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ImmunoGen Failure Casts a Shadow on Antibody-Drug Conjugates

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- By Matt Winkler

Flagship ImmunoGen (IMGN) ovarian cancer drug candidate Mirvetuximab Soravtansine just failed to meet its primary endpoint in Phase III studies.

The stock fell 50% on the news, but there may be wider implications here than a hit to a single company. The failed candidate is an antibody-drug conjugate (ADC), a drug model that uses an antibody as a homing device to lock on to cancer cells and deliver a targeted drug payload. The entire ADC approach to cancer treatment could arguably be called into question here.

That statement isn't coming from a scientific perspective, but from an investment and economic standpoint. First, the idea of targeted drug delivery by attaching a therapeutic molecule to an antibody may be ingenious, but it compounds the risk of clinical trial failure. Success depends on the antibody, the drug that it delivers and the specific cancer being targeted. Every single cancer is different because every human body is different and produces different cells. Targeting an antigen by identifying a type of cancer is never a control.

Even when an antibody successfully locks onto its target and delivers the drug payload, not all cancer cells are eliminated, as not all of them have the same antigens on their coats. Just because a type of cancer is identified as having a particular antigen in abundance, it's almost never the case that every cancer cell has the right targets on it. The result is often disease regression for a time, meaning an objective response but rarely lasting complete remission.

Going further, even if the efficacy of an ADC is proven and impressive, these drugs have so far proven to be unprofitable long term. The very first ADC to gain FDA approval was Adcetris back in 2011, and Seattle Genetics (SGEN), the company behind it, keeps losing money faster every year in an effort to get it approved for more and more cancer indications. It's a Catch 22. Adcetris needs more indications to treat to be profitable, but spending the money to get the needed approvals is keeping the company in consistent losses.

Adcetris sales, including royalties and collaboration revenues stemming from the drug, are up to $655 million annually (see page 65), up an impressive 130% since 2014, but Seattle Genetics' losses keep multiplying nonetheless, as does its share count to fund the losses. Net losses were $76 million in 2014 compared to $223 million last year, rising even faster than Adcetris revenues over the same period in the company's unceasing efforts to expand its addressable market. The stock meanwhile has been diluted by 28%.

The whole situation is vaguely reminiscent of Dendreon back in the early part of this decade. Its prostate cancer drug Provenge was the very first cancer immunotherapy ever approved back in 2010, entering the market with wild applause and optimism. One year later it became clear that Provenge was selling poorly, and in 2014 Dendron declared bankruptcy. It was eventually acquired, but not until shareholders lost nearly everything.

Pfizer (PFE)'s ADC Besponsa is estimated to sell only $347 million by 2022, not a number that could sustain a smaller company after absorbing all the costs of development.

There is some hope though for ADCs still. Roche (RHHBY) for one is having more success with its ADC Kadcyla, selling nearly $1 billion last year (see page 33 at link), so in some cases the approach can theoretically succeed. The point though is the deck seems stacked against these types of drugs being approved and ultimately profitable for investors, and it will get even harder for each if and when more are approved and the market gets more competitive. Keep in mind that there are only four ADCs on the market right now, two of them only since 2017. If drug development costs and regulations were significantly reduced, then ADCs could have a much better shot at making it in the market. As it stands now though, the risks outweigh the benefits of investment in this particular approach to cancer treatment.

Disclosure: No positions.

This article first appeared on GuruFocus.