Buysiders view 2021 as a window of opportunity for investing in targeted cancer drugs
Buysiders say they view 2021 as a window of opportunity for investing in targeted cancer therapies.
By Lauren Martz, Senior Editor
January 9, 2021 3:16 AM UTC
The pandemic has only deepened the already heavily-weighted oncology focus of many portfolios, and it’s targeted oncology opportunities that are catching the eyes of buysiders in 2021.
A combination of new drug approvals, high-value deals and positive clinical readouts in 2020 set the stage for strong interest from investors, who are homing in on late-stage milestones for novel targets, including KRAS, as key catalysts this year.
Targeted therapies have sparked fresh enthusiasmas advances in genomics and drug design have created a next generation of highly target-selective — or even mutation-selective — inhibitors, many of which have produced exceptional efficacy in genetically defined patient subsets.
Coupled with oncology trials and revenues being relatively immune to the pandemic-related disruptions seen in other disease areas, the developments in targeted therapies have opened a new window of opportunity for investors to find value in the established field.
“Precision oncology has been a successful business model.”
Brad Loncar, Loncar Investments
As the first crop of highly selective inhibitors against several targets reaches the market, drug developers are busy carving up the landscape of genetically-defined cancers. Meanwhile, buysiders see 2021 as a chance to draw value from the lead assets before they’re diluted by fast-follower competition.
“Targeted therapies are getting acquired at big valuations. We’re always surprised by how willing pharma is to pay for targeted oncology, and there will be more,” said Les Funtleyder, healthcare portfolio manager at E Squared Capital Management.
Targeted therapies featured in 40% of the oncology deals signed over the last three years, and they earned slightly higher valuations than immuno-oncology deals, though they also skewed toward later-stage assets.
RETinhibitors were a focal point for investments in targeted therapy in 2020, with a pair of approvals for compounds that each attracted a major deal in the 18 months leading up to the approval.
Last May, FDA approved Retevmo selpercatinib, a driver of the $8 billion acquisition of Loxo Oncology Inc. by Eli Lilly & Co. (NYSE:LLY) a year earlier. In September, the agency approved Gavreto pralsetinib just two months after Blueprint Medicines Corp. (NASDAQ:BPMC) partnered the drug with Roche (SIX:ROG; OTCQX:RHHBY) for $775 million up front and up to $927 million in milestones.
This year, KRAS is drawing the most attention. With a sizeable target population relative to other precision oncology candidates, standout efficacy data and a heated race to the market, buysiders are awaiting additional data and a possible regulatory decision for sotorasib (AMG 510) from Amgen Inc. (NASDAQ:AMGN).
While targeted cancer companies raised the largest IPOs in the cancer field in 2020, with 12 of the top 20 IPOs going to targeted therapy companies, they didn’t steal all the interest.
Investors haven’t given up the search for the next immuno-oncology blockbuster and continue to pour venture money into immuno-oncology assets, which also featured prominently among the top-raising IPOs in 2020 and captured the largest venture rounds for cancer companies.
Buysiders aren’t expecting 2021 to deliver answers to the field’s core immuno-oncology questions such as which target will be the next PD-1, which checkpoint pairings will finally show synergies and whether allogeneic therapies will be the solution to CAR T’s market access problems, but they do see potential inflection points for individual targets such as BCMA and CD47.
They also don’t expect 2021 to be a watershed year for new modality approvals, but it could be a big year for clinical validation of gene therapies.
Last year’s excitement around neurology should continue into 2021 and no one has forgotten about the looming aducanumab decision, but the focus has shifted. With a general consensus that approval is unlikely, investors are looking to the impact on other CNS plays and broader M&A trends for the year rather than the impact on patients, payers and clinical development strategies for Alzheimer’s disease.
Targeted therapy highlights
The 10 buysiders interviewed by BioCentury agree targeted oncology is headed for another banner year — the question is how long the high valuations will last.
Relative to immuno-oncology, targeted oncology brings lower biological and executional risk plus a proven business model, but that also attracts more competition for the same targets.
“Precision oncology has been a successful business model, and the biology of it is very successful. That will continue to be strong for years,” Brad Loncar, CEO of Loncar Investments, told BioCentury.
“It’s an area where investor interest is high because you know whether your drug works relatively quickly, and you can make very targeted drugs that have very acceptable tox,” added Aisling Capital’s Steve Elms. “These are small populations, but within these small populations you can have very dramatic effects.”
At least 14 targeted therapies have clinical milestones on deck this year, and three targets in particular are among buysiders’ top picks: KRAS, TROP2 and menin.
The data from Amgen’s KRAS inhibitor sotorasib are critical not only for the value it could create for the growing list of KRAS inhibitors in development, but also for its reflection on the progress the targeted oncology field has made as a whole.
KRAS was identified nearly 40 years ago as a driver gene in many cancers, but it’s also been one of the most challenging targets to drug because it lacked well-defined binding sites for small molecules, and its intracellular location made it unreachable for standard antibodies. The breakthrough came when a team at the University of California, San Francisco discovered a groove on the surface of the protein and found that binding a certain cysteine on mutated KRAS could lock the protein in an inactive state.
Amgen submitted an NDA to FDA in December for non-small cell lung cancer (NSCLC), and will share additional data from colorectal cancer patients early this year.
Mirati Therapeutics Inc. (NASDAQ:MRTX), Amgen’s closest competitor in the KRAS race, is planning an NDA submission for second-line NSCLC by the second half. It will also share initial data from an ongoing Phase II trial of adagrasib (MRTX849) in combination with Keytruda pembrolizumab in the second quarter.
TROP2 came onto investors’ radar last year when Gilead Sciences Inc. (NASDAQ:GILD) acquired Trodelvy, the first-in-class antibody-drug conjugate against the target, through its $21 billion acquisition of Immunomedics Inc. Buysiders are awaiting additional clinical and launch data in 2021 to determine whether the valuation was warranted.
AstraZeneca plc (LSE:AZN; NASDAQ:AZN) also partnered with Daiichi Sankyo Co .Ltd. (Tokyo:4568) last year to develop Phase I ADC DS-1062 against TROP2 for $1 billion up front and up to $5 billion in milestones. The companies haven’t disclosed timelines for data.
Menin emerged as a hot target late in 2020 when Kura Oncology Inc. (NASDAQ:KURA) shared Phase I data at ASH from its menin inhibitor KO-539 in a subset of acute myelogenous leukemia (AML) patients. Kura will advance its Phase I/II trial into expansion cohorts and choose a Phase II dose this quarter.
Aisling’s Elms and Venrock’s Nimish Shah are also watching for complete Phase I data this half from menin inhibitor SNDX-5613 from Syndax Pharmaceuticals Inc. (NASDAQ:SNDX) in MLL-rearranged or NPM1-mutant AML.
Buysiders are also following the early-stage programs of the targeted oncology plays that raised large IPOs last year.
Kinnate Biopharma Inc. (NASDAQ:KNTE), which raised $276 million in early December, has inhibitors of specific BRAF and FGFR2/3 mutants in preclinical development. Relay Therapeutics Inc. (NASDAQ:RLAY), which raised $460 million in a July IPO, is developing selective inhibitors of SHP-2, FGFR2 and other kinases, the most advanced of which are in Phase I studies.
Mario Linimeier, managing partner at Medical Strategy GmbH, told BioCentury he’s watching two other targeted oncology companies. SpringWorks Therapeutics Inc. (NASDAQ:SWTX) is expecting Phase III topline data from its gamma secretase inhibitor nirogacestat in desmoid tumors in the third quarter, and Ideaya Biosciences Inc. (NASDAQ:IDYA) should have interim Phase II basket trial data from its PKC inhibitor IDE196 this year, as well as interim Phase II data in metastatic uveal melanoma.
While there are plenty of targeted therapy picks, the big question on investors’ minds is how the high valuations they’re earning will hold up in the long term.
Linden Thomson of AXA Framlington said that while it isn’t necessarily a 2021 concern, she’s worried about the future level of competition in oncology. “Typically we would have seen perhaps competition within a therapeutic area, but with different mechanisms. Now we’re seeing competition within a therapeutic area within the same mechanism,” she said. “There’s a lot of value in targets in oncology and I understand why, but in the longer term time-frame, it’s also becoming competitive.”
Marshall Gordon, senior research analyst at ClearBridge Investments added, “There are so many hot target right now, but once everybody figures out a target works, then everybody goes after it and there are five molecules chasing it. I think competition could reduce the long-term value of the R&D against those targets.”
“In targeted oncology there are just so many, and payers aren’t necessarily going to want to pay for every CD47 that comes along. There also aren’t great guidelines for delineating between what’s best in class vs. what isn’t,” added Funtleyder.
Immuno-oncology picks
Investors don’t think 2021 will be the year to bring immuno-oncology out of its commercial lull, but they’re optimistic about several targets in the space.
Since the approvals of the first checkpoints and CAR T cell therapies, clinical and commercial progress in immuno-oncology has been slow.
“If you go back to the intervening years between the Opdivo and Keytruda approvals and now, so many of the new targets have been dry holes,” said Gordon.
But Loncar thinks that will start to change in 2021.
“After years of designing rational combinations and having a better understanding of the different components of the immune system, we are for the first time ever starting to see successes rear their heads,” he said.
“I think the second wave of immuno-oncology is starting, and I think that [last] year was the first glimpse and [this] year will be pretty strong,” Loncar added.
He’s among a big group of buysiders watching the CD47 space after Gilead’s $4.9 billion takeout of Forty-Seven Inc. last year. Gilead plans to submit a BLA for CD47 mAb magrolimab to treat myelodysplastic syndrome (MDS) in the fourth quarter.
Companies have disclosed plans to release Phase I/II or later data for at least 10 immuno-oncology programs this year.
Another innate immune modulator on investors’ watchlist is the kinase IRAK4, for which at least five inhibitors are making their way through early-stage trials. Linimeier is anticipating updated Phase I data from Curis Inc. (NASDAQ:CRIS) on IRAK4 inhibitor CA-4948 in AML and MDS in the second half.
Loncar is also paying attention to the evolving TIGIT story.Data from the Genentech Inc. unit of Roche made a splash at the American Society of Clinical Oncology (ASCO) virtual meeting and suggested the target could be finally be the next checkpoint after PD-1 to live up to its preclinical promise. Subsequent data from Merck & Co. Inc. (NYSE:MRK) were not quote as strong.
Genentech will share biomarker data for anti-TIGIT mAb tiragolumab from the Phase II CITYSCAPE trial at the end of the month, hopefully providing insight into whether PD-L1 expressers or other subsets will benefit from the checkpoint therapy. Investors are anticipating data from other TIGIT programs this year as well.
Shah thinks 2021 could also bring movement in the NK cell space following clinical validation from Fate Therapeutics Inc. (NASDAQ:FATE) at ASH for its allogeneic NK cells engineered to express a non-cleavable CD16.
The big event in CAR Ts will be the BCMA approval decisions, which would add a new indication to the CAR T roster. As the modality that has yet to see much commercial uptake, investors are watching for any positive signal during launches. Multiple myeloma is an indication where CAR Ts have shown exceptional efficacy with response rates nearing 100%.
Idecabtagene vicleucel, a BCMA-targeted CAR T cell therapy from bluebird bio Inc. (NASDAQ:BLUE), is under review by FDA with a March PDUFA date. Legend Biotech Corp. (NASDAQ:LEGN) initiated a rolling BLA submission last month for ciltacabtagene autoleucel, the BCMA CAR T it’s developing with Johnson & Johnson (NYSE:JNJ).
Cytokines are another therapeutic class expected to mature in 2021. Milestones include Phase III data for anti-IL-1β mAb Ilaris canakinumab from Novartis AG (NYSE:NVS; SIX:NOVN) and Bristol Myers Squibb Co. (NYSE:BY) in first- and second-line non-small cell lung cancer (NSCLC). The companies plan to submit regulatory applications this year.
Although bispecific T cell engaging antibodies stole the show at 2020’s major scientific meetings, buysiders didn’t call out specific clinical milestones or the modality and no bispecifics made the 2021 PDUFA list.
Gene therapy milestones
Buysiders think 2021 will be an important year for gene therapies but they aren’t anticipating a slew of new approvals. Launch performance will be a critical metric for fund flows into the new modality.
The big milestone will be two-year data for hemophilia A therapy valoctocogene roxaparvovec from BioMarin Phrmaceuticals Inc. (NASDAQ:BMRN), which if positive would bring gene therapy out of the rare disease arena.
Investors were also anticipating data on SRP-9001, a gene therapy for Duchenne muscular dystrophy from Sarepta Therapeutics Inc. (NASDAQ:SRPT), that would have boosted sentiment for the modality if positive.
However, on Thursday, Sarepta announced that although SRP-9001 met the biological endpoint of micro-dystrophin expression at 12 weeks, the expression was lower than expected and the therapy missed the functional endpoint. Sarepta shares fell 50% to $84.45 in after hours trading on Thursday before trading was halted.
“I think in the first three months of the year, we’re going to learn a lot more about gene therapies and how investors will perceive their likely success and value,” said Gordon.
He’s also expecting gene therapy data for CNS indications to build over the year. He’s following companies including Amicus Therapeutics Inc. (NASDAQ:FOLD) and Ultragenyx Pharmaceuticals Inc. (NASDAQ:RARE).
Loncar wants to see more launch data from the modality, and other newer technologies.
“There’s never been a commercially successful gene therapy, and I want to see commercial validation,” said Loncar, who had been planning to follow bluebird’s European launch of Zynteglo (LentiGlobin-U.S.) for β-thalassemia before it was derailed by COVID-19 last year.
“One thing we’ve been short on for years actually is all of theses exciting new modalities turning into viable products,” said Loncar. “Really, mRNA is the first one to hit it big because of this weird emergency we’ve had this year. It’s important that they prove themselves in the lab and in trials, but also from a business model standpoint.”
Aducanumab’s evolving story
At the start of 2020, the aducanumab decision was top of mind for every investor. A year later, industry is still waiting for a verdict and sentiment is down, but buysiders still view it as a major catalyst.
Ailsa Craig of SV Health thinks the aducanumab decision will give a positive bump to neurology companies regardless of the outcome.
“Even if it doesn’t get through, I think it could be interpreted as a boost for neurology companies because [Biogen’s] got to acquire something,” she said, noting Biogen itself could become a takeout target.
Gordon and Handelsbanken’s Astrid Samuelsson are watching for other Alzheimer’s disease readouts in 2021 including Phase II data from Lilly’s anti-amyloid therapy donanemab.
Other neurology milestones highlighted by buysiders include readouts from zuranalone from Sage Therapeutics Inc. (NASDAQ:SAGE) in major depressive disorder (MDD) and post-partum depression (PPD).
TARGETS BCMA (TNFRSF17; CD269) – Tumor necrosis factor receptor superfamily member 17 FGFR2 (KGFR; CD332) – Fibroblast growth factor receptor 2 FGFR3 (CD333) – Fibroblast growth factor receptor 3 IRAK4 – Interleukin-1 receptor-associated kinase 4 KRAS (K-Ras) – KRAS proto-oncogene NPM1 (B23) – Nucleophosmin PD-1 (PDCD1; CD279) – Programmed cell death 1 PKC – Protein kinase C RET – Ret proto-oncogene SHP-2 (SHPTP2; PTPN11) – Src homology protein tyrosine phosphatase 2 TIGIT – T cell immunoreceptor with Ig and ITIM domains TROP2 (TACSTD2; EGP-1) – Tumor-associated calcium signal transducer 2
The pandemic has only deepened the already heavily-weighted oncology focus of many portfolios, and it’s targeted oncology opportunities that are catching the eyes of buysiders in 2021.
A combination of new drug approvals, high-value deals and positive clinical readouts in 2020 set the stage for strong interest from investors, who are homing in on late-stage milestones for novel targets, including KRAS, as key catalysts this year. ...
