Every so often a treatment method takes the market by storm and leads to unexpected gains for the biotechnology companies who are developing it. In 2011, we saw this happen with hepatitis C companies such as Pharmasset and Inhibitex, but more recently the market has been obsessed with the potential of a drug class called anti-PD-1. While this particular class of drugs has yet to produce an FDA approval, there's no doubt that the market is buying into its large market potential. With that said, what is the next anti-PD-1 in the market?
The Big Thing In Drug Development
Cancer is a disease where biopharmaceutical companies have made progress, but are yet to find a cure. In this space, success is measured in months, and every few years it seems as though a new therapeutic approach is developed; that approach is warmly welcomed by Wall Street. In 2009/2010, it was the first line of immunotherapy that captured our imagination, due to the idea itself having immense possibilities in the field of treating cancer. Dendreon (NASDAQ:DNDN) had the first ever-approved immunotherapy - which used the immune system to fight the cancer by targeting antigens - followed by Bristol-Myers' (NYSE:BMY) Yervoy. However, problems in manufacturing for Dendreon led to exceptionally high costs and a stock that eventually fell from over $50.00 to under $5.00.
In the process, biotechnology companies have since innovated to take immunotherapy one step further, with anti-PD-1s. PD-1s are cellular signals that allow cancer cells to hide from the immune system. The new anti-PD-1s act against these cellular signals, thus allowing immunotherapy products to work more efficiently to attack and fight the cancer. Currently, three companies are developing such products, and each presented data at ASCO.
Bristol-Myers' nivolumab is the most advanced, being tested both alone and in combination with Yervoy. Currently, it is being tested on advanced melanoma and advanced non-small cell lung cancer, in addition to kidney cancer. It is estimated that the product will be approved in the next year for the treatment of lung cancer. The Phase 3 study is currently underway, but judging by the near three-month addition to overall survival, most expect a speedy approval.
Merck's (NYSE:MRK) drug lambrolizumab is being tested to treat advanced melanoma, and it shined at ASCO by shrinking tumors by 38%. Expected approval is some time late 2015. Finally, Roche (OTCQX:RHHBY) is developing a candidate, MPDL3208A, in the treatment of advanced lung, skin, kidney, and other cancers. In its presented data, 21% of cancer patients saw significant tumor shrinkage. Its most advanced trial is in lung cancer, but it's unknown as to when the company will file an NDA.
When the idea of anti-PD-1s was first introduced, most believed it would only be used to treat melanoma. However, we are now learning that it's linked to kidney, lung, and other deadly cancers. As a result, there are many who believe that this anti-PD-1 market could create $10 billion in revenue annually at its peak. This fact is why Bristol-Myers has seen a 45% YTD gain, seeing as how its drug will be the first available in the market.
What Is The Next Anti-PD-1 In Biotechnology?
Anti-PD-1 drugs are still in development; therefore, it is a rising space and not a peaking space. However, it's never too early to look down the pipeline to seek therapeutic approaches that could be "next" in capturing the imagination of Wall Street. In my opinion, that next approach is with CD34+ cells.
CD34+ cells are typically obtained from adult bone marrow and are being used in a number of regenerative medicine studies. These particular cells have often been called the "workhorses of regeneration" due to success in academia and in animal medicine. However, these cells have never been used in medicine to treat degenerative diseases in humans, until now.
Currently, there are two companies, Baxter (NYSE:BAX) and NeoStem (NASDAQ:NBS), with late-stage clinical products (essentially the same products), which are being used to treat different conditions of the heart. With 600,000 people who die every year in the U.S. alone from heart disease, any treatment that can strengthen or repair the heart would be a blockbuster due to the pure size of the market. Hence, with both companies producing exceptional clinical results - with different approaches - I think the development of CD34+ cells could very well be the next biotech area of development to produce large gains.
First, let's look at Baxter. Clearly, it is the larger of the two companies with a market cap near $40 billion. It is studying a CD34+ cell therapy product in a Phase 3, 400 patient trial. Back in May, I had the opportunity to speak with the developer of this product, Dr. Douglas Losordo, who explained how CD34+ cells are "naturally recruited to sites of tissue damage" and are the "first responders" in the body's defense system. Thus, Dr. Losordo and company are simply harvesting its regenerative abilities and focusing on vascular regeneration and repair, where it is believed to be most useful.
Strangely, when you talk to Baxter investors, not many are familiar with the company's Phase 3 study. Yet, this particular study might be its most promising. The product is being tested to treat chronic myocardial ischemia, and in Phase 2 trials it became the very first product ever to reduce episodes of angina while increasing a patient's ability to exercise. If you're wondering why this is significant, it's because myocardial ischemia is the leading cause of heart attacks. Approximately 1.5 million Americans will have a heart attack this year as a result of myocardial ischemia; about 500,000 will be fatal. Baxter's product is treating the most severe form of chronic myocardial ischemia, which is a large unmet medical need. In fact, depending on pricing, this one indication alone could generate peak sales of $2 billion, a major gain to its $14 billion in annual revenue.
In the case of anti-PD-1s, the companies developing the products are extremely competitive, most of which treat the same disease. However, in the case of CD34+ development, Baxter and NeoStem are closely connected and are working in tandem to succeed in its development. Losordo, who led the development of Baxter's product, also works with NeoStem on its scientific advisory board. Moreover, NeoStem's manufacturing business, PCT, actually manufactures Baxter's cell therapy product. Thus, these two companies have a very friendly relationship, although competitive.
Like I said, both products are remarkably similar, yet the difference is that Baxter is using its product to strengthen while NeoStem uses its product to repair the heart. Therefore, the approach is quite different. NeoStem's product, AMR-001, is being used following an acute myocardial infarction to prevent further deterioration of the heart. Last year, NeoStem presented data showing that when it used 10 million cells, not one patient experienced a deterioration of heart muscle function. Meanwhile, more than 30% of patients experienced a deterioration with fewer than 10 million cells, and according to the TIME study, only 2.2% of participants responded to 3.3 million CD34+ cells. As a result, NeoStem not only found a threshold dose, but also an indication where AMR-001 works well.
AMR-001 is being tested in a Phase 2 trial, with data expected within the year. Much like chronic myocardial ischemia, the patient population for acute myocardial infarction is massive. According to the company, there are more than 800,000 myocardial infarction events per year in the U.S., and if successful, AMR-001 could reach sales of more than $1.2 billion.
A successful study will be important in determining if these sales are ever reached -- but I must also note that NeoStem holds extensive IP. The company is expanding AMR-001's potential use throughout the globe, including Canada on Monday, which is where the first ever cell therapy product by Osiris Therapeutics was approved. Moreover, the company has broadened its targeted use with AMR-001, through patents, including ischemia-induced congestive heart failure, a major unmet medical need afflicting 5.8 million patients in the United States alone. While this is beneficial for NeoStem, it is also suitable for the development of CD34+ cells as a whole, because it shows that these cells can be used to treat a variety of cardiovascular disorders.
What's essential to remember when seeking the next thrilling product-line in biotechnology is that it has to have large sales and healthcare-changing potential. Anti-PD-1s are being used to advance the treatment of cancer, and CD34+ cells are being used to treat cardiovascular disorders that have large unmet medical needs.
Combined, heart disease and cancer cause more than 1.6 million deaths annually, meaning they are the two largest markets in healthcare. Fortunately, any strides or improvements in survival are great for patients and deliver enormous profits and returns for investors. Over the next two years, I'd watch as anti-PD-1s enter the market and succeed with large sales. But also, I'd watch the progress of CD34+ therapies, and I wouldn't be surprised if it's the next anti-PD-1 of the biotechnology space.
Disclosure: I am long BMY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.