Immunotherapy Bearish Overreaction Can Create Opportunity

| About: Loncar Cancer (CNCR)
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Summary

Cramer recognizes the immunotherapy sector is being hit across the board on any bad news about one.

The technology has produced results for some companies which have resulted in FDA approval; is this a market overreaction?

Technically this sector's ETF is looking short-term weak, and must form an imminent low with the rest of Nasdaq listed, biotech index stocks.

biotech creative commons

Investors in biotech companies specializing in immunotherapy, need to be aware of a potential trading issue affecting many of these companies. Stocks could either be affected by trading in an immunotherapy ETF (which includes many of them), hedge fund activity, or groups of traders mistakenly assuming that immunotherapy technology isn't working 'across the board'. Jim Cramer highlighted this issue earlier this month, when he remarked in an interview:

"I need to warn you: this is a high-risk group and I have noticed a pattern that is less than ideal," the "Mad Money" host said.

bluebird (NASDAQ:BLUE) is a development-stage gene therapy company involved in immunotherapy and oncology. Cramer noticed that when a company like Bluebird Bio reports good news, only the company's stock will rally. The rest of the group will barely move. But when a company reports bad news, the entire cohort gets crushed.

This is absolutely true, but the background understanding needs to be expanded. Oncology immunotherapy is a risky field to be involved in, and the sector is being punished when any one of them releases bad news, as though that defines them all. However, this particular subsector of biotech revolves around several different forms of technology, which has produced their fair share of 'good news' too.

Cancer immunotherapy is the use of the patient's own immune system to treat cancer. We all produce cell mutations on a regular basis, but a healthy immune system recognizes and zaps the mutation before it's able to develop into a cancerous tumor, so cancer is at some level the result of a failure in that sequence of events. Immunotherapies can be categorized as active, passive or hybrid (active and passive). They often exploit molecules on the surface of cancer cells that can be detected by the immune system, or tumor associated antig3, tumor associated antigens (TAAs).

  • Active immunotherapy directs the immune system to attack tumor cells by targeting TAAs.
  • Passive immunotherapies enhance existing anti-tumor responses and include the use of monoclonal antibodies, lymphocytes and cytokines.

As described in Wikipedia, among these, multiple antibody therapies are approved to treat a wide range of cancers. Antibodies are proteins produced by the immune system that bind to a target antigen on the cell surface. The immune system normally uses them to fight pathogens (e.g. bacteria, virus). Each antibody is specific to one or a few proteins. Approved antibodies include alemtuzumab, ipilimumab, nivolumab, ofatumumab and rituximab.

Active cellular therapies usually involve the removal of immune cells from the blood or a tumor. Tumor specific antibodies are either cultured and returned to the patient where they attack it; or are genetically engineered to express a tumor-specific receptor, cultured and returned to the patient. Cell types that can be used in this way are natural killer cells, lymphokine-activated killer cells, cytotoxic T cells and dendritic cells.

Take Amgen's (NASDAQ:AMGN) 'Blincyto', for instance, the first and only FDA-Approved Bispecific CD19-Directed CD3T-cell engager used in the treatment of leukemia.

BLINCYTO® binds to CD19 expressed on the surface of cells of B-lineage origin and CD3 expressed on the surface of T cells, forming a synapse. Once the synapse is formed, BLINCYTO® leads to up-regulation of cell adhesion molecules, and the production of cytolytic proteins. The release of inflammatory cytokines, and proliferation of T cells, results in redirected lysis (or the break down)of CD19+ cells.

It's not only been approved but the label has been expanded too.

Then there's Nivolumab (marketed as Opdivo), discovered at Medarex along with Ono, and brought to market by Bristol-Myers Squibb (NYSE:BMY), which acquired Medarex in 2009, and Ono.

Nivolumab, was approved for the treatment of metastatic melanoma, the first immunotherapy drug to be approved to treat lung cancer. It works by inhibiting a protein receptor called PD-1 on T cells, a type of immune cell.

Sipuleucel-T (APC8015, trade name Provenge), manufactured by Dendreon Corporation, since acquired by Valeant (NYSE:VRX) is a cell-based immunotherapy for prostate cancer (CaP). It's a personalized treatment that works by programming each patient's immune system to seek out cancer and attack it as if it were foreign.

While referred to as a therapeutic vaccine rather than a preventive vaccine that prevents infectious disease, sipuleucel-T is instead an immunostimulant.

In fact, according to this article, there are over 25 immunotherapies on the market right now. So although the sector is very risky, (there are therapies that don't make it past even Phase 2), a complete write-off is an overreaction, and one in which the companies themselves could be cut off from vital market funding for other and more advanced candidates.

One source of the volatility could be trading in an ETF which concentrates on this sector alone, called Loncar (NASDAQ:CNCR).

Holdings:

COMPANY NAME TICKER CUSIP SHARES MARKET VALUE % OF NET ASSETS
ADAPTIMMUNE THERAPEUTICS PLC SPONDS ADR ADAP 00653A107 193869 $773537.31 3.64%
ADURO BIOTECH INC. ADRO 00739L101 65874 $662033.70 3.11%
ADVAXIS INC. ADXS 7624208 90785 $654559.85 3.08%
AGENUS INC. AGEN 00847G705 168710 $684962.60 3.22%
AMGEN INC. AMGN 31162100 4935 $722286.60 3.39%
ATARA BIOTHERAPEUTICS INC. ATRA 46513107 46389 $672640.50 3.16%
ASTRAZENECA PLC AZN 46353108 26658 $724564.44 3.41%
BEIGENE LTD. BGNE 07725L102 24958 $721785.36 3.39%
BELLICUM PHARMACEUTICALS INC. COM BLCM 79481107 47157 $642278.34 3.02%
BLUEBIRD BIO INC. BLUE 09609G100 10385 $649062.50 3.05%
BRISTOL MYERS SQUIBB CO. BMY 110122108 12500 $734500.00 3.45%
COMPUGEN LTD. CGEN M25722105 125514 $646397.10 3.04%
CELLDEX THERAPEUTICS INC. NEW COM CLDX 15117B103 196715 $710141.15 3.34%
CELLECTIS SA CLLS 15117K103 42498 $724590.90 3.41%
CURIS INC. CRIS 231269101 247867 $798131.74 3.75%
CYTOMX THERAPEUTICS INC. CTMX 23284F105 63272 $733955.20 3.45%
CASH & OTHER CASH CASH 79700 $79700.41 0.37%
FIVE PRIME THERAPEUTICS INC. FPRX 33830X104 14489 $729231.37 3.43%
INCYTE CORP. INCY 45337C102 7047 $715059.09 3.36%
INOVIO PHARMACEUTICALS INC. INO 45773H201 106147 $733475.77 3.45%
JUNO THERAPEUTICS INC. JUNO 48205A109 39480 $707086.80 3.32%
KITE PHARMA INC. KITE 49803L109 14968 $689875.12 3.24%
LION BIOTECHNOLOGIES INC. LBIO 53619R102 104616 $732312.00 3.44%
MACROGENICS INC. MGNX 556099109 37487 $688261.32 3.24%
MERCK & CO INC. MRK 58933Y105 11895 $708704.10 3.33%
NANTKWEST INC. NK 63016Q102 115579 $673825.57 3.17%
NEWLINK GENETICS CORP. NLNK 651511107 67209 $672762.09 3.16%
NOVARTIS AG NVS 66987V109 10465 $751073.05 3.53%
SORRENTO THERAPEUTICS INC. SRNE 83587F202 137102 $726640.60 3.42%
XENCOR INC. XNCR 98401F105 28856 $747081.84 3.51%
ZIOPHARM ONCOLOGY INC. ZIOP 98973P101 114980 $664584.40 3.12%

The short-term chart for 'CNCR' shows that it's trading below the pivot, and in a trend of lower highs and lower lows, bearish.

CNCR short term

CNCR oscillators suggest there is more downside having just broken the short-term support on the daily chart, especially the RSI, falling from the 50 level. While the full stochastic could trade sideways into a low as it did in October. CNCR needs to hold the November low. A bullish reversal could arrive higher than illustrated at about 20.5, the support area is really a thick band stretching down to a potential bottom retest. That assumes the closing of an ABC correction to the November low, with the bounce to the 50ma being wave B, C still developing.

Longer term, the weekly charts below illustrate the Nasdaq biotech index, and CNCR as a ratio to the biotech index.

CNCR ratio, suggests further upside albeit short-term weakness (fast stochastic over bought), having double bottom tested an extreme low in November.

CNCR ratio to biotech

Nasdaq Biotech Index

The Nasdaq (NBI) biotech index itself, is in danger of the 'death cross' of the 50 ma dipping below the 200 ma into bear market territory. This is an issue for technical disciples of the moving averages. The fast stochastic could find a low on the rising green trend line, and NBI really needs to hold that to maintain the bottom built in 2016, which would also deflect the 'bear cross'. A reversal could help support the low in CNCR at roughly the same time.

NBI

Investors should consider the ETF low identified above, (the fast stochastic rising over 20 is a lower risk entry point, also the cross or bounce of a bullish black ADX and red DMI, (over the MACD in the centre). Also the chart of any stock they are interested in, which may sometimes rhyme in terms of a low with this ETF, but not 'duplicate' it.

This sector isn't without risk. Due diligence is a 'must' in biotech, but selling the sector on individual news is based on a negative assumption that just isn't justified.

I've just completed an article covering bluebird specifically, and will be following up with some others from the immunotherapy group over the coming weeks.

Disclosure: I/we 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.