As immunotherapies are being developed to address some of the most common types of cancers globally, a number of biotechnology companies are focused on delivering targeted therapies for smaller subsets of the disease. Both approaches are worthy of investors’ consideration, say Portfolio Manager Andy Acker and Research Analysts Dan Lyons and Luyi Guo.
For years, immunotherapy has captured the lion’s share of research and development spending at many biopharmaceutical giants. Driving this focus is market size: By 2024, forecasters estimate that annual sales of immunotherapy drugs will range from US$125 billion to as much as US$173 billion. Companies that can claim even a small portion of the market stand to reap significant benefits.
But developing these potentially life-altering therapies, which harness the body’s immune system to fight cancer, is a slow and sometimes fitful process. In July, for example, biopharmaceutical company Bristol-Myers Squibb announced that its lead immunotherapy drug, Opdivo, when combined with chemotherapy, failed to meet a primary endpoint in a late-stage clinical trial for nonsquamous, non-small cell lung cancer. Specifically, the combination drug did not statistically improve overall survival rates for patients when compared to chemotherapy alone.
Opdivo has been approved by the US Food and Drug Administration (FDA) for the treatment of other types of cancer, including advanced kidney and liver cancer. In addition, during the same late-stage trial, Opdivo and another immuno-oncology drug, Yervoy, showed an improvement in overall survival rates for lung cancer patients with certain types of tumours. But uncertainty around whether Bristol-Myers can broaden the effectiveness of Opdivo for lung cancer – the most common type of cancer globally, with 2.1 million new cases diagnosed in 2018 – has weighed on the stock this year.
From immune system to tumours…
Long term, we remain optimistic about the growth potential for immunotherapies. During the second quarter, Opdivo sales expanded 12% from the same period the year before while another leading immunotherapy drug, Keytruda, which is made by Merck, jumped 63%. However, as immunotherapies continue to develop, we think it is important to consider other areas of cancer treatment, including targeted therapies.
Targeted therapies, a type of precision medicine, treat cancer by interrupting unique molecular abnormalities that drive the development, growth and spread of cancer. Advances in genetic sequencing have made it possible for companies to more accurately identify and target rare genetic mutations that lead to cancer. Not all patients will have these targets, but for those who do, the clinical benefit from medicines addressing such defects tends to be dramatic.
Take Deciphera Pharmaceuticals, a biotechnology company focused on developing small-molecule inhibitors of tyrosine kinases, enzymes that effectively act as an on-off switch for cell function. The company has developed an inhibitor platform that is being used to turn off the growth of gastrointestinal stromal tumours (GIST). In August, Deciphera delivered positive, late-stage clinical trial results, showing that its lead drug candidate, Ripretinib, reduced the risk of disease progression or death in late-stage GIST patients by a stunning 85%. The firm is now expected to apply for FDA approval early next year.
…to tissue-agnostic drugs
Deciphera is one of many biotechs developing and commercialising targeted cancer therapies. More recently, a number of companies have also started to explore whether these ‘targets’, or genetic biomarkers, can be found in more than one type of tumour. The first to succeed in this so-called tissue-agnostic approach was Merck with its immunotherapy drug, Keytruda. In 2017, the FDA approved Keytruda for a new indication, in this case as a treatment for patients with microsatellite instability-high or mismatch repair-deficient solid tumours (tumours caused when a patient’s DNA mismatch repair system fails to recognise and fix genetic mistakes during DNA replication). In clinical trials, 40% of patients with the biomarker – patients who had previously not responded to treatment – saw their tumours shrink or disappear. (Keytruda is now approved for 20 indications in the US.)
It was the first tissue-agnostic drug approved by the FDA, and more such therapies are beginning to hit the market or are being developed. In 2018, for example, the FDA granted accelerated approval to Vitrakvi. Developed by Loxo Oncology and Bayer, Vitrakvi can be used to treat solid tumours that have a neurotrophic receptor tyrosine kinase gene fusion, found to support the growth of tumours in various parts of the body. The science was one reason that in early 2019, Eli Lilly acquired Loxo for US$8 billion, at a premium of roughly 68% to its share price. Also this year, the FDA approved Rozlytrek, a competitor drug to Vitrakvi made by Roche that has a similar broad indication, while Amgen and Mirati Therapeutics are each developing tissue-agnostic therapies that target mutations of the KRAS protein, which affects around 14% of lung cancer patients and is also found in colorectal and pancreatic cancers.
As with any type of new medicine, risks are always present. Historically, 90% of drugs that enter human clinical trials never make it to market. But given positive results, precision medicine could represent a significant milestone for patients who might otherwise not respond to treatment. It is one reason why we believe targeted therapies could be viewed as a cost-effective approach to high-priced advanced medicines: The more specific the patient population, the greater likelihood those patients will benefit. Investors, we think, should take note.