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Drugs that help the immune system fight cancer are making a big difference for scores of patients, and stocks tied to companies developing them have done wonders for quite a few portfolios. The Loncar Cancer Immunotherapy Index, which tracks a revolving basket of drugmaker stocks that fit in this niche, is up 31.5% over the past year.
The general outlook for immuno-oncology is so bright that the niche index has thumped the broad market and the Nasdaq Biotechnology Index over the past year.
The strong patient responses we've seen from revolutionary new drugs combined with a frothy market for biotech buyouts have sent quite a few stocks skyward. Before you jump into the fray, though, you should understand a couple of challenges that many immuno-oncology stocks will face on the road ahead.
A tough act to follow
From a commercial standpoint, the most successful class of drugs that help the immune system fight cancer are the PD-1 inhibitors. Opdivo, from Bristol-Myers Squibb (NYSE: BMY), and Keytruda, from Merck & Co. (NYSE: MRK), weren't available a few years ago. But the pair will probably generate a combined $12 billion in sales this year.
When these drugs work, the results make oncologists' eyes grow wide and misty. But they don't seem to work for most patients. Heaps of biotechs are trying to remedy the issue by developing fancy new drugs that work in tandem with PD-1 inhibitors, but old-fashioned chemotherapy has given them a tough hurdle to overcome. Earlier this year, Merck made waves when it announced that adding Keytruda to standard chemotherapy lowered newly diagnosed lung cancer patients' risk of death by half compared to chemo on its own. Most importantly, chemo plus Keytruda provided a survival benefit for patients who generally don't respond to PD-1 inhibitors on their own.
Few patients would describe chemotherapy as cheap, but a year of treatment with new cancer therapies can cost end payers more than a modest home in the Midwest. In order to get governments and private insurers to cover a PD-1 inhibitor, plus another pricey new therapy, the resulting combo would have to produce amazing results.
Unfortunately, combination studies to date with new drug candidates have been mostly disappointing, with the occasional exception. If you're considering any biotech stocks that derive value from new drug candidates intended to work in concert with PD-1 inhibitors, you would do well to temper your expectations.
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753 potential competitors and counting
If you're interested in immuno-oncology stocks, odds are that a cell-based therapy caught your eye. Complex therapies, such as Yescarta from Gilead Sciences (NASDAQ: GILD), have produced amazing results for people who had already exhausted previous treatment options.