Merck Is Improving Its Standing In A Growing Immunotherapy Subsector

| About: Merck & (MRK)

Summary

In January, Merck acquired Scotland-based IOmet – a dev-stage biotech specializing in IDO/TDO inhibition.

IDO/TDO inhibition is set to be a hot subsector of immuno-oncology going forward.

Merck, Roche, and Incyte are running trials, and proof of concept data set for 2016 release should boost the space and its constituents.

Back on January 12, Merck & Co. Inc. (NYSE:MRK) announced its $400M buyout of Edinburgh, Scotland-based IOmet, a private company with an oncology focus. The buyout represents an expansion of Merck's position in a space that looks to be a subsector of cancer immunotherapy that could grow in popularity during 2016 and beyond. The subsector is IDO/TDO inhibition, and it is one in which a group of big pharma participants are already developing candidates.

Immunotherapy has grabbed headlines in oncology for the last half decade, and developments in the space have played a big role in the biotech bull run from both a clinical and a commercial perspective. If IDO/TDO expands to become anywhere near as key to oncology as some of its counterparts, PD-1 inhibition, for example, the companies with the lead candidates could be in for a payday. With this in mind, here's a look at the science behind the therapy, and an overview of the companies with clinical candidate.

The Science

Indoleamine 2,3-dioxygenase (IDO) and Tryptophan 2,3-dioxygenase (TDO) are enzymes that play a role in the synthesis and degradation of what's called tryptophan. Tryptophan is the amino acid that begins protein synthesis. The way the two enzymes form and degrade tryptophan is through a chemical reaction called dioxygenation. What's important is that it produces a compound called N-formylkynurenine. Kynurenine is associated with the promotion of regulatory T cells (T-reg) in our immune system and the suppression of effector T cells (T-eff). T-reg cells are what the body uses to stop the immune system from attacking host cells. They essentially hide whatever they are protecting from the immune system.

The key is, in the majority of tumors, we see the overexpression of T-reg cells, and it is through the production of Kynurenine that this overexpression occurs. Additionally, kynurenine is associated with the suppression of T-eff cells, which would normally attack pathogenic entities - in this case, tumor cells. To simplify, IDO and TDO, when associated with cancer, cause both a suppression of the attack element of our immune system, and an amplification of a tumor's ability to cloak itself.

As their name suggests, IDO and TDO inhibitors stop the degradation of IDO and TDO enzymes. This translates to a reduced level of kynurenine, and in turn, an increase in our immune system's attack on tumor cells with a concurrent decrease in said tumor cell's ability to hide.

Companies Involved

Since I started with Merck, let's look at its buyout first. The terms of the deal remain undisclosed - all we know is that IOmet will become a subsidiary of Merck's - but with the outright buyout, we can assume Merck will take control of IOmet's complete pipeline. Again, information on what this pipeline contains is pretty sparse. All the company discloses is that it has an IDO1 inhibitor in preclinical development and both a TDO inhibitor and a dual IDO1/TDO1 inhibitor in lead optimization. It's reasonable to assume Merck will rush to complete the lead optimization phase, and bring forward all three candidates to preclinical this year. Further, now IOmet is a subsidiary of a public company, we will likely see much more detail on its pipeline near term.

Merck aside, where do the other exposures to the space lay? Back in April 2015, Roche Holding AG (OTCQX:RHHBY) closed a $555 million deal with Indian biotech Curadev. With an initial $25 million upfront, Roche committed to an extra $530 million worth of development-related milestone payments that see the company fund the development of Curadev's IDO and TDO research. As with Merck and its IOmet pipeline, it's pretty early days for Curadev's candidates. Indeed, once again, we don't have any specifics on the drugs in question. All we know is that the company has an IDO-TDO combo lined up for an IND (presumably in the US), targeting solid tumors - again, nonspecific. Additionally, Curadev has an IDO inhibitor in lead optimization, with a target indication of breast cancer.

On top of its Curadev assets, Roche picked up the rights to another IDO inhibitor back in October 2014, courtesy of its Genentech unit. The deal saw Genentech pay $150 million upfront and earmark a further $1 billion in milestones, with a focus on NewLink's lead candidate NLG919. Unlike the candidates discussed already, we've actually got some clinical data, albeit early stage, to back this one up.

In September last year, NewLink presented data from a dose escalation study designed to demonstrate safety and tolerability. Safety looked good, and we got some initial indications of efficacy. Nearly 40% of patients in the trial, all of which had solid tumors, achieved stable disease (cancer not getting any worse) and the higher doses translated to regulation of kynurenine in a way that the company reported was consistent with the dosing. What this likely means is that the higher the dose, the higher the impact on plasma kynurenine.

It may be Genentech conducting the trials, but as we have seen across the immunotherapy space over the last few years, if one trial offers proof of concept in clinical trials, other companies in the space stand to gain. As such, positive data from this early trial will likely give a boost to Merck. The study is set to complete in December this year, so keep an eye out for any interim updates as potential reinforcement of the efficacy hypothesis.

Finally, Incyte Corporation (NASDAQ:INCY). Incyte is probably the most advanced player in the space as things stand, with its pipeline IDO candidate epacadostat.

Its most advanced program is a Phase III called ECHO-301, which is trialling the drug in combination with Merck's blockbuster PD-1 inhibitor, Keytruda. The trial is set to kick off this quarter, based on results from a Phase I/II (ECHO-202), which the company reported towards the end of 2015. Incyte lost some strength on the data, primarily because markets expected better data than what the company reported based on Incyte-published expectations mid-2015. Missed expectations aside, however, the combination still demonstrated an OR and disease control of 52% and 74% respectively - results that definitely warrant a Phase III.

The company is also currently trialing the drug across three Phase I/IIs in combination with three therapies - Bristol-Myers Squibb Company's (NYSE:BMY) Opdivo, MedImmune's durvalumab and Genentech's atezolizumab. Of these three, Opdivo is the only one already approved.

Conclusion

Incyte probably offers the most direct exposure, as well as offering what looks to be the most advanced candidate in this sort of inhibition, while both Merck and Roche offer what we might deem a risk-mitigated exposure. A failure in the space for either of the latter two companies is unlikely to have too much of an effect on their respective market capitalizations, but there is still plenty of upside to be had if trials demonstrate efficacy. All said, 2016 could become a big year for IDO/TDO, primarily from a proof of concept perspective, so look for positive data across any of the ongoing trials to generate some upside in all companies mentioned.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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