Six Disruptive Biotech Stocks

By Mike Volkin - August 18, 2012 | Tickers: AVEO, DNDN, IMGN, SGEN, VRTX | 0 Comments

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By George S. Mack, The Life Sciences Report

For more interviews with sector experts and analysts, please sign up for our newsletter at http://www.thelifesciencesreport.com.

Imagine a novel discovery or even a novel platform that just fizzles. To a technology freak like me that sounds so disappointing to think that you can actually discover breakthrough ideas that are not disruptive and don't really change much. I recently spoke to Ray Blanco who was so inquisitive as a kid in the 1960s that he built a Wilson cloud chamber in his parents' basement to detect vapor trails revealing movement of subatomic particles. He's still at it, but now it's about building financial models to assess the value and prospects of innovative companies. Today, as an editor and contributor to several investment publications at Agora Financial, Blanco is satisfying his still-healthy curiosity by finding small-, mid-, and even a few large-cap tech stocks with potential to usher in new paradigms and make significant returns for investors.

In my interview with him for The Life Sciences Report, our conversation turns quickly to what investors must understand about platforms, along with a stark case in point. "Just having a cool science project isn't enough," says Blanco. He pointed to Dendreon Corp. (NASDAQ: DNDN), which had a real breakthrough in terms of biotechnology with its prostate cancer autologous cell platform, but in the real world it doesn't really move the needle much in terms of patient survival times and is incredibly expensive. "That's one example of a scientific breakthrough that I wouldn't consider in and of itself a disruptive technology," he said.

These days Blanco is very interested in the antibody-drug conjugate (ADC) platform. The idea is to link, or conjugate, useful drugs to antibodies so they will find with lock-and-key precision to target specific antigens on the outer membrane of disease causing cells. It's a way of targeting offending cells while sparing the healthy ones. The first names that come up are Seattle Genetics Inc. (NASDAQ: SGEN) and ImmunoGen Inc. (NASDAQ: IMGN), both of which are developing ADC platforms.

Genentech's (now a unit of Roche Holding [RHHBY]) Herceptin (trastuzumab), a monoclonal antibody, targets breast cancers overexpressing the HER2/neu receptor. This has been a very successful franchise for Genentech/Roche which has partnered with ImmunoGen to improve the efficacy of trastuzumab by linking it to a chemotherapeutic agent so that the HER2-positive patient will not only reap the benefit of signal transduction pathway inhibition by the antibody, but will also benefit from having a linked cell-killing agent delivered specifically to aggressive tumor cells. The ADC product is TDM-1 (trastuzumab emtansine), which is being evaluated now for treatment of metastatic breast cancer in three separate phase 3 studies.

Blanco has a special interest in Seattle Genetics which is using a similar technology with its ADC agent Adcetris (brentuximab vedotin) for Hodgkin lymphoma (HL) from which he is now a two-decade survivor. Brentuximab targets the CD30 antigen which is expressed by the giant Reed-Sternberg cell which has for so many years now been identified with HL. Adcetris is already approved for late-stage HL as well as anaplastic large-cell lymphoma (ALCL) patients who have failed chemotherapy. It is also approved for HL patients who have failed an autologous stem cell transplant, or for two chemotherapies in patients who are not stem cell candidates. Seattle Genetics would like to see the product eventually used as a first-line therapy, and Blanco believes there's a lot more value coming out of the company's development pipeline. "It has the opportunity to expand (Adcetris) into earlier disease stages, and the company also has a pipeline of in-house and partnered ADC compounds that it is using to go after other cancers as well," says Blanco.

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Six Disruptive Biotech Stocks