The Impending CAR-T Craze
December 12, 2014
Chimeric Antigen Receptor T-Cells (CAR-T) are the 4th generation of monoclonal antibody (mAb) and 2nd generation Immuno-Oncology (IO) technology.
Global sales of monoclonal antibodies are poised to reach >$100B annually, and these mAb drugs have found widespread usage in several indications outside of cancer. The first generation of Immuno-Oncology drugs are expected by various Wall Street Analysts to reach >$30B in sales by 2025. Suffice to say, the market for these CAR-T approaches is a massive economically insensitive global market compounding at >10% per year. Therefore, I would hazard that in the next 3-5 years the craze around the CAR-T space, especially as these approaches move past liquid tumors and into solid tumors, will rival if not exceed the Hepatitis-C Virus (HCV) craze of the last 5 years.
There are 33 ongoing trials in the CAR-T space sponsored by a diverse group of pharma/biotech players including Bellicum (BLCM), bluebird (BLUE), Cellectis (ALCLS FP/CMVLF), Juno (JUNO), Kite (KITE), and Novartis (NVS). I am particularly interested in BLCM for their “suicide switch” (safety switch) technology, BLUE for their vectoring & gene editing technology, and ALCLS for their single/multi-chain CARs, gene editing, and simple/complex safety switch technologies.
There are 2 basic CAR-T approaches: 1) Autologous, 2) Allogeneic. The autologous approach relies on harvesting the patient’s own T-cells and genetically modifying them ex-vivo (outside the body) to target a desired tumor antigen. The allogeneic approach is an off-the-shelf frozen pharmaceutical product relying on genetically engineered T-cells that are not the patient’s own. All of the approaches currently in clinical trials are autologous approaches/sponsors with the only exception being Cellectis (ALCLS FP/CMVLF), which will enter the clinic in mid-2015.
Early clinical data was reported for autologous CAR-T approaches this month at the American Society of Hematology (ASH) conference, primarily in Acute Lymphoblastic Leukemia (ALL) and other liquid tumors targeting CD19 on the surface of malignant B-cells. The efficacy was astounding. NVS/JUNO CARs showed Complete Response (CR) rates of ~90% in this extremely aggressive leukemia where chemotherapy approaches achieve 20-40% at best. However, the side effects were significant as well with instances of Cytokine Release Syndrome, which is at high risk to be fatal, and neurological side effects in >50% of the patients. There have been 2 deaths in the KITE sponsored Memorial Sloan Kettering trials attributed to CAR-T therapy. There is skepticism around what the safety profile of allogeneic approaches will be since there is even significant potential to make the patient a victim of their own T-cells with autologous, which is the patient’s own engineered T-cells as opposed to allogeneic (foreign) T-cells. I am speculating that the issues come from the engineering of the T-cells, which effectively makes all approaches “foreign.” This reinforces the need for best-in-class safety switch technology to shut the CAR-T therapy down when it causes the patient’s immune system to go awry.
Commercially, autologous approaches have several issues—primarily the high Cost of Goods Sold (COGS) and difficult logistics that plagued early autologous immunotherapy company Dendreon (DNDN) out of existence. Allogeneic approaches do not have these commercial issues. Allogeneic products offer massive potential because they have 1/10th the COGS, are off-the-shelf so they don’t cause laborious logistics, and fit nicely into existing clinical practice.
In spite of safety/commercial issues, there has been broad enthusiasm for the shares of companies operating in this area. KITE has collected a >$2B market cap with strong share price appreciation on ASH data which led to rapid closure of $190M in additional financing… and the stock hasn’t flinched. BLCM and JUNO are both set to price Initial Public Offerings (IPOs) imminently and the pricing forecasts being thrown around are >3x where they completed crossover rounds as recently as August. BLUE enjoyed +100% upside on ASH to a $2.5B valuation as well, primarily due to viral vectoring and gene editing technologies targeting Beta-Thalassemia and Sickle-Cell Disease that forms the basis for their CAR-T efforts with Celgene (CELG) that will begin to mature next year. We are in the first inning of the CAR-T craze.
And then there is ALCLS. ALCLS is a French company traded on the EuroNext Paris. It’s a $400M market cap supported by >$125M in cash which ascribes limited enterprise value to its technologies, especially relative to its American counterparts. If this company was traded in the U.S. today, it would probably fetch a valuation of >$500M-1B, but it doesn’t because U.S. investors mostly are not aware of it.
When they go into the clinic in 2015 and report rolling results on their first few patients, ALCLS will be impossible to ignore. They are the only company that offers a fully integrated CAR-T platform that has all the pieces that you need to be successful in liquid (the present) and solid (the future) tumors with solid tumors being the mega opportunity. These technologies are: 1) Single/Multi-Chain CARs, 2) Gene Editing, and 3) Safety Switches. ALCLS is the only company that offers all 3. It’s most well-heeled counterparts like BLUE and BLCM are able to string together #1/2 or #1/3 at most but no competitor has the whole intellectual property enchilada in-house except for ALCLS. This is validated with partnerships from Pfizer (PFE), Servier, and Regeneron (REGN). The only other player with any level of validation is BLUE which is partnered with CELG.
ALCLS also offers a plant sciences division that relies on the same gene editing technology that supports the CAR-T platform. This technology enables the plant sciences division to produce disruptive solutions for the food industry—most notably technology that prevents a potato from browning and a soybean from secreting trans fats while maintaining a non-GMO (no foreign DNA) classification for the product per a guidance letter already in their possession from the USDA confirming this can be commercialized as an unregulated food product.
The plant sciences opportunity is not valued by the Street because most are not a position to assess it from a healthcare analyst seat. It just so happens that the stars have aligned for me to assess it from the healthcare analyst and 5th generation PepsiCo (PEP) bottler seat. This technology is potentially very valuable to global food companies like McDonalds (MCD) and Frito Lay (Division of PEP) who lose 10-15% of their potato inventory per year to obsolescence due to this browning issue. Of interest, MCD just terminated their relationship with a private company attempting to reach the same end that was not able to get the unregulated food product classification from the USDA because it was a GMO product (contained foreign DNA).
Guesstimating what the plant sciences opportunity might be worth, loose comps with PEP deals like Senomyx (SNMX) have routinely traded at $200-500M market capitalizations. ALCLS plant sciences division could easily fetch this on its own, which one day it could be its own public company. Such a spin-out transaction would offer almost 100% upside from here on the plant sciences opportunity alone that no one on the Street has examined to date.
ALCLS is a unique opportunity that is trading at 1/5th to 1/10th the value of its counterparts while offering 2-3x as much in terms of a technology platform as well as the plant sciences opportunity; therefore, it seems mega stock appreciation is imminent if ALCLS can validate this allogeneic approach (particularly on the safety side) in even a few patients in 2015. As we go into 2016, I see ALCLS at $2B+.
Disclosure/Disclaimer: At the time of this writing, I have positions in ALCLS & BLUE.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of any of the companies mentioned in this article. Further, the author does not make any representation or warranty, express or implied, as to the information's accuracy or completeness, nor does the author recommend that the writing serve as the basis of any investment decision and it has been provided to you solely for informational purposes only and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such.