Lion Biotechnologies (NASDAQ:LBIO) is a small company developing a T-cell therapy to treat melanoma. As with most companies of this size, investors are naturally skeptical, even when Lion presents impressive data. Inversely, when a company like Novartis (NYSE:NVS) presents good data-- using a similar T-cell therapy with the same approach -- it causes excitement and leads to some investors revisiting their thesis-- and perhaps acknowledge that these new T-cells could be a game changer in treating cancer.
A Hidden Treasure?
Lion is a $130 million company that was recently formed after a merger with Genesis Biopharma. In recent months the stock has been subject to sudden gains after the company secured two years' worth of cash. Lion secured approximately $23.3 million in private financing, which according to the company's corporate presentation, should provide enough capital for the next 24 months. Thus, the financing allows investors to focus on the data without fear of near-term dilution.
The company's Phase 3 product, TILs, is being developed to treat melanoma patients who no longer respond to other treatments; according to the company's corporate presentation, this is a $1 billion market opportunity. In its Phase 2 trial, tumors in 20/93 patients were eliminated after being treated with TILs, or had a complete response, and 19 remain disease-free today.
Approximately 136 patients were tested in the Phase 2 trial at sites such as NCI, MD Anderson, H.L. Moffitt, and Sheba Hospital. In accordance, data has proven not only to be good, but plentiful and consistent, as each of the four trial sites had an overall response of at least 46%.
It is this data yield that makes some believe that TILs could be a hidden treasure.
What ARE TILs?
TILs are T-cells, but are also known as Tumor Infiltrating Lymphocytes. These TILs can be found naturally in cancer patients with growing tumors; it's the body's natural defense. But, there aren't enough TILs present within the body to shrink or fight the tumor alone, or its want to spread.
Lion's clinical strategy involves isolating these TILs, removing them from the body, and then expanding the TILs from millions to billions before re-administering back into the body via IV. Since TILs naturally fight cancer, the introduction of a large number via IV also kills traces of the disease in other organs, which is why the complete response was so high in its Phase 2 trial.
Novartis Data Supports TILs
By now, you might know the story of Lion or had seen postings regarding the company in the last few months. Its approach is novel; but in biotechnology we've seen a lot of great theories crushed over the years.
We've watched as companies with what looked like good therapeutic approaches fail in large clinical trials. So, while the TILs Phase 2 data is sound and the approach seems logical in the fight against cancer, investors must take note and be wary regardless of how unique a therapy might sound.
With that said, once the market or investors are given a concrete reason to believe that an approach is effective, the outlook is often drastically altered. In other words, when the market is given a real reason to believe that a therapeutic approach will work, it buys into the idea.
For example, anti-PD-1s were considered promising, but it wasn't until earlier this year that the market really took notice, as Merck, Bristol-Myers, and Roche all presented concrete data. At that point, investors gave anti-PD-1s the benefit of the doubt.
With Lion, its TILs approach involves stimulating the immune system to produce T-cells. In the last decade the development of T-cell based vaccines was very popular, but then lost some steam. However, big pharma now seem interested once more, including Novartis.
Novartis' approach is very similar to Lion's, and it's this reason that bulls might be a little more bullish. Rather than TILs, Novartis removes chimeric antigen receptors (CARs), which are also T-cells. After being removed, the company modifies the cells (much like Lion does) and then re-administers CARs back into the body (just like Lion). The result of this process has been remarkable though in its infancy.
Bloomberg reported the findings from Novartis' study using CARs, saying: "15 of 32 patients with chronic lymphocytic leukemia experienced a reduction of their cancers and 7 achieved remission. In patients with acute lymphoblastic leukemia, 19 of 22 children experienced complete remission, as did all five adults tested."
Granted, CARs are far from reaching an FDA approval. Novartis notes that multicenter trials will not begin until next year -- at approximately eight centers -- with international studies also beginning in 2014. But what's encouraging is that no other treatment works on this patient population of both adults and children, which leaves open the possibility to use CARs in treating other diseases in the future, something that Lion management has also openly discussed.
Part of Lion's plan is to combine TILs with melanoma treatments, Zelboraf and also anti-PD-1s, to treat solid tumors in the metastatic state where the disease has spread to other organs. Based on the findings from Novartis, Lion's plan is logical and at least based on this approach, as Novartis too believes that its modified T-cells can be used to treat other types of tumors. The findings and words from both Lion and Novartis make these two key programs a must watch.
As previously mentioned, Lion estimates its market opportunity for TILs to be $1 billion. As for Novartis, with much larger trials needed analysts have not yet figured CARs into the company's fundamental outlook. Yet, it is worth noting that both Lion and Novartis would have stiff competition if either product is proven to be successful in larger studies. Obviously, melanoma is crowded and many of the anti-PD-1s treat the disease. Then, for Novartis, it might directly compete with Pharmacyclics (NASDAQ:PCYC) and Johnson & Johnson (NYSE:JNJ), whose Imbruvica is being tested right now to treat chronic lymphocytic leukemia in a Phase 3 trial. However, as of now Novartis is the only company showing success in treating the acute stage and on children.
With that said, the real investment upside might come in both companies ability to expand these two programs into treating new indications. For Lion this is especially important, and is likely why the company is planning to combine TILs with Zelboraf and anti-pd-1s. If Lion can actually improve the clinical outcome of drugs that already work effectively then it can earn substantial revenue. Moreover, since TILs are injected via IV, it has a systematic response, or data shows that TILs work on foreign tumors. Therefore, if it works, we have reason to believe that it, and likely CARs, will be tested to treat new indications.
With Novartis, it is big pharma, and its risk are tied to patent expirations, successful trials, and long-term revenue/earnings growth in the billions. Yet, Lion is a different story.
Lion is in fact a small cap clinical stage company with just one late-stage product. Hence, it has the same risks that you'll find with any clinical biotech; a successful trial means massive gains and a failed trial means massive losses. Investors knowingly take these risks when investing in this space, but Lion has three things going in its favor: trial size, multi-center presence in its last trial, and its strong cash position. Often times when you invest in a $130 million biotechnology company you don't have 136 patients or four sites of data; nor does the company have two years of cash on its balance sheet. These strengths make Lion attractive.
Novartis' data is not what anyone would call a solidification of a therapeutic approach -- as CARs must still be tested in larger studies -- but further evidence that modifying T-cells before re-administering them back into the body is promising nonetheless. It also means that Lion, along with its promising trial data, is worthy of your attention. This is a good stock to follow.
At this very moment, Lion is worth the attention that it has received. And if Novartis' data holds, we might learn that Lion too will see strong data in its Phase 3 trial, which would produce very large returns for shareholders.
Disclosure: I am long LBIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.