The Future Of Breast Cancer Treatment And What It Means For Roche And ImmunoGen

| About: Roche Holding (RHHBY)

Roche (OTCQX:RHHBY) and ImmunoGen's (IMGN) Kadcyla was approved by the FDA on Friday for use in HER2 positive metastatic breast cancer (MBC). In patients with HER2-positive breast cancer, increased quantities of the human epidermal growth factor receptor 2 (HER2) are present on the surface of the tumor cells. This leads to a more aggressive tumor as EGFR is associated with vascularization and therefore growth of the tumor. About 20-25% of breast cancers have either an overexpression of the HER2 gene or overexpression of the HER2/neu receptor(~200,000 new cases annually). Herceptin, also a Roche product was approved in 1998 for use in HER2+ mBC. Since 1998, Herceptin has become sub-theraputic and is often used in combination with more potent cytotoxic properties. Herceptin has also become the highest grossing oncology specific drug in the world since 1998. In 2012, Herceptin brought in revenues of about $6.3 billion dollars for Roche. The previous standard of care, Herceptin and taxane therapy showed a progression free survival of about 12 months in the clinic. The addition of Perjeta has since increased PFS to about 18 months.

This product is now the first antibody-drug conjugate for treatment of this condition and what it essentially means that an antibody delivers the chemotherapeutic agent directly to the tumor, which makes the therapy much more effective. By doing this through intracellular means, the agent is much more specific and reduces the side effects that a systemic chemotherapeutic agent would cause. In this case, Roche's trastuzumab is the antibody and ImmunoGen's DM1 the chemotherapeutic agent, hence the name, T-DM1. Kadcyla will be used mainly for patients with aggressive mBC, who have failed on Herceptin and Taxane treatments. Kadcyla has also been approved for labeling in high risk first-line mBC patients, which will allow exposure to more patients earlier in treatment. For Roche, this will allow revenue replacement for Herceptin in the EU before 2014 and USA in 2019, when biosimilars will be available for Herceptin.

The Clinical Reults for T-DM1

In two phase II studies (TDM4258g; TDM4374g) single-agent T-DM1 3.6 mg/kg intravenously showed substantial efficacy in patients with HER2-positive MBC who had received prior chemotherapy and ≥1 HER2-directed therapy for mBC. This provided the results and rationale to progress into a wider phase III study. The efficacy of T-DM1 was statistically similar and safety improved compared to trastuzumab and docetaxel in first-line mBC. This ultimately led up to the phase III studies EMILIA, MARIANNE, and TH3RESA. Both MARIANNE and TH3RESA are both in progress, while EMILIA has been completed and results reported. MARIENNE will report results on treatment in mBC with Perjeta and Kacyla, which could become the gold standard (Quite expensive) in mBC care.

EMILIA was an international, phase III study that was used to evaluate the safety and efficacy of T-DM1 compared with lapatinib plus capecitabine in patients with HER2-positive locally-advanced or mBC following prior Herceptin and taxane therapy. Patients were randomized 1:1 to T-DM1 3.6 mg/kg IV q3w, or L 1250 mg/day (Days 1 to 21) plus X 2000 mg/m2/day (Days 1 to 14) q3w, until disease progression or unmanageable toxicity. The primary end point was progression free survival and overall survival, and secondary end points were objective response rate, duration of response, and patient-reported QOL and toxicity outcomes. The study enrolled 991 patients in total. Median PFS for Kadcyla in the EMILIA study was 9.6 months compared to 6.4 months for GlaxoSmithKline's Tykerb and Genentech's Xeloda. Overall survival was also more than 5 months longer with Kadcyla than T/X (30.9 vs. 25.1). To compare this, Herceptin alone only shows a 4.8 month overall survival benefit. Safety was also increased as Grade-3 AE's were decreased in the Kadcyla arm to 43.1% compared to 59.2% in T/X.

Kadcyla Pricing

Kadcyla is quite an expensive product and will cost quite a bit more than Roche's other products Herceptin and Perjeta. Kadcyla will cost $9,800 a month for patients, which is quite a premium over Perjeta ($5,900 a month) and Herceptin ($4,500 a month). Perjeta can run upwards of $10,000 per month when combined with Herceptin and docetaxel, however. Roche has already targeted about 14,000 eligible patients for use of Kadcyla. If Roche and ImmunoGen were able to prescribe these 14,000 patients Kacyla, revenues would bring in $1.65 billion annually. The average lifecycle of usage for Kadyla is 9.6 months, so average revenue per patient would be $94,000. Roche intends to assist in patient access by providing the drug for free to patients who are uninsured or do not cover payment for the drug. They will also help provide co-pay cards, which will cover up to 80% of the out-of-pocket costs. While $9,800 per month may seem to be excessive, the Perjeta combination treatment can cost over $180,000 annually and has captured 30% of the newly diagnosed first-line mBC patients in its first quarter after approval. Kadcyla's pricing, while very high, is also below that of Glaxo's Tykerb and Genentech's Xeloda.

Further revenue growth could be achieved by Roche if the MARIANNE trial is able to show far superior PFS and OS vs. the control arm of Herceptin and taxane in first line mBC. This biggest issue with a combination therapy of Kadcyla and Perjeta would be the cost however. Stacking these two products would bring the annual cost of use above $150,000. Very few patients would be able to pay for this out of pocket and coverage from providers such as Aetna and Blue Cross would be very limited. Reimbursement would also cause further issues for Roche. Kadcyla is not expected to immediately cut deeply into Herceptin sales either as physicians have been advised not to substitute Kadcyla for Herceptin. I do see some overlap as physicians may skip straight to Kadcyla if they do not believe their patients will respond well to a Herceptin treatment. A black box warning is present for Kadcyla, but in aggressive cases of cancer, this will be almost irrelevant to sales anyway. Many oncology drugs have black box warnings mainly due to the nature of chemotherapeutic agents. Iclusig, a recently approved drug by Ariad Theraputics (ARIA) for chronic myeloid leukemia and Philadelphia chromosome positive acute lymphoblastic leukemia was approved with a Black Box warning, but has since exceeded expectations and been prescribed to more patients than initially expected according to IMS figures. Kadcyla has already had some sales according to Daniel Junius, ImmunoGen's CEO, as an investigator contacted Genentech on the day of approval to request shipment of the drug to treat a patient the next day. The full launch is also expected to be within the next 2 weeks.

ImmunoGen Pipeline

  • IMGN901, wholly owned ImmunoGen TAP compound for CD56+ cancers:
    • Small-cell lung cancer -ImmunoGen is close to full patient enrollment for the full trial ahead of schedule, which will enable these findings to be reported in 2014. NORTH evaluates IMGN901 for the first-line treatment of SCLC used in combination with etoposide/carboplatin. The goal in the NORTH trial is to show a 6 month PFS towards the control arm, which has a mean PFS of about 5 months. Topline results are expected from the First Interim Analysis in the 2nd half of 2013. There is a significant unmet need in this market as the standard of care is 25 years old, but it is also a very tough market to have a drug approved for.
    • Multiple myeloma - IMGN901 showed activity in both Revlimid® (lenalidomide)-naïve and -refractory disease in a Phase I trial assessing it used in combination with Revlimid and dexamethasone presented at the ASH annual meeting in December.
  • IMGN853, ImmunoGen TAP compound for folate receptor α (FOL)-overexpressing tumors:
    • The Company expects the first clinical data with this TAP compound to be reported at a medical conference in mid-2013.
    • IMGN853 is a potential treatment for prevalent types of ovarian and non-small cell lung cancers, as well as for other FOL+ solid tumors.
  • IMGN529, ImmunoGen TAP compound for CD37+ hematological malignancies:
    • IMGN529 is in Phase I testing for the treatment of non-Hodgkin's lymphoma, and the Company expects the first clinical data to be reported at a medical conference in late 2013.
    • IMGN529 employs ImmunoGen's TAP technology with an antibody that also has anticancer properties.
  • IMGN289, ImmunoGen TAP compound for EGFR-overexpressing solid tumors:
    • IMGN289 is expected to be the next wholly owned ImmunoGen compound to advance into clinical testing. The Company is in the process of submitting the IND.
  • In addition to T-DM1, seven other compounds are in clinical testing through ImmunoGen's partnerships:

ImmunoGen Financial Information

ImmunoGen's full year revenue guidance for 2013 is an expected net loss of between $70 to $74 million dollars. At the time of writing this article, ImmunoGen had slightly over $200 million in cash and no debt. Revenues in 2Q FY2013 came from $2.0 million of research and development support fees, $0.4 million of license and milestone fees, and $0.1 million of clinical material reimbursement. Milestone fees obtained were much less in 2Q 2013 due to a lack of T-DM1 milestones. These will pick up in 2013 as T-DM1 has been approved ($10.5 million dollar milestone) and will bring in continued revenues through royalties from Roche. ImmunoGen can still be considered a clinical stage biotech as the future of the company does not depend on revenues from T-DM1, but the 3 compounds currently in the clinic (IMGN901, IMGN853, IMGN529). ImmunoGen's CEO, Daniel Junius reported that the company would seek a partnership for the molecules currently in the clinic, which will aid in development costs. ImmunoGen's royalties from the 1st quarter of Kadcyla sales will be received in Fiscal Q4 and should help reduce some of the company's net loss for 2013. Total assets for ImmunoGen have increased from $180 million in June 2012 to over $210 million on December 31, 2012. The company is cleanly on its way up and its strong pipeline should continue to fuel growth even if they are currently operating at a loss. At this point, the company cannot provide guidance on total royalties, but it will certainly be enough to provide revenues for their 4 products in the pipeline. ImmunoGen's PPS on March 30, 2012, when the first positive results of the EMILIA study were published was $14.39, with a peak at $17.97 in July. Roche has since gained 24% to $57.34. ImmunoGen is training right in the middle of its 52 week range of $10.85-$18.10.

Roche Financial Information

Roche saw 11% margin growth in 2012 and with patent expiry not affecting Rituxan and US sales of Herceptin until 2018, this should continue for several years. The closure of the Nutley, NJ R&D location has helped reduce overhead and save $2.6 billion USD in 2012. Also, a 5% pharma and 4% diagnostics growth were seen in 2012 when many other companies sales numbers declined. Continued growth in EPS (10% in 2012) will also fuel growth and value in Roche. 2012 also saw double digit sales improvement in Herceptin, Pegasys, Tamiflu, Actemra, and Xolair. Strong single digit growth was also seen in MabThera/Rituxan, Avastin, Xeloda, Valcyte, and Pulmozyme. With 9 Phase III NME's and 23 Phase II NME's Roche has also set themselves up for a strong future. 61% of 2012 sales were in oncology, with 9% growth in overall revenue in this therapeutic area. Growth will continue in this sector with Kadcyla and Perjeta sales in 2013. Roche's Pharma division has grown above market levels in all of the key regions, including 15% growth towards the Asian market and 7% towards the US market. 2012 also yielded 12 major milestones for Roche clinical molecules including 4 NME approvals in major markets.

My Final Thoughts on IMGN, Roche, and mBC

While Roche's Herceptin, Perjeta, and Kadcyla have advanced the treatment of breast cancer, specifically HER-2 positive mBC, there is still much progress to be made in this area. I believe that further therapies will use the combination of drug+antibodies conjugates such as Kadcyla in a more preventative measure with additional medications to prevent metastases and ultimately lead to a better outcome in patients. Another therapy I am very excited about in HER2+ breast cancer is Galena Biopharma's (GALE) NeuVax, which is in Phase III testing for lower risk Breast Cancer patients. Financially, I believe ImmunoGen is in a strong position that will allow them successfully complete studies on their 3 clinical compounds without needing to dilute the stock with a common offering. Roche is also in a very strong position with the 2012 and 2013 approvals of Perjeta and Kadcyla. Sales were excellent for Herceptin and will continue through 2014, when its EU patent expires. While they are trading at a $1.25 billion dollar market cap currently, the potential compounds in their pipeline look very strong and should help them bring a partner on board to develop them in the near future. Furthermore, the success of the EMILIA trial provides the proof of concept for use of drug+antibody conjugates in cancer which is a milestone in cancer treatment and should yield positive results in the NORTH phase II trials for IMGN901.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCQX:RHHBY over 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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