Seeking Alpha
Portfolio strategy, biotech, long/short equity, mid-cap
Profile| Send Message|
( followers)  

Hematological cancers present special opportunities for investors. In this interview with The Life Sciences Report, John McCamant, editor of the Medical Technology Stock Letter, comments on several companies in the hematology/oncology space, describing the challenges and successes that influence investment in the sector. In the case of two companies with very different valuations, McCamant makes his preference clear.

The Life Sciences Report: I know you have great interest in cancer drug development. Do you see hematology/oncology [heme/onc] indications as areas of unmet need right now?

John McCamant: Heme/onc has been an area of success for biotech companies. We have seen Celgene Corp. (NASDAQ:CELG) target multiple myeloma with Revlimid (lenalidomide), and we've seen other drugs in this space, such as Genentech/Roche Holding AG's (OTCQX:RHHBY) Rituxan (rituximab), targeting B-cell lymphomas. Pharmacyclics Inc. (NASDAQ:PCYC) has been a big winner for us at the Medical Technology Stock Letter, with its Bruton's tyrosine kinase [BTK] inhibitor ibrutinib [PCI-32765]. BTK is found in blood cells, including the B cells.

It is easier to measure tumor loads in heme/onc than in the solid tumors, where you have to evaluate response rates -- excepting survival rates, of course -- with imaging techniques. The clinical trial endpoints are clear, and that makes the sector a good place for investors.

The other factor is that the size of heme/onc markets don't always reflect the potential impact the drugs can have in a broader market. A lot of drugs approved in this space will work in other types of hematological cancers and other types of disease. The initial markets shouldn't be thought of as too small, because the drugs could open up much larger market opportunities down the road. Take Rituxan, which was originally thought to be only a niche product. Now it and other B-cell targeting agents have been expanded for use in autoimmune disease, such as rheumatoid arthritis.

I'm a non-scientist, but I think most biotech investors can understand how cancer drugs work in hematological cancers versus solid tumors. It is really simple. Heme/onc disease is more susceptible to drugs because it doesn't amass itself into a solid tumor, where you literally have to debulk and get at multiple layers. Heme/onc disease is circulating in the blood. If we get drugs into the bloodstream, they have a chance to get at almost all of the cancer cells, whether we use a targeted biologic drug or a chemotherapy. Fundamentally, I think that is why we have had more success with heme/onc than with solid tumors.

TLSR: You make an interesting point about blood cancers not being encapsulated or amassed, and therefore, more accessible to drug therapies. Azacytidine and decitabine have been successful in treating myelodysplastic syndromes (MDS/diseases of the blood and blood marrow in which blood stem cells do not mature into functional white blood cells, red blood cells and platelets). Yet when the same principal investigators attempt to translate those drugs to solid tumors, they haven't had the same magnitude of success.

JM: It makes sense. Think about drug resistance in cancers. Once you treat a solid tumor the first time, if it is not completely debulked, the tumor and its cells develop resistance. This makes the tumor more resistant the next time you come at it with the drug, as it may not have been completely exposed to the drug the first time.

TLSR: Do you see any particular blood cancers that are in great need of new therapies?

JM: There are not a lot of great new drugs on the market now for MDS and acute myeloid leukemia [AML], so that's an area where there is some unmet need. Also, these disorders tend to manifest in elderly patients, who cannot tolerate as many cycles of chemotherapy or as many aggressive drug regimens. It is a unique patient population, composed of people who are more fragile but severely ill. MDS and AML look like a couple of nice opportunities for investors. You don't need to have patient populations in the hundreds of thousands in cancer. Tens of thousands represent very good-size markets in this space.

TLSR: John, over the last three years, the regulatory process for drug development has been accelerated under the Obama administration, with drugs approved faster and earlier than anticipated in some cases. How much difference can these new U.S. Food and Drug Administration [FDA] policies make?

JM: The FDA only represents a small slice of the timeline, or cycle in drug development. The two critical components are more in the company's control. The first is enrollment. Does the company want a fast trial that has loose exclusion/inclusion criteria so that it ultimately ends up with more patients who might not fit the criteria? Or should the company exhibit more patience and only enroll the appropriate patient population? We certainly prefer the latter, as you rarely get a second chance in drug development once you fail in the clinic.

The other issue is that companies must deliver survival data, or at least progression-free survival data. That takes a long time. Even if patients are expected to live six, eight or 10 months in the trials, it can still run a year or two after the trial is fully enrolled. There is no way to accelerate development in a phase 3 trial, where survival is used as an endpoint.

But my point is that enrollment is key. If a trial is designed to be fast and it gets the right patients, it could be a sign of patients voting with their feet and crossing over into the experimental arm of the study. We believe that is happening with Pharmacyclics. It almost has to fight patients to keep them out of the trial. Those are some of the battles companies must wage to manage expectations, particularly with investors.

TLSR: Can you speak to Astex Pharmaceuticals Inc. (NASDAQ:ASTX) [formerly SuperGen Inc.]? It is also heavily involved in the heme/onc space.

JM: Astex is a different type of company. It has been around for quite some time under a different name. It made a good move when it merged with a British company and acquired a platform technology. Now Astex appears to be making some moves forward in the heme/onc space. That being said, we're looking at a much different valuation.

TLSR: A $276M market cap, right?

JM: Astex has an approved MDS product, Dacogen [decitabine], and it generates some revenue with that product. Management is solid. Generally, investors want an exciting molecule rather than a revenue-producing, older cancer drug. It can be difficult running two different companies at the same time -- one having a sales organization out there marketing, and the other focusing on research and development. It is a lot for a smaller company to manage effectively.

TLSR: Would you consider following Astex in your newsletter?

JM: We have been tracking it off and on. We've known the company as SuperGen, from back in the day. But we have learned to never say never. The acquisition of Astex Pharmaceuticals (the British company mentioned above; SuperGen changed its name to Astex following the merger), with its discovery platform, is intriguing to us. It looks like the lead molecules make sense and are in the right cancer space.

TLSR: I've enjoyed talking with you very much, as always.

JM: Thank you. It's my pleasure.

This interview was conducted by George S. Mack of The Life Sciences Report and can be read in its entirety at http://www.thelifesciencesreport.com/pub/na/14627 or on our instablog.

John McCamant joined the Medical Technology Stock Letter as associate editor in 1987 and was named editor of this leading investment newsletter in August 2000. McCamant has spent 25 years on the frontlines of biotechnology investing. As an equities analyst for the American Healthcare Fund, he uncovered investment opportunities and guided investment strategy. At Burrill & Company, a San Francisco-based private merchant bank, he was a lead in raising $75M for a venture capital fund. McCamant has established an extensive network that includes contacts throughout the investment banking and venture capital communities. His expertise in biotechnology investments is a subject of media interest. He is frequently consulted and quoted by the Washington Post, Business Week, Reuters, Bloomberg, CBS and Marketwatch.

DISCLOSURE:
1) George S. Mack of The Life Sciences Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) John McCamant: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

Source: Out Of The Red And Into The Black: John McCamant On Investment In Blood Cancer Companies