Stockwatch: Putting the CAR-T before the horse
This article was originally published in Scrip
One of the portfolio metrics that investors worry about is the degree to which the prices of their investments are correlated with each other. Statisticians call this multicolinearity. This is because you don't want to be invested in, for example, all gene therapy companies when the next gene therapy patient develops a cancer as a result of their treatment – a falling tide will ground all your ships on the same day.
The strange thing is that ever since the summer, the rise in the NASDAQ Biotech Index (NBI) has been negatively correlated with the price of oil with a correlation coefficient of -0.90. There should be no obvious causative relationship between the fall in the oil price and the rise in the NBI; it's just the coincidence of two things happening at the same time.
When I tried to understand what was causing the strength of the NBI, a traditional co-linear effect came to mind – the end of year medical conferences. The recent American Society of Hematology (ASH) meeting in San Francisco featured a number of companies developing therapies around chimeric antigen receptor T-cells (CAR-T; scripintelligence.com, 10 December 2014). It's early days in the development of CAR-T therapies and since they involve taking a patient's own cells and manipulating them ex vivo, before transfusing them back into the patient, there is a faint spectre of a Dendreon-like business model hanging over them. But this has not stopped companies like Novartis and Johnson & Johnson (both of which we own) ploughing ahead: they have now treated about 70 patients. Newcomers Kite Pharmaceuticals and Juno Therapeutics have also treated about 30 and 60 patients, respectively. Not all patients have responded but responders have seen durable remissions. Response rates are an early surrogate marker for activity, but – as many investors have learnt to their cost – they are not an approvable endpoint like overall survival. These early results have, however, enabled both Juno and Kite to part public market investors from their money (scripintelligence.com, 21 November 2014).
One of the aspects that struck me about this year's ASH meeting was that the investment bank-sponsored infrastructure of breakfast, lunch, dinner and supper briefings at the best hotels in downtown San Francisco could not have been altruistic. And sure enough almost all of those companies hosting these slap-up meals raised money in the days after ASH. One of the most recent examples of VCs taking the opportunity to off-load their shares onto unsuspecting public market investors before something goes wrong was when Bluebird Bio raised $211m on the back of Phase I/II data on four beta-thalassemia patients. It appears that it is not just the price of oil and the NBI that have a strong negative correlation: we also see it in the number of new IPO dollars raised by biotech firms and the number of patients they have treated. The results Bluebird announced at ASH showed that the four patients treated with its LentiGlobin gene therapy had total hemaglobin levels that ranged from 8.6 to 9.8 g/l. Normal adult female hemaglobin levels range from 14 to 16 g/l, which leads me to think that the 211 million hopes for a cure based upon four female thalassemia patients are perhaps a little premature.
But if you wanted correlations between stock prices last week you had it in spades when Roche (which we own) reported the dual failures of the MARIANNE and SCarlet RoAD Phase III studies (scripintelligence.com, 19 December 2014 and 19 December 2014). In the MARIANNE study Kadcyla (trastuzumab emtansine) plus Perjeta (pertuzumab) failed to achieve a statistically better progression free survival rate than either Kadcyla alone or Herceptin (trastuzumab) plus chemotherapy in first-line metastatic breast cancer patients. In attempting to eke out a silver lining from this cloud the analysts from Citigroup suggested that at least the treatment landscape in first-line metastatic breast cancer had been clarifiedand the numerical PFS advantage or lower dose of Kadcyla may carve out those patients who can't tolerate chemotherapy. It also defers the whinging about expensive combinations of cancer drugs by NICE and US private payers until next year when combinations of more traditional molecular inhibitors of cancer and immunotherapies become more commonplace. The resulting 6.3% fall in Roche's share price was hyper-correlated with the nearly 44% fall of the share price of its partner Immunogen. Hyper-correlation was also in evidence in Roche's announcement of the early termination on efficacy grounds of the Phase III SCarlet RoAD study of its anti-amyloid-beta monoclonal antibody gantenerumab in early-stage Alzheimer's Disease (AD) patients. The share price of partner Morphosys (which we own) finished the day down 11%. I was pragmatic about this particular loss as the Morphosys share price finished up over 8% recently when Biogen Idec (which we own) announced interim results for a Phase I study of a similar antibody, which did not demonstrate a significant benefit in amyloid levels in the brains of early-stage AD patients, but still emboldened it to blunder straight into Phase III studies (scripintelligence.com, 08 December 2014).
There should be no obvious correlation between two anti-beta-amyloid monoclonal antibodies failing to achieve their primary endpoints in early-stage AD patients and the differing share price performances of Roche and Biogen (which finished the day of Roche's announcement up nearly 2%). It's just a coincidence. Isn't it?
Andy Smith gives an investment fund manager's view on public life science companies. He has been lead fund manager for three life science–specific funds, including International Biotechnology Trust and the AXA Framlington Biotech Fund, and was awarded the Technology Fund Manager of the year for 2007. He is currently the chief investment officer at Mann Bioinvest. He watches, but unless stated, the Magna BioPharma Income Fund has no position in the stocks mentioned.