CAR-T Vs ErbB3 Market Opportunity Comparison

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Includes: AVEO, BLCM, BLUE, CMVLF, DSNKY, GSK, JUNO, KITE, MACK, NVS, REGN, RHHBY, ZIOP
by: Decision Analytics

Summary

With potentially 'curative' early stage clinical results, breakthrough designations, and high performing IPOs, CAR-T therapies have received significant investor attention in recent months.

ErbB3 inhibitors have had excellent results in controlled Phase II clinical trials across three solid tumor types in the last year, and yet have received little attention.

CAR-T and ErbB3 categories both present promising investment opportunities, with > $18 Billion addressable market potentials in proof of concept cancer indications respectively.

The ErbB3 category's investment potential compares favorably to CAR-T due to attractive equity valuations, less competition, and less technical risk.

CAR-T therapy, also known as "Adoptive Immunotherapy", has been the result of significant investor excitement recently. One look at the stock charts for JUNO and KITE is illustrative of this optimism. While this enthusiasm may be warranted, I do believe there are other approaches to cancer therapy that, on a relative basis, are greatly underappreciated. In particular, I believe ErbB3 inhibition has the potential to greatly improve cancer patient survival in millions of patients worldwide. Therefore in this article I am exploring the clinical results and market potential of CAR-T therapy to the lesser known ErbB3 therapeutic category.

What is CAR-T therapy?

Chimeric Antigen Receptor transduced T cell therapy involves engineering patients' own immune cells to recognize and attack their tumors. After collection, the patient's T cells are genetically engineered to produce special receptors on their surface. CARs are proteins that allow the T cells to recognize a specific protein (antigen) on tumor cells. These engineered CAR-T cells are then grown in the laboratory until they number in the billions, and then they are infused into the patient which then attack the cancerous cells.

What is ErbB3 inhibition?

Heregulin-induced signaling of ErbB3 (also knows as "Her3") activates cellular pathways promoting the development, growth and progression of cancer. ErbB3 activation can also serve as a mechanism by which cancer cells develop resistance to therapy. By identifying patients with high levels of Heregulin one can therefore determine those patients with activated ErbB3 that have a high resistance to therapy, and then apply an ErbB3 inhibitor to those patients to inhibit tumor growth via the removal of therapy resistance. This is somewhat analogous finding Her2 positive patients that can benefit from Roche's Herceptin ("Her2" is ErbB2).

Efficacy and Safety Data

CAR-T Clinical Results

There have been more than 150 patients exposed to CAR-T across mostly phase 1 or phase 1/2 studies. Thus far, it has produced some remarkable and durable responses in blood cancers, and specifically leukemias. Here are some of the more poignant examples of this benefit:

Agent (Company) Indication # Patients Results
CTL019 (NYSE:NVS) ALL 39 92% Complete Remission
CAR015 (NASDAQ:JUNO) ALL 27 89% Complete Remission
KTE-C19 (NASDAQ:KITE) ALL 24 70% Response Rate

These are VERY encouraging results in acute lymphoblastic leukemia ("ALL"), and have at times been described as "curative". While there is less data other leukemias, similar results have also been demonstrated.

Some promising data has also been obtained in Non-Hodgkins Lymphoma ("NHL"). With Juno's JCAR014, responses were observed in 6 of 10 patients, and with KTEC19 there were 4 remissions in 7 patients. While certainly promising, I would be somewhat less confident about drawing conclusions about 'curative' potential on these few patients in NHL because 1) The subset of patients is too small to draw conclusions compared to leukemia where we have more than 100 patients across multiple studies and CAR-T therapy types, and for longer durations, and 2) The results that are available are somewhat less impressive than ALL.

Although studies have been initiated, there is little data on the use of CAR-T or related therapies in solid tumors, as far as I am aware.

There are some safety and tolerability issues with CAR-T which will need to be better understood in later stage trials. Notably there have been some safety concerns around "cytokine-release syndrome" with CAR-T, which can lead to high fevers or precipitous drops in blood pressure. It is unknown how much of a factor this will be in larger trials or in other cancer indications.

One should caution that these results are from early stage trials, and overall survival is likely less than equivalent to remissions or response rates (i.e. for CLT019 6 month survival is 75% vs 92% complete remission).

Despite these concerns, in my opinion the consistent level of "curative" effect across a number of leukemia studies and encouraging results in other blood cancers suggests suggest it is likely CAR-T will reach the market and be transformative, at least in leukemia and quite possibly in other blood cancers as well.

ErbB3 Clinical Results

The most advanced data in ErbB3 therapy come from two therapeutic compounds, patritumab from Daiichi Sankyo (OTCPK:DSNKY) and MM-121 from Merrimack Pharmaceuticals (NASDAQ:MACK). Below is a summary of the Phase 2 data that has been generated to date. These results present progression free survival ("PFS") hazard ratios of biomarker positive patients on therapy vs control biomarker patients.

Drug (Company) Indication PFS Hazard Ratio Level of Significance
Patritumab Lung 0.32 p<0.003
MM-121 Breast 0.26 p=0.003
MM-121 Ovarian 0.37 p=0.007
MM-121 Lung 0.35 p=0.008

While not "curative", a ~60-70% reduction in the risk of cancer progression is remarkable. These PFS hazard ratios are better than most cancer therapies today, and are therefore likely to translate to significant improvements in overall survival in registrational trials. The consistency of these results across trials and indications is also demonstrative of a robust benefit.

Safety and tolerability data for patritumab and MM-121 have been generally manageable and in line with other chemotherapy regimens. Notably, the amount of patients in ErbB3 inhibitor trials have now exceeded 1000 patients, so there is a very large and diverse safety database of patients treated with ErbB3 inhibitors.

Market Opportunity

CAR-T Pricing

Without results from controlled registrational studies and a better idea of the safety profile it is difficult to estimate pricing. I have seen speculations about prices ranging from $150k to $300k for a line of CAR-T treatment. I believe that for a therapy that is indeed "curative" this is a good range, but would err towards $200k given the potential safety risks and the fact that there will still be some patients (10-30%?) for which it will not save their lives.

ErbB3 Pricing

Based on the excellent ErbB3 phase 2 results, and assuming this translates into a significant survival benefit in Phase 3 trials, it is reasonable to assume that ErbB3 inhibitors can be priced similar to other novel cancer therapies with similar PFS benefits, but not in the "curative" range. A better comparator might be Herceptin, which is priced at $70k. To be conservative I am estimating $60k for a course of ErbB3 inhibitor treatment, which should result in a significant clinical benefit for these patients and save many lives, and should accommodate lower cancer treatment pricing paradigms of other G7 countries.

CAR-T Market Potential

Given initial proof of concept in leukemia, that is the place to start to look at market potential for CAR-T. The incidence of leukemia patients in G7 countries is 91,700, so this would suggest a high level total addressable market opportunity of $18.3 Billion for CAR-T in Leukemia (91,700 * $200k). Outside of leukemia, there is less clinical evidence, particularly at a "curative" rate that would support a price tag of $200k. Nevertheless, I have added two upside scenarios as a thought experiment.

The first is for NHL patients because the CD19 antigen is expressed in 90% of NHL of B-lymphocyte origin, and given the early results cited above. Also, since the CD19 target is the predominant target that has shown efficacy in CAR-T, it is reasonable to be optimistic about CAR-T working in NHL as well.

If one is more optimistic, a "blue sky" market potential all of blood cancers could be used, since it is possible that CAR-T therapies can be engineered for Hodgkin's Lymphoma and Myeloma as well.

The table below summarizes total addressable market revenue potential for these different population size scenarios. Incidence data is taken from cancerresearchuk.org, which is 2012 data.

Indication Patient Incidence (G7) Addressable Market Potential (assumes 100% penetration)
All leukemias 91,700 $18.3 Billion
All leukemias + NHL 233,600 $46.7 Billion
All blood cancers 300,700 $60.1 Billion

I don't think it would be appropriate to characterize an upside for CAR-T in solid tumors at this point because 1) immunotherapy in general has shown more promising results in blood cancers, 2) The predominant focus of CAR-T therapy developers are blood cancers, and 3) There is minimal evidence of efficacy in solid tumors at this time.

It would be difficult to speculate on appropriate penetration rates without more safety and efficacy data, but this gives you an idea of the size of the prize for CAR-T therapies.

ErbB3 Market Potential

ErbB3 inhibitors will only work in patients with high enough Heregulin. According to the Heregulin cutpoints determined by Merrimack in their phase 2 studies and how they correspond to the Cancer Genome Atlas, this represents about 30-50% of solid tumor patients, depending on the cancer type. The below table summarizes the total addressable market opportunity assuming 1) ErbB3 inhibition only works in the indications it has achieved proof of concept, and also 2) an upside "blue sky" scenario where it works in other all solid tumors in patients with high Heregulin levels. The incidence data is also taken from cancerresearchuk.org.

Indication Patient Incidence (G7) Addressable Market Potential (Assumes 100% Penetration)
Heregulin high breast, lung and ovarian cancers* 347,400 $20.8 Billion
Heregulin high across all solid tumors** 976,200 $72.3 Billion

* Only includes indications where phase 2 data exists. Does not include Her2+ breast cancer or squamous lung cancer because these indications do not have proof of concept data.

** Adds additional lung and breast indications, as well as bowel, prostate, cervical, head & neck, melanoma, pancreas, uterus and liver cancer.

Competition

Another factor that should be considered when making investment decisions is the level of competition. The more competition in a therapeutic category the more potential for similar drugs to compete for the same patient or suffer from price competition.

Below are tables that summarize some of the key players in each therapeutic space. The "% of market caps attributable to each drug class" is fairly subjective, but I think you will find those proportions generally conform to analyst sentiment and how they build their price targets for these equities.

Leading CAR-T Companies

Company

CAR-T Pipeline Market Cap % Market Cap Attributable to CAR-T
Juno Therapeutics Numerous Phase 1/2 and preclinical candidates $3.9 Billion 100%
Kite Pharma Numerous Phase 1/2 and preclinical candidates $3.2 Billion 100%
Novartis Numerous Phase 1/2 and preclinical candidates $244 Billion Very low %.

GlaxoSmithKline (GSK)

Several candidates (with AdaptImmune) $105 Billion Very low %.

Belicum Pharmaceuticals (NASDAQ:BLCM)

Several preclinical candidates $750 Million High %

Bluebird Bio (NASDAQ:BLUE)

Several preclinical candidates $2.9 Billion Low-mid%.

Cellectis (OTCPK:CMVLF)

Several preclinical candidates $780 Million High %

Ziopharm Oncology (NASDAQ:ZIOP)

Several preclinical candidates $830 Million

High %

Leading ErbB3 Companies

Company ErbB3 pipeline Market Cap % Market Cap Attributable to ErbB3
Daiichi Sankyo Patritumab in Phase 2/3 $9.5 Billion Very low %.
Merrimack Pharmaceuticals MM-121 entering 2 Phase 3's, 111 (bi-specific) in Phase 2 and MM-141 (bi-specific) Phase 1 $1.2 Billion Low %.

Roche (RHHBY)

RG7118, RG7597 (bi-specific). Phase 1 and 2 studies ongoing $248 Billion Very low%.
Novartis LJM716. Phase 1/2 study ongoing. $230 Billion Very low%.

Regeneron (NASDAQ:REGN)

REGN1400 in Phase 1 $41 Billion Very low%.

Aveo Pharmaceuticals (NASDAQ:AVEO)

AV-203 finished Phase 1. $41 Million Low%.

A few points of observation from these tables:

  • Both categories have oncology stalwarts / big pharma investing in these drugs, which should give investors some indication of the confidence in these drug classes by leading industry scientists, even if the remarkable clinical data outlined above does not.
  • While both categories have a breadth of small and large players, the intensity of competition seems to be higher in CAR-T, with a greater number of product candidates per company, a number of companies that are 100% dedicated to CAR-T and a higher level of overall investment.
  • What is perhaps most striking from this table is the significant undervaluation of ErbB3 assets, and the lack of appreciation by investors for a therapeutic category with a similar market potential to CAR-T. By way of an example, the combined market caps of only two of the 100% dedicated CAR-T dedicated companies is $7 Billion, whereas Merrimack , arguably the leader in ErbB3, has a market cap of only $1.2 billion, and ErbB3 isn't even the main value driver contributing to that $1.2 billion dollar valuation.

Other Considerations

Patient access and treatment logistics could become important as these categories mature and competition intensifies.

For CAR-T therapies, it is important to consider that CAR-T is a highly involved form of therapy. The patient must have their T-cells harvested, re-engineered and re-infused. This is costly and may pose some logistical / quality challenges.

ErbB3 therapies are also adding something new - they require a diagnostic of Heregulin levels to determine which patients can benefit. If this diagnostic is not available to the patient, they may not be selected for treatment.

On balance, I would argue that diagnostic panels will be more and more common place in cancer care, and so I foresee more risk in the CAR-T space in this area.

Conclusions

In my opinion three conclusions can be drawn from the above analysis.

1. As evidenced by the market potential for cancer types where CAR-T and ErbB3 have shown proof of concept, both of these therapeutic categories are tremendous opportunities for investors with addressable markets $18 Billion or higher. The addressable markets could be expanded by advancing CAR-T into other blood cancers beyond Leukemia and ErbB3 into other solid tumors beyond breast, lung and ovarian cancers. As a matter of prudence, however, I would be wary about factoring additional indications into any investment model until there is more supporting evidence of efficacy and safety data in those indications.

2. Although the market potentials are huge, both categories have inherent risks typical of the industry, such as the potential for new safety issues to arise, or for later stage efficacy results to not match early stage study results.

3. In terms of comparing between these two therapeutic categories, although the value of addressable markets may be of a similar scale, I see ErbB3 therapies as having more potential investment upside, particularly due to; 1) the more mature clinical data (Phase 2 studies completed in more than 1000 patients); 2) the lesser potential for competitive forces / patient access issues to impact companies in the ErbB3 space, and most glaringly; 3) the incredibly low valuation of these assets relative to the market potential for ErbB3 drugs.

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