Healing Investments

Sometime or other, 40 percent of Americans will hear the words “It's malignant.” The good news, for both patients and investors, is that pharmaceutical companies are pioneering new, more effective cancer treatments all the time.

The deadliest form of the disease, accounting for 30 percent of all cancer fatalities (about 160,000 deaths each year), is lung cancer. Terrible numbers, to be sure, but researchers now are starting to discover ways to derail the genetic pathways to lung cancer.

Tarceva, a drug developed by Genentech and OSI Pharmaceuticals, typifies such progress. In November, the FDA approved the drug to treat non-small-cell lung cancer (NSCLC), the prevalent form of lung cancer, after clinical trials demonstrated the drug prolongs life in patients who have failed to respond to at least one course of chemotherapy. In one key trial, median patient survival lengthened to 6.7 months, compared to 4.7 months with a placebo. (Improving survival is the gold standard used by the FDA when evaluating the effectiveness of prospective cancer medications.)

Earlier, the FDA had approved AstraZeneca's similar drug, Iressa, after clinical trials proved that Iressa shrank tumors in about 10 percent of patients who had already received chemotherapy, but had not responded to treatment well. In December, however, trial results were released showing that Iressa-treated patients gained no survival advantage. Wall Street took the announcement as a win for Tarceva and bid up prices on shares of Genentech and OSI Pharmaceuticals.

Both Tarceva and Iressa are biotech drugs that work by halting the spread of EGFR protein, which is heavily expressed in most lung cancers. Understanding how these protein-blocking drugs work is an ongoing process. Post-approval, researchers found that Iressa worked best on the 10 percent of NSCLC patients with mutated EGFR protein. Like Iressa, Tarceva appears to work best on a subset of NSCLC patients, which the FDA noted by approving Tarceva on the condition that its package state that patients lacking EGFR (about half of NSCLC patients) may not get the survival benefit. Wall Street analysts reacted to the FDA's ruling by forecasting lower sales, a reaction that may prove smart in the short term but dumb in the long term.

“Having a genetic test that IDs the subset may be tough for people looking for a blockbuster,” says John McCamant, editor of Medical Technology Stock Letter. “But the flip side is that testing provides efficient health care because it increases the likelihood of the drug's working. It's a win for patients and insurers.” McCamant recommends Genentech and believes that Tarceva will prove useful in the treatment of numerous other cancers.

Beyond the Organs

There are important implications in the Tarceva story: The emerging focus of oncology drugs will be directed toward genetic pathways, not organs. Oncologists will try to ascertain if a patient's EGFR is out of whack. Taking a genetic focus opens the route — at least in theory — to treating patients with a molecular inhibitor like Tarceva before any symptoms appear. As Dr. David Agus, research director at Cedars-Sinai Hospital in Los Angeles, recently noted, treating pathways rather than organs marks the future of cancer treatment. With the approval of Tarceva, Agus sees “the beginning of a regimen that is only going to get better.”

Back to the present. Despite the notable addition of nontoxics, like Iressa and Tarceva, to the oncology clinic, treating lung cancer generally involves chemotherapy. Tarceva and Iressa supplement chemotherapy, but do so only in later-stage NSCLC treatment. Neither drug was proved effective when combined with chemotherapy as an initial treatment. Lung cancer still means use of toxic chemicals to kill the tumors.

According to the American Cancer Society, 76 percent of this year's projected 139,000 new cases of NSCLC will receive chemotherapy. Of that number, an estimated 30,000 patients tolerate chemotherapy poorly. These patients might benefit from a drug produced by Cell Therapeutics that is currently in three Phase III trials against NSCLC. Called Xyotax, the drug combines paclitaxel, a chemotherapy, with a biodegradable polymer that makes the chemo more tumor-specific and easier to tolerate. Of the three Xyotax trials, the one closest to completion compares Xyotax to nonboosted paclitaxel in the first-line treatment of weak patients. Of note: The trial's timelines have twice been pushed back. That means, as McCamant notes, that either the patients in the control arm are living longer than usual, or Xyotax is having a strong enough impact to lengthen survival.

Investing Particulars

How to invest in these drugs? AstraZeneca is a British-Swedish drug company that offers U.S. investors its ADR shares on the NYSE. Probably only the most stubborn contrarian would touch shares at present, given its recent setback on Iressa.

OSI Pharmaceuticals is an innovative company with a stock price so closely associated with the fate of Tarceva as to make it an extremely volatile investment.

A more conservative play would be Genentech or Cell Therapeutics. Genentech is the world's premier developer of nontoxic oncology drugs. During the 1990s, the San Francisco-based company launched two essential antibody drugs, Rituxan and Herceptin, and last year got FDA approval for Avastin, a drug that starves tumors of blood. Avastin is currently being tested against many cancers, including NSCLC. Genentech's third quarter was a blow-away, with Avastin sales way ahead of consensus estimates. On the news, Merrill Lynch raised per-share earnings esitmates to 83 cents and $1.09 for 2004 and 2005, repectively, and reiterated its buy opinion.

If Genentech is a fast-growing drug innovator, Cell Therapeutics is a garden-variety biotech: A firm that husbands its cash against the expense of clinical trials. Cell Therapeutics finished its third quarter with less than one year's cash, a situation management faced by selling a $25 million royalty interest in Trisenox, the company's already-approved leukemia drug, in a nondilutive deal that retains the upside of Trisenox sales growth. In addition to Xyotax, Cell Therapeutics is testing Pixantrone, another chemotherapy-improvement product, which is designed to lower the cardiac toxicity of blood cancer chemotherapies. It is also in Phase III trials. If the finances at Cell Therapeutics seem shaky, the science seems sound.

The story about lung cancer is a story about improvements, not breakthroughs. More tumors shrinking, a few lives prolonged for a few months — such increments constitute progress, in both the doctor's office and on Wall Street.

Four for Fighting (Cancer)