2:06 PM
Apr 06, 2018
 |  BioCentury  |  Finance

Smid-cap smorgasbord

Buysiders like 2Q cancer catalysts, rare diseases and small- to mid-cap milestones

While the biggest milestone of the second quarter came early and turned out to be a disappointment, investors still have plenty to look forward to in immuno-oncology. In addition, specialist investors’ current strategy of overweighting small- and mid-cap plays correlates with greater interest in a slew of milestones, with a particular focus on rare disease catalysts.

The negative news came early from Incyte Corp. and Merck & Co. Inc.’s Phase III ECHO-301 trial in first-line unresectable or metastatic melanoma. The combination of Incyte’s epacadostat with PD-1 inhibitor Keytruda pembrolizumab missed the primary endpoint of progression-free survival (PFS), leading the partners to stop the trial for futility.

In their April 6 announcement, the companies said the study was unlikely to meet the secondary endpoint of overall survival (OS).

On a conference call, Incyte’s Chairman, President and CEO Hervé Hoppenot said the hazard ratio for PFS was 1, while “for the less mature survival analysis,” the hazard ratio was 1.13.

Detailed data will be presented at an upcoming scientific meeting.

Results hadn’t been expected until the American Society of Clinical Oncology (ASCO) annual meeting in June, and nearly all 12 buysiders contacted by BioCentury had said it would be the most important readout for the sector.

After the announcement, some investors told BioCentury the result could negatively affect sentiment across the sector, while others expect a limited effect because the failure was specific to indoleamine 2,3-dioxygenase 1 (IDO1) inhibition, epacadostat’s mechanism.

ClearBridge Investments’ Marshall Gordon worried it could scare some generalists away. “A high-profile, negative binary outcome can highlight the risks of investing in biotech to non-specialists,” he said.

Loncar Investments’ Brad Loncar thought the data would sour sentiment toward all the companies developing therapies in combination with PD-1/PD-L1 inhibitors. “It calls into question how all these drugs are being developed with no preliminary randomized data,” he said.

“A high-profile, negative binary outcome can highlight the risks of investing in biotech to non-specialists.”

Marshall Gordon, ClearBridge Investments

International Biotechnology Trust’s Carl Harald Janson, in contrast, thinks the fallout will be company specific. “This is a hallmark of the sector,” he said. “Some drugs work while others fail.”

Omega Funds’ Otello Stampacchia said the negative readout should only affect companies working on the IDO mechanism. However, he said he would not discount the possibility of a short-term “sentiment contagion in biotech and oncology,” because investors already are spooked over concerns about a trade war.

Incyte fell $19.05 (23%) on the day, while the biotech indexes were off about 3%.

Loncar thought many buysiders may already have exited Incyte because other PD-1 combination partners, like Nektar Therapeutics’ NKTR-214, have shown preliminary efficacy that looked stronger.

On March 1, Nektar said updated data from the Phase Ib portion of the Phase Ib/II PIVOT-02 trial of NKTR-214 plus Bristol-Myers Squibb Co.’s PD-1 inhibitor Opdivo nivolumab showed a best overall response rate (ORR) of 71% in 14 evaluable renal cell carcinoma (RCC) patients as first-line therapy.

Additionally, in 20 PD-L1-negative patients across all five tumor types in the Phase Ib portion of the trial, NKTR-214 plus Opdivo led to a confirmed ORR of 60%.

Incyte’s recent share price declines suggest Loncar is right. The stock peaked last March at $152.66, but had already dropped $69.59 (46%) to $83.07 prior to ECHO-301’s failure.

The second most cited cancer milestones are a pair of readouts to be announced at the upcoming American Association for Cancer Research (AACR) meeting that will likely determine the winner in first-line non-small cell lung cancer (NSCLC): detailed data from Merck’s Phase III KEYNOTE-189 trial...

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