Every so often, markets experience a paradigm shift where an advancement in technology makes older products less relevant. For example, TV replaced radio, flat screens TVs replaced tube TVs, and the iPhone replaced the BlackBerry (BBRY). Similar shifts occur in the way diseases are treated. In the late 1990s, antibodies emerged as a new technology that could supplant small molecule chemotherapy drugs to treat cancer. Now, novel cell-based therapies are poised to succeed antibodies. In particular, therapies utilizing T cells have shown incredible potential to improve survival in different types of cancers.
Investors who recognize paradigm shifts early can achieve returns that outperform the broad market. For example, investors who, in the late '90s, put money into Genentech, an early leader in antibody development and commercialization, would have quadrupled their investment in the following decade. In 1998, Genentech was already a successful company with a market cap of about $17.5 billion. By 2008, the company's market cap grew to more than $83.5 billion just before it was acquired by Roche (RHHBY.OB). In comparison, returns for the S&P500 from 1998 to 2008 were essentially flat.
Like antibodies over two decades ago, T cell therapy is an emerging technology with the potential to be the next paradigm shift in cancer treatment. Early clinical studies suggest that treating patients with T cells can result in a survival benefit compared to antibodies and small molecules. Several companies - both large and small - have the potential to be leaders in T cell therapy.
Lion Biotechnologies -- formerly Genesis Biopharma (GNBP.OB) is currently developing T cell technology from Dr. Steven Rosenberg at the National Cancer Institute to treat melanoma of the skin. Tumor infiltrating lymphocytes (TILs) are isolated from patients' tumors and grown, expanded, and then administered back to the patients. Clinical studies have shown that TILs can completely eliminate all cancer in as many as 12% of metastatic melanoma patients. In comparison, Yervoy (ipilimumab), an antibody targeting CTLA-4 from Bristol Myers Squibb (BMS), can only achieve a complete response rate of about 2%. TILs also have a better objective response rate (ORR) compared to conventional therapies: 50% vs. 11% for Yervoy.
Last year, Novartis (NVS) licensed genetically engineered T cell technology from Dr. Carl June at the University of Pennsylvania. Dr. June's T cells are engineered to express chimeric antigen receptors (CARs) that can target a specific tumor antigen. Early clinical results in patients with chronic lymphoid leukemia were unprecedented: complete remission in two of three patients. The short film, Fire With Fire, from Oscar-winning director, Ross Kaufman, summarizes the unprecedented results of CAR T cells for one leukemia patient, whose story was also covered in a New York Times article. More recently, Dr. June s CAR T cells have also been shown to work in patients with acute lymphoid leukemia. Despite being relatively early in development, NVS has shown its commitment to T cell therapy and already purchased a cell manufacturing facility from Dendreon (DNDN) in preparation for clinical development and commercialization.
Celgene (CELG) is another major biopharmaceutical company that is investing in T cell therapy. In March, CELG announced a collaboration with Baylor College of Medicine and Bluebird Bio (BLUE) to advance CAR T cell programs. A few months after the announcement, Bluebird Bio went public, raised over $100 million, and now has a market cap of about $600 million.
Some investors may be skeptical that cell-based therapies can be commercially viable, especially given Dendreon's struggles to achieve profitability. However, there were a lot of problems that gave Dendreon problems from the beginning. Provenge was/is a great drug, but it cannot be stored, patients must undergo a blood draw and IV for each dose, and the company's logistics are in shambles thanks to the closing of its Morris Plains manufacturing facility and a lack of sales growth.
When the FDA approved the first therapeutic antibody (OKT3) in 1986, investors had similar concerns. In the early '90s, few drug companies were even interested in developing antibodies because of manufacturing costs. Now, every major drug company has an antibody product on the market, and antibodies generate over $40 billion in sales each year. It may take time, but cell-based manufacturing will eventually become like an assembly line and ultimately profitable. And because of its market value and the upside in developing such products efficiently, both large and small companies continue to push forward in research -- and as of late, have produced very strong clinical data.
History has shown that new technologies are often very expensive to manufacture when they first arrive on the market. But eventually, costs decrease as more units are produced (due to economies of scale) and manufacturing processes improve. When first introduced in 1977, an Apple II computer cost about $2,500; nowadays, you can get a new iMac for $1,300. Flat screen TVs were so expensive when they were first introduced that few households could own one, but now they are so affordable that many homes have more than one.
Identifying paradigm shifts is an excellent way for long-term investors to reap solid returns. T cell therapies appear to be the next shift in technology that can eventually replace conventional methods in treating cancer. As T cell technology progresses, manufacturing will likely improve and become much more efficient. Investors should definitely keep an eye out on the leaders in this space, as their potential upside can generate nice returns.