Biotech has been VERY VERY HOT in 2H20 particularly on the back of ARK fund coming in and popularizing the subsector. I am very grate that ARK is investing in the space because they are really helping bringing down cost of capital for innovative biotech companies who are then accelerating the innovation in biotech industry.
Big theme in biotech is truly the evolution of genomics – with advent of more efficient gene sequencing, the cost curve is coming down significantly – this is generating massive amount of genomic data, upon which big data analysis can be applied to understand the correlation and hopefully causations between genotype (the genetic code) and phenotype (what is expressed).
So far, ARKG has been particularly focused on gene editing companies and thus indirectly on rare/orphan diseases because these companies tend to focus on rare diseases. They focus on rare diseases because rare diseases serve as great proof of concept (POC) programs – many rare diseases have validated pathology that is often driven by single mutation.
While so many gene editing companies have been making massive moves with huge inflow, it seems to me that the market is leaving another therapeutic area that will MOST CERTAINLY benefit from explosion of genetic data and that is ONCOLOGY/CANCER TREATMENT – another set of diseases that are pretty much ENTIRELY driven by genetics whether it be germ-line (hereditary) or wildtype (acquired).
Oncology certainly enjoyed its time over the past decade on the back of thee key factors that I explain below, but I am even more bullish going forward because above trends are only inflecting – and that is all based on explosion of genomics and our improved understanding.
MASSIVE UNPRECEDENTED REGULATORY SUPPORT FROM FDA
Oncology is getting so much love from the FDA. Before covid19 pandemic, FDA gave out approvals before its PDUFA date, but I was very very surprised to see that FDA continues to hand out early approvals (before PDUFA) despite the fact that FDA has been completely busy with covid19. This also has very sharp contrast to FDA’s stance to other therapeutic areas where there has been delays to approval or FDA didn’t give priority review even though they were supposed to (like Acadia’s case with pimavanserin in DRP).
Case in point is Tukysa (tucatinib) approval for Seagen ($SGEN). It is a small molecule oral HER2 inhibitor. As noted in below press release, it received approval FOUR months earlier than its PDUFA date!
Tukysa is a great drug but it is neither the first HER2 targeting agent nor the first oral/small molecule HER2 TKI, but FDA really hit the pedal to the metal and brought the drug across the finish line quickly. I would also note that the indication label is wider than its study population in its pivotal study (HER2CLIMB).
Oncology drugs literally save patients’ lives, so there must be internal push within the FDA, but I think some specifics around oncology helps as well. In oncology, data analysis to assess efficacy can be very clear and transparent because many trials use patient survival as an endpoint – the hardest and undisputable endpoint. If treatment arm has overall survival of 10 months while control arm has overall survival of 5 months and the difference is statistically significant, the efficacy of the drug is VERY VERY clear with no debate on whether the endpoint is valid or not (which is the case in many drugs) and there is no “noise” in the data. On the other hand, psychology / CNS drugs are very hard to run trials and prove efficacy because they use endpoints that are based on interviews (which brings in subjective elements and introduces huge variability) and are subject to extreme scrutiny from the FDA.
MORE AND MORE PRECISE MEDICINE DESIGN BASED ON GENETICS
Cancer is genetic-driven – mutation in DNA leads to uncontrolled growth. It is becoming increasingly more affordable to run genetic testing on patients and this is leading to explosive growth in our understanding of carcinogenesis (creation of cancer). We are identifying more mutations that are responsible for different types of cancers.
More importantly – these mutations often causes cells to express receptors on cell surfaces and these receptors become excellent targets for modern cancer drugs – just like surgical strike.
Just like Tomahawk missile – these cancer drugs are designed to only attach to the cells that express those receptors.
Precision medicine has three main benefits
First – it increases probability of success of clinical trials because you can enrich your study population for patients that only express certain type of receptors by only including patients who carries specific mutations – enabled by genetic testing.
Second – the drug is WAY more tolerable than chemotherapy and leads to reduced suffering for patients from side effect. Chemo comes with very significant systemic toxicity because by definition it is not targeted and just suppressed growth of cells in general (which is why hair loss and extreme fatigue are so frequent with chemo) – leveraging the fact that cancer cells divide much faster than normal cells. By taking a targeted approach, we can selectively target only cancer cells. I dream of one day that the technology will be even more advanced and cancer patients won’t need to suffer so much from side effects.
Third – target population is even smaller – this allows pharma companies to be flexible with pricing of the drug as its TAM could be limited at first and get larger over time as more genetic testing leads to identification of applicable patients in other tumor types as well.
At the end of the day, increased probability of success and flexible pricing leads to much larger market going forward – patients are also living longer with improved therapeutics – leading to exponential growth of the market.
COMBINATION THERAPY WOULD FURTHER EXPAND MARKET OPPORTUNITY
With increased understanding of cancer, we are also seeing increased use of combination therapies. Combination often leads to synergistic or additive effect and prolongs patients’ survival. As shown below, Bristol-Myer Squibb is running multiple trials that combine Opdivo and Yervoy – both of which are massively expensive drugs.
Commercially/financially, combination therapies are very attractive for revenue growth as well – combination therapies also contributed to explosive growth in cancer market because it leads to exponential growth in revenue per patient – as patients take multiple type of drugs at the same time. For Bristol’s case, they are making more than 2x per patient by combining Opdivo and Yervoy because 1) patients are taking two drugs (rather than one) – higher monthly price and 2) combination leads to patient taking both drugs for longer period – longer duration of therapy.
ANSWER TO EXPLOSIVE GROWTH – LET’S FOCUS ON TARGETED ONCOLOGY COMPANIES WITH SOLID DEVELOPMENT PLATFORM
Data generation will disproportionately benefit those targeted oncology companies with strong scientific development platform, deep expertise in navigating through regulatory discussions, and vertical integration that spans across development and commercialization to capture the full value chain.
For this reason, I continue to love Seagen ($SGEN) and Genmab ($GMAB) – both companies have extremely prolific drug development platform that “pumps out drugs” (if I were to use industry lingo) and is on the cusp of transformation into fully vertically integrated oncology platform.
What is your favorite platform biotech company? Please share below in comment section!
*not investment advice
Think BPMC and DCPH while much earlier stage can fit this targeted kinase space as “drug pumpers”
True. However market does not like to give so much credit to small molecules. Why do you think that is?