Bristol-Myers Squibb And The Promise Of Cancer Immunotherapy

| About: Bristol-Myers Squibb (BMY)

Before Dendreon's (NASDAQ:DNDN) Provenge and Bristol-Myers Squibb's (BMY) Yervoy was approved in 2011, advocates of cancer-fighting immune strategies faced years of skepticism and disappointment. Today, immunotherapy is gaining momentum in clinical development, with trials under way in many tumor types, including breast and lung cancers previously considered poor candidates for such an approach. All this momentum, is in good part attributable to Yervoy's success.

Yervoy has been hugely successful in the treatment of late-stage melanoma, stimulating research in the entire field of cancer immunotherapy. The drug can add years to a patient's life, transforming a death sentence into a manageable disease. Yervoy blocks a surface protein called cytotoxic T lymphocyte antigen 4 (CTLA-4), thereby promoting broad T cell function.

Biotrends Research Groupreports that based on specialist doctor surveys, Yervoy and Zelboraf (made by Roche (RHHBY.OB)) along with the chemo Temodar are now used as first-line therapy for over two-thirds of advanced melanoma patients.

Oncologists report efficacy as a key advantage of Yervoy with the survival data most often cited. A key disadvantage over currently available agents is the unique side-effects related to immunotherapy; although after one year on the market doctors are frequently able to manage these side-effects.

Surveyed specialists also noted that the response rates for Yervoy are often unpredictable, but when it does work, efficacy can be sustained.

Efforts are under way to extend Yervoy's indication for other types of cancer. 98 current studies involve Yervoy, according to the website, with Bristol directly sponsoring 51, out of which eight studies are in phase III, among them applications for lung and prostate cancer.

New targets

However, Yervoy works only in 20-30% of patients who take it, and the drug is often accompanied by severe or even fatal autoimmune side effects. So, the hunt is on for safer and more widely applicable immunotherapy strategies. Two new targets, among others, were presented at this year's ASCO meeting: PD-1 and PD-L1.

Bristol-Myers Squibb, in collaboration with Ono Pharma (OTC:OPHLF), presented the results of two phase I trials of the experimental drug BMS-936558. In these trials the aim was not to kill the cancer cells directly, but to block a pathway that hides tumor cells from the immune system.

PD-1 is a protein on the surface of activated T cells, the warriors of the immune system. If another molecule, called PD-L1, binds to PD-1, the T cell dies or becomes docile. In other words, when PD-1 and PD-L1 join together, they form a biochemical "shield" that makes tumor cells invisible in a sense to the immune system.

PD-1 may explain many past failures in cancer immunotherapy. Even though many experimental cancer vaccines managed to spur an immune response, PD-1 cancelled that response at the site of the tumor. Apparently PD-1 helps the body regulate the immune system, to avoid an overreaction. Many different types of cancer cells make PD-L1, which allows them to disarm the T cells just as they arrive to attack the tumor.

Bristol's drug is a monoclonal antibody that blocks PD-1 from binding to PD-L1. BMS-936558 blocks PD-1, and BMS-936559 blocks PD-L1. The drugs are given intravenously in an outpatient clinic every two weeks, and patients could remain in treatment for up to two years. These drugs could reduce tumor mass in different cancers. Tumors shrank significantly in 18% of lung cancer patients, 28% of melanoma patients and 27% of kidney cancer patients. These rates compare favorably with some existing drugs. But the drug did not appear to work for patients with prostate or colon cancer. About 14% of the patients experienced severe side effects and three patients died from inflammation of the lung that was apparently tied to the drug.

Still, the results are an improvement in the history of harnessing the immune system to fight cancer. Previous cancer immunotherapies have generally worked in smaller number of patients and in fewer types of cancer. The majority of the responses seen with BMS-936558 lasted longer than one year. In addition, these anti-PD-1 antibodies managed to shrink away large metastatic tumors like lung and kidney, which are typically pretty resistant to therapy.

BMS is now testing BMS-936558 in combination with Yervoy in about 100 people with advanced melanoma.

Because CTLA-4 binding can happen between T cells and many cells in the body, while PD-1's binding partner, PD-L1, is found only on tumor cells, researchers are hoping that these new immunotherapy drugs will ultimately prove safer and more effective than Yervoy. Sensitizing the tumor to killing by the immune system could work better because it shouldn't cause the side effects seen when patients' immune systems are over-activated and start attacking other non-cancerous tissue.

Perhaps an anti-PD-L1 will be the next-next big thing in immunotherapy. It is estimated that realistically the earliest anti-PD-1 will appear on the market is 2016. Several other drugmakers are working on PD-1 targeting drugs, like Merck (NYSE:MRK), Roche, a small Maryland company called Amplimmune, and the Israeli company CureTech.

Seamus Fernandez, an analyst at Leerink Swann in Boston, predicts that by the end of the decade, all the planned anti-PD-1 drugs, if tried and approved, could collectively be worth $2 billion.

Search for new delivery techniques

One of the issues facing developers of cancer vaccines is that tumors send mixed messages to the body's immune system. They can defeat it because they can "hide". As a result, the key objectives of a cancer vaccine are two-fold: to both trigger an immune reaction, and to block the tumor's ability to suppress the immune system.

One approach is to block CTLA-4, as seen in Yervoy. The other approach is vaccines. A great number of cancer vaccines are in development. A combination of BioSante Pharmaceuticals' (BPAX) GVAX vaccine and Bristol-Myers Squibb's Yervoy improved survival. After one year, 7% of people on the monoclonal antibody were still alive, compared with 27% of those receiving the combination treatment.

It was tested in a phase Ib study with 30 people with pancreatic ductal adenocarcinoma, the most common form of pancreatic cancer.

In September 2012 Vical (NASDAQ:VICL) granted a worldwide, nonexclusive license to Bristol-Myers Squibb to Vical's patented platform DNA immunization technology and its Vaxfectin adjuvant for use in the production of antibodies. The company's DNA delivery technology can be useful in developing cancer vaccines.

Investor's view

Recently Bristol has suffered two major setbacks. Its best selling drugs, Plavix and Avapro, have lost patent protection and several generics were approved. Plavix sales in the first six months of 2012 fell to $2.4 billion from $3.6 billion a year before. Most likely that figure will fall a lot more. The other setback is the failure of its hepatitis C drug, BMS-986094, which it acquired for $2.5 billion with the Inhibitex purchase earlier this year.

On the other hand in the second quarter of 2012, excluding sales of Plavix and Avapro, Bristol's sales increased 8% on a year-over-year basis. According to Trefis stock analysts, the growth was driven by Yervoy, which is an anti-cancer drug and Onglyza, which is an anti-diabetic drug. Sales for Yervoy increased 71% year-over-year and for Onglyza it increased 54% year-over-year. Yervoy sales for first half of 2012 were $316 million and it is expected to generate annual sales exceeding $1.6 billion by 2019. This will help make up for the decline in revenue that the company is facing post-patent expiration of Plavix.

Bristol's operating margin has been over 31%, and the profit margin has been over 17 %. Comparing it to its peers, Merck 's operating margin is around 23% and its profit margin is around 14%. Pfizer (NYSE:PFE) posted an operating margin of 30% and a profit margin of almost 14%. The operating margin for the Major Drug Manufacturers industry is 11%. That means that Bristol's margins are pretty decent.

In September 2012 Goldman Sachs upgraded Bristol-Myers Squibb Co. from Buy to Conviction Buy with a price target of $40.00 (from $38.00), predicting the fastest growth in the sector beyond 2013. The firm sees numerous positive developments for Bristol over the next 12 months such as the potential Eliquis launch later this year or early next, daclatasvir filing in Japan next year, and possible PD-1 approval in 2015. The firm expects Bristol-Myers to grow 11% over the next five years versus 4% for its peers. This is in addition to the 4.1% dividend yield.

Disclosure: I 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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