The High-Stakes Race to Avoid Getting Shut Out of This $10 Billion Market
Editor's note: Many wealthy Americans are following the same playbook...
They're giving away billions of dollars. More specifically, they're funding advancements in medical research. And most of this funding is flowing into one area – cancer treatment.
As a result, U.S.-based cancer firms are a great place to find value in the market today.
In today's Masters Series – adapted from a brand-new Stansberry Venture Technology special report – we're sharing some of editor Dave Lashmet's latest research on the subject.
As he explains, one Big Pharma firm has developed a three-part plan to counter the "patent cliff" with one of its revolutionary medicines. More important, it's not alone in this market...
The High-Stakes Race to Avoid Getting Shut Out of This $10 Billion Market
In 2004, Emma Carroll had a life-threatening problem.
It started out as a lump. Then it was diagnosed as breast cancer.
Emma had surgery, radiation, and chemotherapy.
"Ugh, chemo... It makes you tired beyond reason. It makes you forget things. Gives you ulcers. And the hair loss: I wasn't worried about it until it happened..." she wrote in The Guardian.
At the time, Emma was newly engaged and dreaming of a family. She was also a teacher at an elite secondary school. But all that was in jeopardy.
Fortunately, Emma was lucky enough to be treated with a new drug that could target a single cancer-driving gene (called HER-2) using her body's own natural defenses. It was called Herceptin.
Herceptin was a revolutionary medicine – the first targeted therapy for cancer. And the results were amazing.
The Phase II trial showed eight complete responses and 26 half-responses among 222 people.
A complete response is when the tumor disappears completely from the X-ray and hopefully doesn't come back. It's the first step in a long process that defines a cure.
Before Herceptin, all these folks would likely have died from their aggressive cancers.
We can observe this in the Phase III trials, testing chemo alone against chemo and Herceptin. With chemo, there's a 5% chance the patient will have no cancer progression at 15 months... and a 30% chance the patient will survive for three years.
By adding Herceptin, there's a 20% chance of the patient being progression-free at 15 months. And there's a 40% chance of survival for three years – as measured in "heavily pre-treated" cancer patients.
All of this is from the pivotal trial data published in the New England Journal of Medicine in 2001. Experimental trials get last-chance patients.
Fortunately, the earlier a cancer patient gets Herceptin and chemotherapy, the better the results:
- For first-line patients treated in the 2000s, the 10-year survival rate is 84%.
- More important, the 10-year cancer-free rate is 74%.
Emma Carroll was one of the first women in England to get this treatment. She needed Herceptin for four years. But during that time, her cancer completely disappeared, and she remains cancer-free today. Now, she writes children's books like In Darkling Wood (a book I'm reading to my kids).
"I'm convinced Herceptin saved my life," she told The Guardian.
Outcomes like Emma's have made Herceptin and Taxol – a chemotherapy drug first found in the bark of the Pacific yew tree – the standard of care for HER-2 cancer patients. And it's why Swiss pharmaceutical giant Roche's (RHHBY) Herceptin is around a $7 billion product.
But in 2018, the patents on Herceptin expired. It's now a generic drug that's becoming increasingly affordable.
No Big Pharma company likes when its innovation falls into the common domain. The only response is to keep innovating, which is what Roche did. But Roche isn't the only company trying to develop drugs that target cancers like Emma Carroll's. You see, targeting HER-2 cancer is a $10 billion market.
To understand this opportunity, let's start at the top...
First, we'll learn more about human epidermal growth factor receptor 2 (HER-2), the gene targeted in Emma's cancer treatment. HER-2 is a cancer-driving gene in cancer cells. But it's also common in normal cells. It's a survival signal (a status check for a healthy cell that cancer cells exploit) and a growth signal. So the more HER-2, the more the cancer grows.
In cancer cells, there could be anywhere from two to 20 times more HER-2 than in normal cells. That's true for breast cancer, stomach cancers, and throat cancers.
HER-2 is measured using a biopsy to check how dark a stain of HER-2 is, as seen under a microscope. The more rigorous way – which is used in hard-to-read cases – is by measuring HER-2's bright glow, called Fluorescence in Situ Hybridization ("FISH").
As you can see below, the HER-2 receptor glows red and a control receptor glows green. It's the ratio between red and green that matters.
If there's more than double the amount of red versus green, a patient is "HER-2-positive."
In the image above, there's 10 times more red than green – which shows a highly resistant tumor.
Herceptin is a specialized antibody first created by Genentech. It's a synthetic version of the body's immune defenses. (Two decades ago, Genentech was a stand-alone firm. Today, it's a division of Roche.)
That means it's a big protein. Proteins are your body's building blocks. For an antibody, the blocks make the shape of a barbecue fork with two prongs.
Those two prongs – or arms – are what grab onto a threat inside your body. The handle of the "fork" has a separate function... It's a beacon, alerting the rest of your immune system to danger.
Here's the synthetic part: Trillions of copies of one antibody are built in "bioreactors" – vast tanks of immortal cells making this specific product – and are then filtered, tested, and packaged.
Now, because this synthetic antibody is built out of proteins, your body would just digest it if you swallowed it in a pill form. Instead, it requires an intravenous infusion – an IV drip – to avoid the acids in your stomach.
So Herceptin targets the HER-2 gene. Then it raises the alarm for your immune system to clear cancer cells. That's why Herceptin is better than chemotherapy alone. But Herceptin needs chemo to help weaken the cancer cells. This lets the immune system see that the cells are sick.
One way to describe this effect is that Herceptin works as a "chemical sensitizer." This is not quite the same as cancer immunotherapy, which awakens your immune system... But it's close.
For Herceptin to work, it must appear to be a normal, functional part of your immune system.
However, Herceptin antibodies are first generated in mice. Scientists inject HER-2 into a mouse, which then makes antibodies against HER-2. Then, the scientists screen its blood to find the best antibody to make a product. That only gives scientists a mouse antibody, though, which the human immune system will reject as foreign.
In 1992, Genentech "humanized" its HER-2 mouse antibody by splicing the binding regions that latch onto HER-2 from the mouse side onto the backbone of a human antibody.
Fortunately, Genentech's humanized antibody hit its HER-2 target.
But HER-2 also exists in normal human tissue, not just in cancer. This means Herceptin also hits normal cells, which causes side effects. At first, these were mild. But later trials showed a major problem...
In Phase III trials, 10% of cancer patients taking Herceptin had heart failure. However, the trials showed that if Herceptin was taken with Taxol, the risk of heart failure dropped to 2%. That was the safest mix.
So despite the side effects, the drug has a profound effect on cancer. We've shown you the trial data. And in real-world practice, Herceptin has helped hundreds of thousands of patients.
Developing new drugs is a capitalist endeavor, and Big Pharma firms compete in an open market. Put simply, if companies are going to risk developing a new drug, there has to be a big reward.
Genentech almost stopped developing Herceptin twice. The first time, it was because of its manufacturing complexity. The second time, it was because of the heart failure side effect. But the trial doctors were proactive, treating the patients and/or reducing the doses.
So what could have ended in disaster, revolutionized medicine... and brought Genentech sales, thanks to a mix of production capability and positive trial results.
This profit motive drives everything in medicine.
As we mentioned earlier, Genentech is owned by Roche... which paid $47 billion for it in 2009.
Genentech has other blockbuster antibodies: Avastin and Rituxan for cancer, plus Lucentis and Ocrevus. But Herceptin alone made the deal worth it for Roche.
Since 2009, Roche has sold $64 billion worth of Herceptin at 85% margins.
However, in 2018, Roche's core patent for Herceptin expired, ending Roche's monopoly. Today in the U.S. and Europe, Herceptin has five generic competitors that retail at around a 20% discount.
For Big Pharma managers (and investors), that's called the "patent cliff." It's when revenue craters. Roche's Herceptin revenue is down 12% year-over-year ("YOY") as of last quarter.
To counter this threat, Roche developed a three-part plan to monetize Herceptin in the future...
Part 1: Roche designed a version of Herceptin with a powerful chemotherapy drug bound to the antibody.
The idea is, after hitting its target (HER-2), the antibody gets pulled in through the surface of the cancer cell to its core, which kills most of the cancer cells.
This largely works. The new drug-linked Herceptin (called Kadcyla) first won approval from the U.S. Food and Drug Administration ("FDA") in 2013.
In its pivotal trials, Kadcyla went up against Herceptin in HER-2 patients with some tumors remaining.
This was a second-line trial, in which the first line of therapy was Herceptin – so it focused on more advanced patients. There were 743 patients in each arm of the trial.
After three years, 77% of folks on Herceptin were cancer-free, while 88% taking Kadcyla were cancer-free.
But Kadcyla didn't beat Herceptin in trials as a front-line HER-2-positive anticancer drug. And Kadcyla introduced new side effects...
The first was liver toxicity, as this chemo is filtered out of the blood. This killed three in 1,600 patients.
The chemotherapy can also destroy a patient's blood-clotting ability by wiping out their platelets. That's dire, because if they're cut in an accident, have surgery, or have a stroke, they won't stop bleeding.
This happened to one in three patients, and it was severe in one in six patients. Patients can get a transfusion of platelets to help correct this, stop taking Kadcyla, or start taking steroids.
Kadcyla also leads to heart defects, since Herceptin is the base antibody.
Even with the side effects, Roche sold $290 million worth of Kadcyla in the first quarter of 2019. That's on track to be more than $1 billion per year, so it's a blockbuster drug. But it won't replace Herceptin.
Part 2: Roche's second part of the plan was more successful. It launched a second new antibody, called Perjeta, to target HER-2.
The plan was to replace Herceptin – but that failed. So Roche combined the two antibodies. The combination therapy of Perjeta with Herceptin was FDA-approved in 2012.
The image below (taken with a $4 million microscope) from the May 2019 PLOS One journal shows both antibodies hitting HER-2.
Herceptin binds to the base of HER-2. That's why Herceptin has proven so effective. A cancer can't cut off the top of HER-2 to avoid the drug. Meanwhile, Perjeta stops HER-2 from binding to other receptors in the same family: the three other HERs.
Mostly, human epidermal growth receptor 3 (HER-3) is the receptor cancer doctors are worried about. HER-3 causes HER-2 to emit a stronger signal. This signal means cancer makes more copies of itself – with improved resistance.
Roche's dual-antibody strategy works. In a study with 808 HER-2 patients, the strategy added 15 months to average survival. And progression-free survival improved by six months, on average. As usual, this was a placebo-controlled, double-blind study, with an outside data and safety monitoring board.
There were also no additional side effects when Perjeta was added to Herceptin and chemo.
Based on this sterling clinical data, Roche's large cancer sales and marketing staff went to work. In the first quarter of 2019, Roche sold $875 million of Perjeta – about half of Roche's revenue from Herceptin. But Perjeta's YOY revenue is up 42%. So in two years, it could catch up with Herceptin.
Part 3: That brings us to the third part of Roche's plan... Roche is now testing Perjeta with Herceptin in a single vial.
This lets Roche cut the prices of Perjeta and Herceptin as single drugs to outcompete generic Herceptin.
For example, Roche could sell the single vial for $100,000 per patient per year – "saving" insurers $20,000.
Granted, the single vial is still in pivotal trials – but as the combination is approved for use in two separate IV bags, it should work just as well if they are mixed together in the same bag.
So Roche can shore up its falling Herceptin revenue. But this also means Perjeta could be Roche's Achilles' heel if a competitor drug comes along.
You see, Amgen, Merck, and Pfizer all make generic Herceptin for the U.S. and European markets. Herceptin is worth $6 billion a year, while Kadcyla is worth $1 billion and Perjeta is on track to hit $3 billion in 2019.
To make sure they don't get shut out of the $10 billion HER-2 cancer treatment market once Perjeta and Herceptin come in a single vial, these three Big Pharma companies need to find a clinically effective competitor to Roche's Perjeta.
The race is on.
Good investing,
Dave Lashmet
Editor's note: Over the past two decades, Dave's research on cancer therapies has been second to none... Eight of his 14 cancer-related recommendations (more than half) have at least doubled – with gains as high as 312%. And this could be just the beginning...
You see, Dave believes the study of cancer crossed an important threshold in the past few months. And now, for the first time, he says it's reasonable to talk about a cure. Dave and his team put together an urgent video presentation with all the details. Watch it right here.