Six Disruptive Biotech Stocks
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By George S. Mack, The Life Sciences Report
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Imagine a novel discovery or even a novel platform that just fizzles. To a technology freak like me that sounds so disappointing to think that you can actually discover breakthrough ideas that are not disruptive and don't really change much. I recently spoke to Ray Blanco who was so inquisitive as a kid in the 1960s that he built a Wilson cloud chamber in his parents' basement to detect vapor trails revealing movement of subatomic particles. He's still at it, but now it's about building financial models to assess the value and prospects of innovative companies. Today, as an editor and contributor to several investment publications at Agora Financial, Blanco is satisfying his still-healthy curiosity by finding small-, mid-, and even a few large-cap tech stocks with potential to usher in new paradigms and make significant returns for investors.
In my interview with him for The Life Sciences Report, our conversation turns quickly to what investors must understand about platforms, along with a stark case in point. "Just having a cool science project isn't enough," says Blanco. He pointed to Dendreon Corp. (NASDAQ: DNDN), which had a real breakthrough in terms of biotechnology with its prostate cancer autologous cell platform, but in the real world it doesn't really move the needle much in terms of patient survival times and is incredibly expensive. "That's one example of a scientific breakthrough that I wouldn't consider in and of itself a disruptive technology," he said.
These days Blanco is very interested in the antibody-drug conjugate (ADC) platform. The idea is to link, or conjugate, useful drugs to antibodies so they will find with lock-and-key precision to target specific antigens on the outer membrane of disease causing cells. It's a way of targeting offending cells while sparing the healthy ones. The first names that come up are Seattle Genetics Inc. (NASDAQ: SGEN) and ImmunoGen Inc. (NASDAQ: IMGN), both of which are developing ADC platforms.
Genentech's (now a unit of Roche Holding [RHHBY]) Herceptin (trastuzumab), a monoclonal antibody, targets breast cancers overexpressing the HER2/neu receptor. This has been a very successful franchise for Genentech/Roche which has partnered with ImmunoGen to improve the efficacy of trastuzumab by linking it to a chemotherapeutic agent so that the HER2-positive patient will not only reap the benefit of signal transduction pathway inhibition by the antibody, but will also benefit from having a linked cell-killing agent delivered specifically to aggressive tumor cells. The ADC product is TDM-1 (trastuzumab emtansine), which is being evaluated now for treatment of metastatic breast cancer in three separate phase 3 studies.
Blanco has a special interest in Seattle Genetics which is using a similar technology with its ADC agent Adcetris (brentuximab vedotin) for Hodgkin lymphoma (HL) from which he is now a two-decade survivor. Brentuximab targets the CD30 antigen which is expressed by the giant Reed-Sternberg cell which has for so many years now been identified with HL. Adcetris is already approved for late-stage HL as well as anaplastic large-cell lymphoma (ALCL) patients who have failed chemotherapy. It is also approved for HL patients who have failed an autologous stem cell transplant, or for two chemotherapies in patients who are not stem cell candidates. Seattle Genetics would like to see the product eventually used as a first-line therapy, and Blanco believes there's a lot more value coming out of the company's development pipeline. "It has the opportunity to expand (Adcetris) into earlier disease stages, and the company also has a pipeline of in-house and partnered ADC compounds that it is using to go after other cancers as well," says Blanco.
He also likes one large cap stock, Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) with its protease inhibitor Incivek (telaprevir), "Which is basically the first new hepatitis C (HCV) therapy approved in over a decade," he says. "And it has demonstrated superior efficacy." Approved for patients with genotype 1 HCV in May 2011, Incivek is also the first HCV drug to show sustained viral response in patients who failed previous therapies. "But it's not just HCV," he says. "Vertex is also developing a cystic fibrosis (CF) franchise. It has already gotten approval and marketed Kalydeco (ivacaftor) for a very small percentage of the population of CF sufferers." The market cap of Vertex is too large to bet on a two new products, but "It is also developing nucleoside analogs for use as an all-oral regimen so that patients can dump the interferon and ribavirin injectables that have really nasty side effects," says Blanco.
He also wants to talk about small-cap Aveo Pharmaceuticals Inc. (NASDAQ: AVEO) with its distinctive drug-screening Human Response Platform. The traditional method of testing new cancer agents in mice is to use xenografts, which means investigators engraft human tumors into mice and then test the drugs. But Aveo's technology allows drug developers to flip a molecular switch which will cause the mouse to grow its own tumor, could eliminate the need to load the animal up with immunosuppressants, which alter an animal's response to anti-tumor agents. The Human Response Platform is not only being used at Aveo, but is also being licensed out.
Tivozinib is Aveo's lead compound which is being studied for renal cell carcinoma (RCC) patients. "I expect it will submit a new drug application (NDA) to the FDA for marketing approval before the end of the year," he says. "The thing about tivozinib in RCC is that it has the highest progression-free survival rates of any comparable drug, but the big deal is its tolerability. Patients really just can't take a lot of the drugs out there right now. So that means reduced dosing which reduces efficacy, or either they get off the drug entirely. A drug you don't take is a drug that doesn't help you."
Ariad Pharmaceuticals' Inc. ponatinib is in phase 3 trials now for chronic myeloid leukemia (CML) and acute myeloid leukemia (AML). "This compound works on almost all of the most common mutations for CML and AML," says Blanco. "These mutations confer resistance to the existing compounds, but ponatinib has demonstrated the ability to actually work on those mutations."
Finally he talks about Isis Pharmaceuticals Inc. which has an antisense platform that blocks the production of disease-causing proteins at the gene level. The Isis platform is so far advanced that it can use an antisense agent to not only block protein synthesis, but to actually synthesize a correct protein where it's needed. The pipeline is very deep for disease indications across the board. In May of this year Isis earned a $25 million milestone payment from its partner Genzyme (now a unit of Sanofi SA [SNY]) when the FDA accepted the company's NDA for Kynamro (mipomersen sodium) for treatment of homozygous (disease-causing gene inherited from both parents) familial hypercholesterolemia.
Kynamro targets the apolipoprotein B (apo-B) gene which produces the apo-B protein. Inhibiting apo-B protein production reduces LDL (the bad) cholesterol. Although homozygous familial hypercholesterolemia is a very rare genetic disease, there is a major unmet need because patients die from the disease in their 30s. In July 2011 the partners filed a marketing authorization application (MAA) at the European Medicines Agency (EMA) for the same condition and also for severe heterozygous (disease-causing gene inherited from only one parent) familial hypercholesterolemia. But Isis and Genzyme plan to continue developing mipomersen for expanded indications of high serum lipids.
I asked Blanco if he believes the company will begin to get some credit for its other pipeline products if Kynamro is approved. "I certainly hope so," he says. "The company doesn't get respect right now, and it's probably a good thing if you want to buy."
To read the entire interview with Ray Blanco, visit www.thelifesciencesreport.com.
1) George S. Mack of The Life Sciences Report personally owns shares of the following companies mentioned in this interview: Isis Pharmaceuticals.
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