What happened

Shares of Agenus (AGEN 2.03%), a small-cap cancer immunotherapy company, were down by almost 16% at 1:20 p.m. Thursday as a result of AstraZeneca's (AZN 1.20%) Mystic trial missing its primary endpoint for progression-free survival in non-small cell lung cancer (NSCLC). Shares of Bristol-Myers Squibb's (BMY) , which is pursuing a similar combination therapy for front-line NSCLC, also fell by as much as 6.8% in early morning trading, and were still off by 3.5% at 1:20 p.m. 

A hand pricking a bubble.

Image Source: Getty Images.

So what 

When checkpoint inhibitor antibodies work, they tend to be wildly successful, producing remarkable responses against a variety of cancers. The key concern, though, is that they only seem to work for 10% to 30% or so of patients -- which means most don't respond to these potentially game-changing therapies. Pharma companies like Agenus, AstraZeneca, and Bristol were all hoping to solve that problem by combining their checkpoint inhibitors with other anti-cancer agents.

Astra's Mystic trial, for instance, sought to tackle front-line NSCLC with a combination of its PD-L1 inhibitor Imfinzi (durvalumab), and the CTLA-4 inhibitor tremelimumab. This high-profile failure, however, suggests that combination therapies may not be a magic bullet after all.

If this proves a harbinger of trial failures to come, Agenus and Bristol could both be in for steep pullbacks. The bulk of Agenus' present value proposition is based on its diverse checkpoint inhibitor pipeline, which is expected to enable it to pursue a variety of novel combination therapies -- and perhaps give it the ability to catch up to industry leaders such as Bristol and Merck

Bristol, for its part, is hoping to find a winner in the first-line NSCLC setting with a combination remarkable similar to the one being tested in the Mystic trial. Specifically, Bristol is assessing its PD-1 inhibitor, Opdivo, in conjunction with its own CTLA-4 inhibitor, Yervoy, for this high-value indication. After an initial peek at the data earlier this year, the drugmaker decided to forgo an accelerated filing for this combo, suggesting that it may soon follow in the footsteps of Astra's failed combo. 

Now what

Astra's Mystic trial could still hit pay dirt if the combination of therapies proves to prolong overall survival compared to standard chemotherapy in the NSCLC setting. The company expects to release results on that metric from the study in the first half of next year. And Bristol is on track to release top-line data from its front-line NSCLC combination therapy study in either late 2017 or early 2018.

Taken together, these two trials could determine the fate of smaller players like Agenus that are trying to break into this highly competitive space. With the enthusiasm for checkpoint inhibitors likely to wane -- at least temporarily -- investors can expect Agenus' stock to move lower in the interim. The checkpoint inhibitor arms race, after all, might start to slow down in a big way following this latest clinical setback.