How to invest in the fight against cancer

A new generation of anti-cancer drugs looks promising. There are four main ways to invest, with varying levels of risk. Dr Michael Tubbs explains.


Basel, home to Roche and Novartis the most promising of the big pharma companies
(Image credit: Credit: Georgios Tsichlis / Alamy Stock Photo)

A new generation of anti-cancer drugs looks promising. There are four main ways to invest, with varying levels of risk. Dr Michael Tubbs explains.

Surgery, chemotherapy and radiotherapy have been the mainstays of cancer treatment for many years. In many cases they prove inadequate, particularly for blood cancers, or where cancers have spread from their primary site to other parts of the body (metastasis). However, seriously ill patients now have new hope as the first few examples of a new class of treatments cancer immunotherapies are approved by regulators.

Cancer immunotherapy enables the body's own immune system to recognise and kill cancer cells. A very recent example is Novartis's Kymriah, which was approved by the US FDA (Food & Drug Administration) last month, for use in children and young adults with a type of leukaemia. Kymriah has shown very promising results in clinical trials young blood-cancer patients given only weeks to live found that Kymriah put their tumours into remission. It's the first ever CAR-T (chimeric antigen receptor therapy) treatment to be approved by the FDA. First, the patient's blood cells are extracted in a hospital. Then the immune system's T-cells are modified, by inserting a new gene which arms them to recognise and attack cancer cells. They are then put back into the patient, where they fight the cancer. It's an expensive process and it has to be carried out for each and every individual patient, and so Kymriah carries a price tag of $475,000.

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But not all cancer immunotherapies are as expensive. For example, Bristol-Myers Squibb's nivolumab (marketed as Opdivo) has been approved for treating seven different cancers including primary or metastatic bladder cancer and non-small-cell lung cancer. Merck's pembrolizumab (marketed as Keytruda) is approved for a similar range of cancers. And Roche had its atezolizumab (marketed as Tecentriq) approved for non-small-cell lung cancer by the FDA late last year. Unfortunately, all immunotherapies have side effects, some serious. However, if other treatments have failed for patients with advanced cancer, the risk of side effects is unlikely to dissuade them from trying it.

Unsurprisingly, the share prices of pharmaceutical companies can be markedly affected by the results of clinical trials for the cancer drugs they are developing. AstraZeneca recently obtained its first FDA approval for durvalumab (Imfinzi) for bladder cancer, but its shares fell sharply in July when a trial found that treating lung cancer with a combination of durvalumab and another drug (tremelimumab) was no more effective than chemotherapy. The shares recovered somewhat early this month on positive results for a Phase III trial of Tagrisso, which could become the standard of care for patients with advanced lung cancer with a specific gene mutation. They then recovered some more on positive Phase III results for Imfinzi on patients with a specific type of non-small-cell lung cancer, who had not improved with standard treatment.

You might have noticed that the generic names of these drugs all end in mab''. This tells us that they are monoclonal antibodies (identical cloned copies of an original fully human antibody, designed for a specific purpose). Antibodies are the basis of many modern drugs and differ from the older, small-molecule drugs. Several companies specialise in developing antibodies for use against specific diseases, then partner with big pharma companies to take potential drugs through expensive clinical trials towards regulatory approval.

The immunotherapy development pathway

There are three main ways in which immunotherapy and other monoclonal antibody drugs are being developed. The first is through the in-house research and development (R&D) of major pharmaceutical companies. Novartis and Roche are the two biggest pharmaceutical R&D investors in the world, and the sixth and seventh-largest corporate R&D investors overall. They each invested more than €8bn in R&D in 2015/16. Roche's expertise in biotech drugs dates back to its acquisition of a majority shareholding in one of the first US biotechs Genentech in 1990 (it bought the remaining shares in 2009). Genentech specialises in oncology, and Roche's three top-selling cancer medicines were all developed by Genentech.

The second is the R&D of smaller, innovative biotech companies such as Immunocore. Smaller biotechs often develop their drugs via partnerships with big pharma companies, who fund the expensive clinical trials and provide market access through their global distribution channels. An alternative is for a big pharma company to acquire a smaller biotech with a promising drug in clinical trials. Biotechs with drugs that have been successful in Phase II trials and are now in Phase III will be much more expensive than those with early-stage pipelines.

"The most risky option is to invest in a small biotech with a promising pipeline but no current marketed drugs"

For example, Gilead Sciences recently spent $11.9bn on Kite Pharma, a biotech that has no approved therapies, but does have a promising pipeline. Gilead is currently the world leader in treatments for both HIV and Hepatitis C and is now aiming to develop a series of cancer drugs. Kite's pipeline has two parts. The first is based on the CAR approach for blood cancers taken by Novartis's Kymriah. The second uses a related technique called TCR (T-cell receptor) to treat solid tumours. CAR and TCR are different ways of modifying T-cells so that they can recognise and attack cancer cells (which are not normally recognised as alien by the body's immune system). Kite has four Phase II/III trials in progress, five more in Phase I, and several at the pre-clinical stage.

The third is a partnership between big pharma companies and a company whose expertise lies in the production of antibodies. Germany's MorphoSys, for example, has one of the world's largest libraries of fully human monoclonal antibodies and has clinical trials of antibody drugs in progress alongside most of the world's big pharma companies including Johnson & Johnson, Novartis, and Roche. Several of these partnerships are for clinical trials targeting cancers.

The best ways to invest

The top five drug companies by 2016 oncology revenue are listed below, alongside a number of their approved immunotherapy drugs (only a portion of the revenues listed are from immunotherapies). These companies are likely to be the best partners for biotechs developing new cancer drugs. Others (eg, Gilead) may climb the list via successful acquisitions and/or approvals of pipeline drugs.

An investor aiming to benefit from the new generation of cancer drugs has four main options. The first and lowest risk option is to invest in a big pharma company with substantial current oncology sales and a promising immunotherapy pipeline such as Roche (Zurich: ROG) or Novartis (Zurich: NOVN) both also pay reliable dividends. Immuno-oncology will inevitably be a modest proportion of total sales for such companies.

The second and most risky option is to invest in a small biotech with a promising pipeline but no current marketed drugs. In this case everything depends on the success of ongoing clinical trials. A less risky variant of this option is to invest in a company such as Gilead (Nasdaq: GILD) which has several successful drugs on the market and a biotech arm with a promising oncology pipeline (including Kite Pharma). Finally there is the option of a well-funded antibody company such as MorphoSys (Xetra: MOR), which is developing antibody drugs for both cancer and other diseases in partnership with big pharma companies. Successful drugs from these partnerships will yield new royalty streams.

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CompanyOncologyrev. (2016)Comment
Roche$26.4bnProbably has the largest pipeline of oncology drugs (includes trials of Tecentriq for additional cancers)
Celgene$10.1bnSpecialises in blood cancers and is partnering with AstraZeneca on Imfinzi for blood cancers
Novartis$9.3bnWell placed for CAR-T immunotherapy (eg, Kymriah)
Bristol-Myers Squibb$6.9bnOpdivo and Yervoy immunotherapies already approved
Johnson & Johnson$5.0bnFDA approved Darzalex immunotherapy for multiple myeloma in late 2016

Dr Michael Tubbs has been head of R&D in three multinational companies, is an adviser on R&D to the European Commission and was editor of Research Investments from 2009-17. He owns shares in many of the companies mentioned here.

For decades, Dr Mike Tubbs worked on the 'inside' of corporate giants such as Xerox, Battelle and Lucas. Working in the research and development departments, he learnt what became the key to his investing. Knowledge which gave him a unique perspective on the stock markets.

Dr Tubbs went on to create the R&D Scorecard which was presented annually to the Department of Trade & Industry and the European Commission. It was a guide for European businesses on how to improve prospects using correctly applied research and development.