Immunotherapy, and the cancer fighting therapeutics connected to immunotherapy, has quickly become one of the hottest tickets in biotechnology. It all started with the clinical development of Provenge, and has since evolved into FDA approvals and pipelines of promising "second generation" candidates that should open even more doors in the years ahead. However, the problem for investors is that very few are educated enough or know how to assess this new but promising industry, and are left making blind investments due to a lack of knowledge. Therefore, I was very excited to have the opportunity to interview someone with both extensive Wall Street experience as an analyst yet an immunologist by profession. Such a person could provide valuable analysis of the space, and help you to sort through both the good and the bad.
I'll tell you what, I have been part of some great interviews over the last few years, both from CEOs with outlooks for the operations of a company and analysts/fund managers with the outlook for stocks of a company. However, I am not certain that I have ever had both positions in an interview. Dr. Rahul Jasuja, a managing director and senior biotechnology analyst with Noble Financial Capital Markets, provided me with this combination when we spoke earlier this week, due to his education and career as an immunologist.
I first reached out to Dr. Jasuja after reading a copy of his 32-page report on Galena Biopharma (GALE). Dr. Jasuja is one of eight who have initiated coverage on Galena, and his price target of $3.50 is somewhat conservative compared to most. My goal of reaching out was not to discuss Galena in specific, but rather immunotherapy, cancer development, and to pick apart a mind that has both incredible clinical knowledge and Wall Street experience. After more than 6,000 words spoken, I found his insight to be incredible - and a great tool for retail investors who are trying to pick apart the challenging biotechnology industry and, more specifically, immunotherapy and oncology.
Brian Nichols - Dr. Jasuja, how would you sum up the current state of immunotherapy?
Dr. Rahul Jasuja -- We are finding and understanding better what it takes to not have as many hiccups and road kills as we did in the past. If you look at immunotherapy, our progress is really taking shape.
BN - With that being said, can you explain the relationship between the immune system and cancer and then the concept of immunotherapy as it relates to biotechnology?
RJ - When I was doing my doctor's thesis, my advisor told me to write it as I would explain it to my mother. If you can explain it to her then you deserve your Ph.D.
The immune system is very effective at nipping in the bud early cases of cells that mutate and could become cancerous. It has a strong editing function; it edits and kills these problems early on. However, in a small number of cases there is a genetic predisposition of excessive abuse, such as sun tanning or smoking, where the immune system is unable to fight the cancer because it evolves and becomes tricky.
Cancer then harvests the immune system to work for itself or, in other words, it hijacks the immune system, and the immune system cannot attack the cancer. It does so by creating a tumor microenvironment, an atmosphere where the immune cells are a bit impotent, which is a very important concept to understand.
Another thing that makes cancer tricky is that cancer cells look like normal cells so the immune system has a hard time identifying them as foreign. These are all the issues that you need to understand as to why cancers can grow and the immune system allows for it. But, if we can harvest the immune system to stop the blockade that the cancer has caused, then we can easily direct immunotherapy drugs towards the cancer. This is the most effective way to treat a cancer because all other ways to treat a cancer is almost symptomatic; it doesn't really attack the problem at its core. That's kind of how immunology and cancer connect.
BN - It seems that in recent years we have seen new drugs that are more effective than immunotherapy drugs of early development. How far have we come in the last five years?
RJ - Our initial approach in developing drugs to treat cancer by immunotherapy was right in a microscopic sense, but we didn't understand enough about the biology of cancer or the mechanism of cancer to succeed. The progress of immunotherapy has really helped because we now understand how immunotherapy can work and how cancer cells behave much better. The fact that the cancer creates a microenvironment around it and prevents the immune system from attacking it, was not known in the 80s and 90s; we have learned so much in the last decade or less.
BN - I'd like to talk about antibodies, and what looks like a successful approach to treating cancer. How does the use of antibodies fit in with the goal of immunotherapy?
RJ - We have had success with immunotherapies using an antibody approach. People don't know, but this is an immunotherapy. It's a passive immunotherapy, not what we call an active immunotherapy, which means to generate an active immune response. This is what Galena Biopharma does, using an additive, or what Dendreon (DNDN) does.
· Dendreon currently trades with a market cap of $1 billion and is priced at $6.50. The stock has lost 60% of its value over the last year, but is higher by 60% during the last three months. In the last two years, peak sales expectations have dropped for Provenge due to an increase in competition. The drug, which was once believed to be a $2 billion per year drug, has estimated peak sales of $800 million today.
So when we look at immunotherapy you have to look at the broad picture of using an antibody, which is an immune-based protein, produced by T-cells. This is an immunotherapy approach, but we don't call it an immunotherapy because it doesn't really fit into the modern goal of immunotherapy - of using an active immunotherapy. An active approach is asking the immune system to do things by presenting antigens, dendritic cells, or asking T-cells to respond.
A passive approach, like an antibody, is asking the molecule, which is already there, to find something. We're not asking the cells to do much, just asking a cell to recognize something else. What you need to remember is that immunotherapy, in a sense, is also antibody-based drugs. Now, we've made a lot of recent progress because we've learned that we can hijack the immune system and cause the immune system to rise back to normal levels by blocking certain proteins, such as with Yervoy, and CTLA-4. We can then attack specific cells; in Yervoy's case, it's the melanoma cells.
BN - Speaking of Yervoy, it seems to be a much better drug, or possibly part of this "new age" immunotherapy class. How would you compare the drug Yervoy to another such as Zelboraf?
RJ - Bristol Myers Squibb's (BMY) drug, Yervoy, targets CTLA-4, which is used by the cancer to suppress the immune system. But when you block CTLA-4, the immune suppression that is created by the tumor is reversed and the immune system returns to normal, or regains strength. The other drug for melanoma, Roche's (OTC:RHHBY) Zelboraf, is a small molecule inhibitor of a single pathway called BRAF. Believe it or not, it is also an immunotherapy approach: When tumor cells have this mutant BRAF, it prevents the melanoma cell from presenting to the immune system or displaying to the immune system a set of antigens. Therefore, the immune system can't see it, so it doesn't attack it. When you administer Zelboraf, the drug inhibits the mutant form, and the melanoma antigen is displayed to the immune system; and the immune system in its own natural way kills the tumor. That finding came after research was done on Zelboraf, not while it was being developed. As we learn more about immunotherapy we are discovering that mechanisms on which immunotherapy is based are working well with conventional approaches.
- Bristol Myers Squibb is a $60 billion pharmaceutical company that has seen a 13% rise in value over the last year. Yervoy has a price tag of $120,000 and analysts predict peak sales of $1.4 billion for the product.
- Roche is a $186 billion company that has increased in value by 23% over the last year. Its melanoma drug, Zelboraf, is the competitor of Yervoy; analysts predict peak sales of $730 million.
BN - If immunotherapy products are so effective, then why is it that Dendreon has encountered so many problems from a clinical point-of-view?
RJ - Data for CTLA-4 was a classic breakthrough in immunotherapy, as was Dendreon's Provenge; but Dendreon had such a rough and tough "guinea pig-like" development pathway. They didn't know what they were doing. They were giving injections intravenously and that's why their product is really not optimal. It only has a small number of dendritic cells, 10% harvested cells; they didn't develop it the right way. When Dendreon began it was during the early stages of harvesting dendritic cells, and we were still learning how. They just did it wrong.
BN - I've always heard that monocytes were one of the primary reasons for Dendreon's failures. Why wouldn't they go back to the drawing board with the same technology and test the drug after harvesting a greater number of monocytes?
RJ - The reason they can't go back and do that is because their IP doesn't allow them to do it. If they wanted to do that, they would have to begin a whole new process of development, start-from-scratch. For them, it's going to be six or seven years before they could get to that point. They can't go back and use another harvesting process because other companies have gotten an IP, and Dendreon's only covers its process. They would be infringing on someone else's intellectual property if they harvested more dendritic cells. Another problem with Dendreon is that they harvest intravenously; so with that kind of approach you want to do it intradermally, but they can't because of their IP.
BN - Dendreon was awarded a high valuation in clinical studies, but it seems that you've never been too impressed with the company's approach. What are a few companies that have a better clinical approach?
RJ - When Dendreon was going through its trials and tribulations with the FDA and developers, there were others who already had a better therapeutic approach. Today, Argos Therapeutics and ImmunoCellular Therapeutics (IMUC) have a better approach; even a company such as Prima BioMed has a better approach.
- ImmunoCellular Therapeutics is a $130 million clinical-stage biotech company with a Phase II glioblastoma multiforme product as its lead candidate. The stock has traded higher by 45% over the last year, including a 28% gain during the last five sessions.
BN - I've always been a big fan of ImmunoCellular Therapeutics. What is your outlook for the company and what is it that makes the company's therapeutic approach so special?
RJ - I have not covered ImmunoCellular Therapeutics in detail. I know the company well, but in terms of the number of dendritic cells harvested, they are definitely above 70-80%, as is Argos. With this approach, you are getting far more product in the immune cells and are able to have less boosters, less injections, making it clearly a more streamlined approach. And what ImmunoCellular Therapeutics, Prima BioMed, and Argos do is have their own manufacturing system that is better than Dendreon's whose cost-of-goods are higher because there are more steps in the process. This is one of the biggest improvements that we've seen with the new second-generation approaches in immunotherapy.
BN - Going back to Dendreon, since the company can't mature monocytes into dendritic cells at a higher purity, do you think the company will acquire one of the earlier-phase companies with a strong patent portfolio that have the ability to harvest at higher levels? Specifically, ImmunoCellular Therapeutics has a market cap of just $130 million; it could be acquired cheap and could lead Dendreon to profitability, right?
RJ - The Dendreon IP is for their protocol and if Dendreon has to use another approach irrespective of their IP, they would have to redo all their clinical trials - not practical since (Provenge) is already on the market. Yes second generation dendritic cell approaches are better at harvesting more Dendritic cells and also better in how they deliver - intradermal v IV. IV is a poor way for Dendreon to deliver Provenge. Intradermal is better in presenting the antigen to the immune system.
I think the acquisition of immunotherapy needs robust clinical trial data - maybe beyond Phase II. And if the data is really good, then the market cap will not be $130 million.
BN - A lot of these "second-generation" immunotherapy companies will be announcing data this year, including several with interim data. What are your thoughts on interim data and immunotherapy? It seems to me that successful interim data could take many of these companies from $100 million market caps to $300 and $400 million market caps over the next year.
RJ - Your statement is true, but what I worry about with interim results in immunotherapy is progression. Dendreon had originally published progression-free survival, but what really worked for them was when they published overall survival. And the reason for that is because the immune system takes time to build, which is why you want to wait and see overall survival.
If I were advising an immunotherapy company, and some are doing this, I would use the interim analysis as just a suggestion for safety and not have an endpoint that is clinically relevant to the study. I fear interim analysis that has interim endpoints based on survival. I am skeptical with interim analysis in immunotherapy because you want to see overall survival, which takes longer to show up. Now, sometimes it can work. In the case of Galena, they really have a chance with that kind of peptide vaccine.
BN - So are you saying that interim analysis for immunotherapy products should be discarded?
RJ - My point was that immunotherapy takes longer to develop - just the nature of the immune system in recognizing an antigen or being modulated to respond. In many past cases, we used endpoints that were more relevant to chemotherapy of small molecule-targeted inhibitors of signaling pathways - i.e., FDA and clinicians had not moved with innovation in immunology in understanding that immunotherapy can't be evaluated with chemotherapy-like endpoints. So Dendreon had PFS or time to disease progression as its primary endpoint, with overall survival as its secondary endpoint. As you recall, the primary endpoint failed, but the gold standard of overall survival was reached.
Due to our conversation being so long, I have to break the interview into two pieces. In this first piece, you learned about the history of immunotherapy and cancer therapeutics, where we're going in development, why certain therapeutics work and why others do not, where companies succeed and fail, the importance or lack thereof in interim results, and several individual products and companies including a personal favorite of mine, ImmunoCellular Therapeutics. You should now be able to see the progress that has been made over the last decade, and why an investment in this space might not be such a bad idea. If the space is really progressing as quickly as Dr. Jasuja believes, then it could lead to some massive gains for many years to come.
In the second part of this interview, Dr. Jasuja will explain the connection between clinical design and therapeutic approach, will provide price targets, will explain which drugs will succeed and fail, provide his top catalysts for 2013, and will tell you where to look for the next wave of immunotherapy products. I hope that you enjoyed the interview as much as I did the conversation, and hopefully it helps you to better understand the complexity of developing the most promising drugs in the market. Now, perhaps you will be better equipped to navigate through the contenders and the pretenders of immunotherapy's elite.