Is Pfizer's New PD-L1 Drug a Game-Changer?

The Food and Drug Administration has agreed to review Pfizer Inc.'s (PFE -0.19%) PD-L1 checkpoint inhibitor, avelumab, under an accelerated approval pathway. If it's given the go-ahead, avelumab will join the previously approved PD-1/PD-L1 drugs Opdivo, Keytruda, and Tecentriq in reshaping how doctors treat cancer.

Will a potential avelumab approval next year be a game-changer for this pharmaceuticals giant? In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Michael Douglass is joined by contributor Todd Campbell to discuss avelumab's pending FDA decision and what it could mean for Pfizer investors.

A full transcript follows the video.

This podcast was recorded on Nov. 30, 2016.

Michael Douglass: Let's hop on over to the opposite end of the biotech spectrum: big pharma, Pfizer, the massive drug company closing in in what's called the PD-1 race. PD-1, immuno-oncology, the idea here is: Cancer cells are often able to cloak themselves from being identified and targeted by the immune system. The idea of PD-1 inhibitors is that they basically block that cloaking device, and the immune system can be like, "Whoa, wait a minute, this thing is bad. Let's kill it." It's been a really exciting area. You and I were chatting before the show, and you mentioned: Immuno-oncology is expected to be, potentially, a tens-of-billions-of-dollars opportunity across the entire market, just because of how effective some of these drugs have been in treating cancer. Pfizer, a later entrant compared to Bristol-Myers Squibb and Merck. Let's talk about Pfizer's new PD-1 drug.

Todd Campbell: This is a pretty cool area of advancing technology and how we treat cancer. We talked about PD-1s as the ability to be able to help T cells find and destroy cancer more easily -- avoid the cloaking system, if you will. Where we find that, that could be really useful in helping and patient outcomes in cancer, is when these drugs are used in combination with other drugs that are already effective in these different indications. There is a tremendous amount of enthusiasm that PD-1- and PD-L1-targeting drugs could generate a lot of money on their own, but also that they could generate a lot of money when used in concert with these other approved medications.

As you mentioned, you have Bristol-Myers and Merck already on the market with their PD-1-targeting drugs. You also have Roche entering the game in October with a drug called Tecentriq, which got approved for some use in some non-small cell lung cancer patients. Now, sometime next year, it's likely that we'll see Pfizer join the race with this drug, avelumab. (laughs) I always butcher the names, I apologize.

Douglass: Pronunciation is always a fraught ...

Campbell: Pfizer has teamed up with Merck Germany -- which is not to be confused with Merck, the U.S.-based company -- on this drug. The FDA has just accepted their application for approval of its use in metastatic Merkel cell carcinoma, which is a very rare form of skin cancer that has very few treatment options, and a very poor prognosis. So, there's a major unmet need they're targeting with this drug. Because of that, the FDA is reviewing this drug on an accelerated pathway that could get it on the market as soon as next summer. It won't move the needle a lot for Pfizer, because Pfizer is a huge company, generating billions of dollars in revenue, and the patient population is pretty small. But it's important, because it gets them in the race for PD-1 and PD-L1, and would potentially allow them to expand that label into other indications. There are a lot of trials that are still ongoing, evaluating this drug for Pfizer.

Douglass: A couple really good points you made that I want to call out here. The first one is, the initial opportunity with the drug is often the full opportunity with the drug. You have a drug that is good for this one disease, and it's good for that disease and that's all. The real beauty and excitement of PD-1s and PD-L1s is, they are potentially -- and they are certainly being tested extensively -- used in a number of cancers. So, it's not just, "This one was approved for non small-cell lung cancer, OK, cool, it's a non small-cell lung cancer." It's also, "What about renal cell carcinoma? What about these blood cancers? What about whatever else?" There's a lot of potential opportunity with this, and that's why investors are really excited about them. At the end of the day, these combos, given the size of the market -- cancer is an enormous disease, and obviously a very deadly one -- given the diversity of cancers that need to be targeted and fought back against, there's really opportunity here for multiple winners.

Campbell: Yeah. If you look at the way it's shaped up already -- and this is a relatively new class of cancer-fighting compounds -- you have Opdivo sales in the third quarter already clocking in at a $3.6 billion pace.

Douglass: $3.6 billion annualized.

Campbell: Yeah, annualized. And, Keytruda clocking in at around a $1.2 billion annualized pace. So, you're already generating out, just from those two drugs, sales at like a $5 billion annualized pace. I think some of the peak sales estimates for PD-1s and PD-L1s put this market in the tens of billions of dollars. Now, as you and I have talked about in the past, Michael, peak sales estimates: Don't rely on them. (laughs) They're often wrong. But what we are seeing so far, proof in the pudding, is very strong uptake of these drugs, and very good revenue generation for investors for the ones that have already reached the market.

Douglass: Yeah. So, this is definitely good news for Pfizer shareholders. I would not argue, and I don't think you would either, Todd, that this is thesis-changing for Pfizer, because no one drug can really easily move the needle for a company as big as Pfizer. What the opportunity with this drug is is yet still unclear. We only have these data points so far. Of course, obviously, actual approval is not guaranteed. The FDA certainly surprises people in both directions sometimes. I think there's still a lot of question marks as to how, long-term, this fits into the Pfizer strategy. But it is undoubtedly good news. It's nice to see Pfizer getting into this market and playing with the first movers, Bristol and Merck and Roche.

Campbell: Absolutely. You mentioned, we only have the information so far on Merkel cell. There are 11 ongoing phase 3 trials that are either recruiting or not yet recruiting for this drug. I imagine that if investors stay tuned over the course of the next year, year and a half, they're going to see some more data coming out that will give them a little bit more clarity into what the peak potential could be for this drug.