The new class of drugs that will take the lead in fighting melanoma has the potential to bring in billions of dollars in revenue annually to the company that can bring the next novel treatment to market. While melanoma only accounts for 5% of the skin cancers, it is the most dangerous form, killing an estimated 9,480 people in the U.S. in 2013. Melanoma is also on the rise; an estimated 76,690 new cases of invasive melanoma were diagnosed in the U.S. in 2013. While the survival rate is 98% if caught early, once it spreads to the lymph nodes there is a 62% survival rate -- and that drops to 15% once the disease spreads to distant organs. Treatment for the disease has advanced and a number of major pharmaceutical companies are developing what could be the next novel treatment to fight the disease. And while different companies are taking various approaches to treating melanoma, the company that can bring its drug to market first should benefit with billions of dollars in revenues.
Bristol-Myers Squibb - Two Potential Billion-Dollar Platforms
I've written previously about Bristol (BMY) and its novel immunotherapies for various cancers. I like where the company is headed in 2014 as it looks as though the company will strengthen its focus on the lucrative cancer market with two potential blockbuster drugs. And while cancer drugs have a low rate of approval as they continue through late phases of testing, Bristol's two cancer drugs are showing great promise -- and if approved could make up for lost revenues due to other drugs falling off patent.
Last year, Bristol's cancer drug, Yervoy, a fully-human anti-CTLA4 monoclonal antibody, gained most of the attention when it was announced the drug could extend the lives of melanoma patients by as much as ten years. Approved in 2011, the drug blocks proteins that inhibit immune system cells, which would allow the cancer to grow. By blocking these proteins, Yervoy is able to assist the immune system in fighting the tumors. While Yervoy has only been effective in shrinking tumors in a little more than 10% of patients, those who responded positively to the treatment lived longer -- in some case almost ten years. Yervoy is expected to generate sales in excess of $1 billion for 2013, and the company expects sales to continue to climb.
This year Bristol's other melanoma drug, nivolumab (an anti-PD-1 drug), is making headlines, and the company appeared to be developing an advantage over its competitors with a one-two punch in treating melanoma. Research has shown that interactions between PD-1 and the ligands PD-L1 or PD-L2 can lead to antitumor immune suppression. Melanoma cells often have the PD-L1 protein on their surface to help them evade the immune system. That is where a number of drug companies are developing therapies using anti-PD-1 inhibitors, which interrupt the interaction and thus allowing T- cells to recognize the melanoma cells and attack the cancer.
In a Phase 1 study nivolumab demonstrated a 53% response rate in patients treated, and almost 33% of the patients experienced tumor shrinkage, compared to Yervoy's 10%. If approved, nivolumab could be used as a monotherapy or in conjunction with Yervoy, enhancing its ability to treat melanoma. Either way, nivolumab could give Bristol a second billion-dollar platform, and a considerable advantage over its competitors in the melanoma drug market.
Bristol currently has trials for Yervoy in stomach, lung, and ovarian cancer, and results from a Phase 2 trial for squamous non-small-cell lung cancer are expected in the first half of this year. Nivolumab is in 6 late-stage studies, and has fast-track status in place for melanoma, lung cancer, and kidney cancer. Bristol is also in Phase 1 testing of the two drugs in combination for renal cell cancer and non-small-cell lung cancer, with data expected out later this year.
Bristol is a $90.5 billion market cap company. The stock has had an excellent run in 2013, up roughly 60%. The stock closed on January 22nd at $55.00 per share, about $2.00 below its 52-week high. On January 15th, Argus raised its price target from $58.00 to $62.00. On January 10th, Barclays upgraded Bristol from an equal weight rating to an overweight rating and placed a target price of $65.00. While I see Bristol's stock moving to new highs this year, the exuberance may be tempered slightly, as what once looked like a solid lock for Bristol to have the lead with bringing the first anti-PD-1 drug to market may have been usurped by its rival, Merck (MRK).
Merck - First To The FDA With Its Anti-PD-1 Drug
On January 15th, Merck leapt ahead of Bristol in the anti-PD-1 race by filing with the FDA the first part of an application to market. If approved, lambrolizumab (formally MK-3475) would become the first anti-PD-1 inhibitor to reach the market. This came as a surprise as most expected Bristol's nivolumab to be the first to file as it was ahead of lambrolizumab in development.
Lambrolizumab is currently in eight clinical trials, including a Phase 2 clinical trial for the treatment of metastatic melanoma with patients who have previously been treated with Bristol's Yervoy. The drug has already seen positive results in its ongoing Phase 1B expansion study, where the drug demonstrated significant antitumor activity and good response rates, as well as a tolerable toxicity profile in patients with melanoma. Lambrolizumab achieved a response rate of 38% in advanced melanoma patients, and as high as 52% with patients on the highest dose tested. In the trial, lambrolizumab produced durable responses in 81% of patients who responded to the drug. A global Phase 2 study of lambrolizumab is currently open for enrollment, and a Phase 3 study is planned comparing two different dosing regimens of lambrolizumab with Yervoy in patients who have not previously received Yervoy.
Last year lambrolizumab received the FDA's Breakthrough Therapy Designation. It is also being tested in a number of other indications including non-small cell lung, bladder, colorectal, gastric, head and neck, and triple negative breast. Future trials are planned in combination with other therapies and as a monotherapy.
With Merck struggling as of late -- as it is in the middle of restructuring its business, cutting jobs, and overhauling its R&D -- beating Bristol to file for an application to market is a big step forward for the company in the race to be the dominant anti-PD1 drug maker. If approved, lambrolizumab has the potential to generate peak sales of $3 billion, which will help offset revenue loss due to patent expirations. On January 21st, analysts at MKM Partners raised their price target from $59.00 to $64.00. Jefferies Group, however, has set a price target of $54.00. I believe as Merck continues its restructuring and focuses its research on oncology, the stock will continue to grow and investors will be rewarded with double-digit gains this year.
GlaxoSmithKline Takes A Different Approach In Fighting Melanoma
GlaxoSmithKline (GSK) is attacking melanoma with a different approach: it is focusing on the BRAF gene. BRAF is responsible for making the protein B-Raf. This protein sends signals inside the cells directing cell growth. Researchers have discovered that roughly half of all melanomas have changes in the BRAF gene, which then trigger the cancer cells to grow. Drugs that target the BRAF gene, such as GSK's Tafinlar or ROCHE's (OTCQX:RHHBY) Zelboraf, have shown positive responses in shrinking tumors in some cases where chemotherapy has failed.
While drugs that target the BRAF gene are now used in patients that test positive for the mutated gene, one of the drawbacks is the drugs appear to work for only a limited time before the cancer begins to grow again. That is where GSK has taken a different approach by combining Tafinlar with Mekinist. Mekinist is drug that inhibits a protein associated with cancerous tumors known as MEK. Early results have shown that combining the two drugs resulted in longer response times.
On January 9th, GSK announced it received accelerated approval from the FDA for the combination of Tafinlar and Mekinist (or trametinib), for the treatment of unresectable melanoma. While both drugs already have FDA approval for separate uses, the company believes patients will have longer-lasting positive response if the two are given in combination. The FDA approved the combination based on Phase 1 and Phase 2 data under the priority review program, and GSK is expected to deliver Phase 3 results at a later date.
Analysts predict Tafinlar will see annual global sales of $371 million by 2017 and Mekinist at $425 million. However, some analysts see the combination as actually offering the company a greater commercial potential than the drugs sold separately. GSK has a very strong pipeline of drugs in various stages of testing. The company has six cancer drugs in late stages, and it needs FDA approval to propel its revenue growth as its top revenue generator, Advair, comes under pressure from rivals that are developing generic substitutes. The loss of Advair to generic competition would be painful, as the drug brings in roughly $8 billion annually and accounts for roughly 20% of GSK's revenue. GSK has a market cap of $134 billion. The stock sits at its 52-week high. I see GSK as a safe and stable company to have in one's long-term portfolio. I believe the stock will reach new highs this year, and will slowly move upward.
While all three companies have solid pipelines to battle a number of illnesses and diseases, the drugs mentioned in the article have the potential to be billion-dollar platforms. And that is what each of the three companies will need to offset the number of drugs that have or will fall off patent. Though I don't see any of the three companies having the growth rate as in 2013, I do believe that when the new anti-PD-1 drugs gain approval, both Bristol and Merck will experience double digit growth -- though Merck now has the edge to move higher as it will probably be the first to market.