Immunotherapy has emerged as one the more interesting and promising areas of cancer research today. The idea of using a body's own immune system as the means by which to control, or eliminate, a disease such as cancer is more than just exciting. For many, it would be an answered prayer. Historically, the problem with immunotherapy has been the severe and potentially life-threatening side effects of this type of treatment, along with inconsistent results. Due to the severity of the adverse side effects, the adoption of immunotherapy by the medical community was less than stellar. Because of these factors, less than 10 percent of patients saw a benefit from this form of treatment. This left the field impractical as a treatment and not cost effective for development by pharmaceuticals. However, over the past few years, advancements in technology, and those in science, have changed the nature of this field completely. This has opened not only new opportunities for science and medicine but for investors interested in biotech as well.
It is true that immunotherapy is still a relatively new area of research, and many of the functions of the body's immune system are not well understood by experts. It is important to be aware that there are many differing approaches being researched in an attempt to find the best way to assist the immune system and increase its cancer-fighting ability. Several drugs that have seen positive test results are based on assumptions about their method of action and manner in which they interact with the immune system. These assumptions are being tested in research studies in an effort to better understand the "why" and "how" behind these drugs. This is why it is so important that we acquire and maintain at least a fundamental understanding of the immune system and what scientists are doing/attempting to do with immunotherapy before we put our money in this field, and this is especially true for retail investors.
Understanding the basics about the drugs, procedures, expected effects on the immune system, and potential side effects is a must if we, as investors, seek to make profitable decisions when choosing which company, or companies, for our investment style. This knowledge will allow us to understand how the constantly changing landscape of immunotherapy should affect our investment, especially in a field where what looks like a breakthrough today can be outdated and replaced with something new within a very brief time span, and these ebbs and flows can drastically impact our bottom line. Indeed, this basic knowledge may often times be the anchor we return to as we decide whether to hold, sell or increase our position in a stock floating in the sometimes turbulent waters of biotech. It is highly important to keep in mind that our investment is only as good as our research. To ensure an accurate understanding of the data, it is necessary to seek the advice and opinions of experts lest we fall prey to our own confirmation bias.
With this in mind, allow me to briefly provide an insight into the how and why of the field of immunotherapy and why you should consider including it as a part of your portfolio. Please understand that this is neither meant to be an all-inclusive exposé, nor a substitute for doing your own research and due diligence.
What is immunotherapy? Essentially, it is a form of therapy that uses the immune system to treat or control a disease. It is a promising area of medical research that is being explored heavily as an answer to the question of how to effectively treat cancer. As a treatment, immunotherapy seeks to enhance the body's immune system and "supercharge" it, creating a powerful cancer-fighting "machine."
The immune system uses a specific type of cell, called a T-cell, to fight off invading foreign bodies, such as fungal, bacterial, viral pathogens, as well as cancerous cells. The T-cell is the center of the immune response and without this cell the immune system cannot function. On their web site Medicine Net.com defines and describes the T-cell as:
"A type of white blood cell that is of key importance to the immune system and is at the core of adaptive immunity, the system that tailors the body's immune response to specific pathogens. The T cells are like soldiers who search out and destroy the targeted invaders … [t]here are several different types of … T cells. Not all of their functions are known. T cells can produce substances called cytokines such as the interleukins which further stimulate the immune response. T-cell activation is measured as a way to assess the health of patients with HIV/AIDS and less frequently in other disorders. [Sic]"
Thus we see that, using these T-cells, the body's immune system mounts a defense to disease. However, where cancer is concerned there is another matter to consider. Over time, cancerous tumors can build up a resistance to being infiltrated by T-cells, causing a decrease or complete cessation of response to therapy in these patients. This has been seen extensively in patients using Yervoy, a checkpoint inhibitor produced by Bristol-Myers Squibb (NASDAQ: BMY) more on checkpoint inhibitors later. On its web site, The American Association for Cancer Research published the results of a study, the "Genetic Evolution of T-cell Resistance in the Course of Melanoma Progression," which documents this phenomenon. In this study, the researchers conclude by stating that:
"Our study reveals a progressive loss in melanoma immunogenicity during the course of metastatic disease. The genetic involvement of T-cell resistance suggests screening tumors for genetic alterations affecting immunogenicity could be clinically relevant in terms of predicting patient responses to T-cell-based immunotherapy."
Unfortunately for researchers this is not the only defense that cancer uses to nullify the immune system. Research has shown that cancer seems to have the ability to genetically "switch off" a T-cell, rendering it useless. Using genetic triggers, specifically those of antigens, or small molecules such as a programmed death-ligand 1 (PDL-1), cancer has the ability to put a T-cell's immune response to sleep. To explain simply, an antigen is a physical feature on a T-cell that is designed to fit a specific feature on another cell, like a puzzle piece. Each T-cell moves around within the body looking for foreign bodies that will trigger an immune response, recognizing these intruders by their antigen response. Each antigen acts as a switch that can activate or deactivate a T-cell, causing an immune response, or preventing one. An example of this is seen in breast cancer patients where interferon regulatory factor 7 (IRF7), a gene that recognizes viruses, can be switched off. This interference causes the production of interferon to cease allowing the cancer to spread (metastasize) uninhibited.
Recently, the past decade or so, medical research has been attempting to address the obvious problem of cancer being able to "shut off" or resist an immune response. The result has been a new class of drugs called checkpoint inhibitors. There are now several types of these drugs and they are showing great promise. The first checkpoint inhibitor developed to address this problem, Yervoy, is being used to block a cancerous tumor's ability to turn off a T-cell by blocking an antigen receptor on the T-cell. Yervoy specifically targets cytotoxic T-lymphocyte associated antigen 4 (CTLA-4) found on several types of T-cells. By blocking the receptor for Antigen 4 on these cells, Yervoy essentially protects them from being accessed by a tumor's defenses. The basic method of action for the majority of checkpoint inhibitors is essentially the same, blocking T-cell receptors to prevent the T-cell from being deactivated. (For more information on CTLA-4 and PD-1 read At the Bedside: CTLA-4- and PD-1-blocking antibodies in cancer immunotherapy from the Journal of Leukocyte Biology, posted on the National Center for Biotechnology Information web site).
Immune response nullification is not the only tool in cancer's bag. Another is cancer's ability to hide, or cloak itself from the immune system becoming "invisible." Using a molecule known as NF-kB, cancer has the ability to hide itself. In addition, tumors can also excrete proteins that make them appear to the immune system as lymph nodes (source). Currently, drugs are being developed to address this issue by "painting" the tumors so that they can once again be seen as foreign tissue in the body.
Yet another defense cancer uses to protect itself from the body's immune system is that of infiltration resistance. Checkpoint inhibitors may prevent T-cells from being "switched off" but unless the T-cell is able to get inside, or infiltrate a tumor, this protection is irrelevant. When a T-cell has infiltrated a cancerous tumor we refer to it as a Tumor Infiltrating Lymphocyte, or a TIL for short. Over time, as a cancerous tumor matures, it is common to see the development of a resistance to infiltration. In patients where this has occurred, researchers see a notable decrease, or even complete failure to respond, to treatment. Again this has been well documented in patients treated with Yervoy. The link earlier in this article to the American Association for Cancer Research study contains more information. Additionally, here are a few more sources of information on TIL, TIL resistance and checkpoint inhibitor response rates: Acquired and intrinsic resistance in cancer immunotherapy from the web site Molecular Oncology (a paid site with a limited number of free views), PD-1 blockade induces responses by inhibiting adaptive immune resistance from the web site nature.com, and Multiple boosts for cancer immunotherapy from the American Association for the Advancement of Science. To solve this problem, researchers and pharmaceutical companies are working to develop drugs and delivery techniques to circumvent this resistance and increase immune response by restoring infiltration.
The two most advanced approaches currently being explored are in a class of therapies called intralesional (direct injection into a lesion) therapies. Talimogene laherparepvec (T-VEC) produced by Amgen (NASDAQ: AMGN) is a drug created from a genetically modified herpes virus, allowing it to not only directly attack the cancer cell, but to change the DNA of a tumor cell as well. The genetic modification to the tumor causes it to excrete a continuous stream of GM-CSF, an immune system "emergency signal." This attracts T-cells to the tumor in large numbers for as long as the tumor exists. As a treatment T-VEC has an impressive safety profile, boasting an overall response rate (ORR) of 26 percent. In a combination trial with Yervoy, this response rate has been significantly increased to over 50 percent. T-VEC is also currently conducting a Phase I combination trial with Keytruda, an anti-PD-1 drug produced by Merck (NYSE: MRK). T-VEC was discussed in a recent YouTube video titled Improving Outcomes in Melanoma, which gives further insight into this therapy.
OncoSec Medical (OTCQB: ONCS) has developed a therapy, called ImmunoPulse, which creates a similar effect. This therapy uses the electroporation of DNA pIL-12, which, once implanted within a tumor, causes the tumor cells to be encoded by the DNA molecule. This genetic modification, just like with T-VEC permanently triggers the secretion of a continual stream of Interleukin-12, a key modulator of the immune function, again essentially an "emergency beacon." ImmunoPulse however, has a slight advantage over other mono-therapies, as it has been shown to have an ORR of 31 percent, a better overall safety profile, and a documented systemic response. Unlike T-VEC however, it has yet to be proven to increase ORR in combination trials on human patients. In January, OncoSec will also begin a Phase IIb trial in combination with Keytruda and it will be interesting to compare the results of this trial with the results of T-VEC's combination trial.
For additional information about T-VEC and ImmunoPulse, I would recommend Intralesional Injections Trigger Immune Responses in Melanoma, and Expert Point of View: Axel Hauschild, MD, which are opinion articles published by the ASCO Post from leading experts in the field of Oncology. (For a comparison on these two, see my blog entry).
There have been many great breakthroughs in the past with mono-therapeutic approaches, however, even in "miracle" drugs, like Merck's Keytruda, and Bristol-Myers Squibb's Opdivo, both promising anti-PD-1 treatments, have seen response rates hovering around a mere 30 percent. What has become apparent is that the future of oncology research is found in combination therapies. Using a combination therapy approach, medical science is better able to overcome the multiple resistances seen in cancer treatment. As a result, for the investor, biotech companies who are either unwilling or unable to engage in a combination approach are being rendered irrelevant and unprofitable.
This is easily seen when we consider that while oncology is growing at a meager 5 percent annually, Immunotherapy is growing at 14 percent, and will become a $35 Billion industry over the next few years. As an example Keytruda is estimated to generate $1.5 Billion in sales for Merck by 2017, and will probably exceed that amount should they receive approval for its use on additional types of cancer. Currently, Keytruda is involved in trials in 30 different cancer types, 7 of which have shown significant response to date, any or all of which could receive approval for use. The fascinating aspect of this is the fact that many of these trials are being done as mono-therapy trials. This leaves a great deal of opportunity for potential partnerships in combination trials. As we are seeing with antibodies currently in development by Agenus (NASDAQ: AGEN), these partnerships can be lucrative. Merck announced a partnership with Agenus earlier this year to use those antibodies, upon development, to attempt increase efficacy of Merck's existing checkpoint inhibitors. This partnership could garner up to $100 Million or more for Agenus. FierceBiotech published the details of the partnership in an article on its site.
In the field of blood-based cancers, such as lymphoma and leukemia, there is an effective treatment for those who failed to respond to chemotherapy called CAR T-Cell Therapy. This approach involves the idea of "harvesting" T-cells from a patient's body and genetically modifying them to target and hone in on cancer cells expressing, or secreting, a specific antigen. These cells are then mass reproduced in the lab and reintroduced into the patient's body. This relatively new approach is already seeing complete response rates as high as 90 percent in leukemia and lymphoma patients. This is especially notable considering the fact that these patients have no other treatment options available to them, having already failed to respond to traditional therapies. CAR T-Cell Therapy is giving them not only a treatment option, but hope as well. The use of CAR T-Cell Therapy is currently limited to B-Cell cancers, one of two types of lymphocytes that can develop into lymphoma. Because of this CAR-T may have a very limited market unless it proves successful in solid tumors. There are still issues with this therapy, such as cost and serious side effects, but the upside potential is staggering. This remains an area of great interest, and excitement for the medical world. There are several companies involved in this area of research, Kite Pharma (NASDAQ: KITE) for example.
As an investor, the question arises early, "What is the bottom line? How do I make money in biotech?" The answer is simple. The same way we make money in any investment. Do the research on the company and its product, the sector, the upcoming milestones, the competition, anything and everything relevant to the investment. Choosing a "winner" in biotech does not involve some mystical voodoo; like other investments it just takes time. Biotech as a sector has at times gotten a bad wrap, this is, I feel, because many who put money in this sector do not understand their investment. If you do not know why or when a stock should move, or more importantly how, if you do not understand the product, or think you will get rich quick off of one event, you will likely be disappointed. However, if you are willing to wait and invest the time, you can see significant returns. Obviously, companies like Merck, Bristol-Myers, Amgen, and other large-cap companies are relatively safe bets. These companies are protected by large pipelines, deep pockets, and multiple collaborations, treating a variety of indications and are a comfortable place to invest. Of course, the trade-off is smaller gains and losses with less volatility, which can be a good thing or a bad depending on your personal strategy.
For those who are comfortable with accepting greater risk for the hopes of larger returns, there is a great deal of opportunity to be found in many of the smaller companies. Investing in biotech can lead to a great deal more research than the average retail investor is used to, at least if they want to know what they own, be comfortable with it, and limit their exposure. This research will require the investment of some degree of time, again more than many retail investors new to biotech are used to, which will be spent learning new scientific terms and what they mean. Without this, the uninformed investor can easily fall for an "awesome" press release and end up chasing milestones instead of keeping a level head. When investing in higher risk stocks, it is important to remember that risk management is accomplished with research and understanding of the science and not merely from articles about the company.
When doing research on biotech companies, be aware that there is more to the drug or therapy than the reported response rates or overall survival rates alone. An understanding of the disease, the current standard of care, the market for the drug being developed (how many patients can be expected to use the treatment when it gets to market, which is usually around 10 percent), and knowledge about the competition are also fundamental. There are many questions an investor should be able to answer before taking a position in a biotech stock. Here are a few things I highly recommend considering:
The more indications (potential diseases, conditions or cancers the therapy or drug may be used to treat) being pursued, the greater the potential future marketability the end product could have.
Is there potential (in the research results) to spread to more indications, and how much potential is there? (this should not be based on your own opinion, but on that of the experts).
What is the method of action of a drug, how does it affect the immune system? (If you know how a drug works, you can use some logical deductions to base sound assumption upon as to whether or not the drug is likely to be successful in other indications or to be successful through one set of trials. You can also make some assumptions about possible drug interactions both positive and negative).
If a therapy is not well suited for a combination approach, it will likely be obsolete before it ever reaches market.
What side effects are there? This is a big deal. The more adverse the side effects, the less successful a drug will be on the market. (This translates directly into an adverse effect on investment returns as well). Some drugs like Yervoy (Bristol-Myers Squibb) have reported very serious side effects while intralesional therapies, like T-VEC (Amgen), and ImmunoPulse (OncoSec Medical) have reported no serious adverse effects.
How many patients dropped out of treatment during the trials? Be aware that patients are more likely to discontinue treatment of an approved drug than a trial. (This also translates to a smaller market share and less returns on an investment).
What is the projected cost of treatment for the patient? If it is too high, it could negatively impact the marketability of the product. People Beating Cancer has an article about the cost of treatment with Opdivo (Bristol-Myers Squibb), and the effect it has on patient treatment decisions. Essentially, where the patient is concerned, it is often a question of expense versus the extension of life expectancy, knowing that they are leaving loved ones with bills and debt many patients choose to forgo an expensive treatment.
In small-cap companies, the investor must also consider the ability a company has to fund its operations and the risk of dilution as a legitimate concern. Without a revenue source, share offerings and acquiring debt are the most likely sources of financing they may have until they bring a product to market or sign a partnership deal that involves cash (Be aware of the financial situation of your company).
In small-cap companies, the credibility of management is important as well. There are many CEOs who are less than honest (or worse). There also are those who get caught up in the excitement about their product and, like many investors, fall prey to confirmation bias.
Because of the high volatility often seen in small cap biotech stocks, it is important to keep in mind why you bought a stock and where your exit point is.
Immunotherapy can be a challenging field, both for researchers and investors. As this field continues to change and expand, building upon its own successes, there is a great deal of opportunity now and in the future for involved and educated investors. With a growth rate of 14 percent a year as an industry, this is not a sector to ignore. As Peter Lynch is known for saying "Invest in what you know." If you choose to invest in immunotherapy, I encourage you to do the research, as I know it will pay off. I wish you great fortune in exploring this fascinating area, and hope you find your diamond in the rough.
Disclosure: The author is long ONCS.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.