Healthcare Investor Brad Loncar Breaks Down ASCO 2019's Winners and Losers

Earlier this month, industry watchers gathered at the annual American Society of Clinical Oncology (ASCO) conference to discuss the latest research in the battle against cancer. The event is one of the most anticipated of the year for researchers and investors because invariably, new data that can transform cancer treatment is unveiled. This year's conference included market-moving presentations from a slate of high-profile players and a few little-known upstarts.

On this week's Industry Focus: Healthcare, ASCO attendee and longtime healthcare investor Brad Loncar joins analyst Shannon Jones and contributor Todd Campbell to break down the top stocks to target following the conference. In this episode, they discuss:

• An innovative and potentially disruptive new treatment for cervical cancer from Iovance Biotherapeutics (IOVA -1.01%).
• Why MacroGenics' (MGNX -3.48%) breast cancer data may be misunderstood.
• The challenges facing biotech unicorn Grail.
• Plus insight into the indications and mechanisms of action investors ought to be paying attention to now.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on June 12, 2019.

Shannon Jones: Welcome to Industry Focus, the show that dives into a different sector of the stock market every single day. Today is Wednesday, June the 12th, and we're talking Healthcare. I'm your host, Shannon Jones, joined via Skype by healthcare guru Todd Campbell. Todd, as you know, I'm always thrilled to have you on this show. But just on a scale of 1 to 10, how excited are you about our special guest and today's topic?

Todd Campbell: I'm stoked. I'll give it an 11.

Jones: I'm going to give it a 13.

Campbell: I'm going to go Spinal Tap, just one louder.

Jones: For our listeners, I'm super excited to have none other than Brad Loncar CEO of Loncar Investments, global expert on biotech, and a bio Twitter legend. If you don't follow him on Twitter, you certainly should. His handle, @BradLoncar, is a must follow if you really want to be in the know and really cut through a lot of the noise that's in the biopharma world. Brad is joining us for today's show so we can pick his brain about one of the biggest and what I consider one of the best healthcare conferences of the year, that's none other than ASCO, the American Society of Clinical Oncology's annual conference. Brad, so glad to have you back on the show.

Brad Loncar: Well, thanks for having me! Now that you set those expectations, I don't know what I'm going to do here. Great to check back in with you and it's always great to say hello to the Motley Fool community. Thank you for having me back!

Jones: Yeah, always thrilled to be chatting with you, Brad. For our listeners who may be unaware, just to set the stage, ASCO is really all about bringing together the who's who of cancer care. Literally tens of thousands of people flocked to Chicago last week. You're talking about physicians, scientists, companies, patients, and of course investors. I would say ASCO is probably a lot less horse and pony show than some other conferences that shall remain nameless for right now. This conference is really all about data in one of the hottest areas of investment and ultimately for patients, and that is cancer care.

Brad, before we dive into some of your big takeaways from this year's conference, I feel like coming into ASCO this year, the expectations for it were kind of muted, some not really expecting any knock-it-out-of-the-park presentations or updates. But now that the conference is wrapped up and we've had a chance to digest all the news, holistically, would you say that this year's ASCO was a dud? Or would you say that ASCO really under promised and over delivered for this year?

Loncar: I think definitely the latter. ASCO is what you make of it. You're right. Some 40,000 people go to Chicago for this. It's the largest conference for cancer research in the entire world. We call this the Super Bowl. Companies save up their best data to present it here. The thing that was different this year compared to last year, and the reason why I think some people were incorrectly calling it a bad year, there were a few less blockbusters. Usually there's three or four presentations that change the practice of medicine for certain type of cancer. That was really missing this year. The big companies like the Mercks and Bristols of the world had a lot of data, but nothing spectacular like they have in the past.

But the exciting thing is, there were a lot smaller companies this year that did have a lot of interesting things to say. I think that's a sign of how this industry is changing. A term that you hear a lot these days is precision medicine. You don't really need to be one of those big, gigantic companies to be a leader in cancer research like you used to in the past. For example, the winner of the last two ASCOs, 2017 and 2018, was Loxo Oncology. This is a company whose drugs literally treat hundreds of patients. It's really the smaller biotech companies that are shining at conferences like this now. If you understand that and go to the conference with that type of mindset, I think this year was exciting. I think it's a sign of the times.

Another thing, also, is, there's a lot more of these conferences throughout the year, and they're well-covered by the media. A decade ago, if you wanted to make a splash, you had to present your data at ASCO because that was the big event, that's where all the journalists were, that's where all the newspaper stories were written. Now, you can pretty much present data anywhere and get good coverage and get in front of the doctors that you want to see it. ASCO's role will always be important, but it's also changing somewhat, too, just because the way that information gets out there today is different as well.

Campbell: Brad, you brought up something interesting as you were talking there, when you mentioned the role of precision medicine and how that's leveling the playing field. One of the things that struck me, that I wanted to ask you about, is in the past, we would come out of ASCO, and we'd be saying to ourselves, "Wow, what a huge advance in non-small lung cancer. What a huge advance in breast cancer." And I'm curious, is there an indication you felt like you walked away from ASCO and said, "Wow, we made some significant headway, based on this data, in this particular indication?" Is it a big indication like that? Or, like you said, is it precision, where we're just talking about biomarkers for this subgroup of patients within this indication?

Loncar: There's two things like that that I would point out. I thought some of the more interesting data at ASCO this year, that had huge medical relevance, it wasn't as much of a stock market story, is some of the long-term data that companies presented in some important cancers. I think this was important and exciting because one unfair criticism of the cancer research industry and pharmaceutical industry in general is that a lot of advances are incremental. You hear a lot of stories in the news about a drug that extended patients' lives by a handful of months. People say, "Gosh, is that really medically relevant? These are incremental advances." There were a couple long-term studies that really showed that these researchers are making a huge impact on cancer care in some important types of cancers. The best example is non-small cell lung cancer. One thing we talk about a lot, and one thing I'm a huge fan of, is the immunotherapy drugs. Merck has a big one called Keytruda, Bristol has a big one called Opdivo. This year at ASCO, Merck presented a five-year follow up in advanced lung cancer. That word, advanced, is very important. These are patients that have failed all kinds of chemotherapies, and their cancer is sadly progressing. And now that these immunotherapy drugs have come along, in this study with Keytruda, at the five-year mark, 23% of patients, so almost a quarter, were still alive. That compares to, historically, you'd expect 5% or less. So, to get a quarter of patients out to the five-year mark is really something that we should be proud of. We've really made a dent in lung cancer. Unfortunately, it's only a quarter. Companies now are trying to work on getting the other three-quarters of patients to respond to these by using the drugs in combination and everything. But still, that's a big, big thing that's happened.

Roche had a similar thing in a type of breast cancer called HER2-positive breast cancer is. That's about one-fifth, so about 20% of breast cancer patients have HER2-positive breast cancer. Roche presented data from a big study called Cleopatra that uses a drug called Herceptin and another drug they have called Perjeta. This was an eight-year follow up, and nearly 40% of patients were alive. A decade ago, that would have been unimaginable.

That really, to me, is one of the most exciting things to walk out of this conference with. There's evidence that there are certain cancers that are totally being changed over recent years. I'm excited about that HER2 breast cancer space. The one thing I think we'll talk about a little later is this company called MacroGenics that had a HER2 drug called Margetuximab. They didn't have data at the conference, but there's a really exciting drug in this space that AstraZeneca and a Japanese company called Daiichi Sankyo have called DS-8201 that looks like it could be pretty revolutionary. This is what's called an antibody drug conjugate. They announced that in late stage breast cancer patients that are HER2-positive, they have significant advantage on this drug. We'll have to see the data later this fall. AstraZeneca paid Daiichi almost $2 billion to partner on this. That looks really exciting.

There's company I follow called [...] antibody in development. This is one area where I think there's a lot of progress being made right now. So that's the space that I would watch closely.

Jones: Of course, after every major conference, especially ASCO, there's always the debate that ensues. Basically, who won ASCO? You did have a lot of encouraging data. You summarized a lot of the big winners. But who would you say won ASCO this year? And then, maybe a company that just didn't get the Wall Street love that it should have gotten based on its data?

Loncar: I look at this from a medical perspective, but we're also stock people, so maybe I'm a little biased when it comes to that. But one of the biggest stock losers, and I thought the most interesting data that I saw there, was from a small company called Iovance, ticker IOVA. This is exciting because they do what's called cellular immunotherapies. A lot of your listeners might be familiar with the term called CAR-T. There's a big company called the Kite that Gilead bought for $12 billion. There's another company called Juno that Celgene bought for $9 billion. Those are CAR-T companies. That also is a type of cellular immunotherapy. But the catch with CAR-T right now, as exciting as it is, is so far, it seems to only be working in types of blood cancers. The big question is, will CAR-T ever work in what we call solid tumors? Lung cancer, kidney cancer, melanoma, things like that?

Well, this company, Iovance, has a cellular immunotherapy that's a little different than CAR-T. Theirs is called TIL. It stands for tumor infiltrating lymphocytes. The exciting thing about this is, it seems to be working in solid tumors. They already have some data in melanoma that we've seen over the last year or so that provided a hint. But the real blockbuster data that they presented at ASCO that really turned everyone's head is cervical cancer. Late stage cervical cancer is a huge unmet need. They use this TIL therapy -- I never like to get too nerdy into the science, but this is pretty cool. When you have cancer, white blood cells, your immune system, what we call lymphocytes, usually are able to track it down and find it. But the problem is, there's usually just not enough of them to really make a difference. So what this company, Iovance, does is, it takes a biopsy of the tumor, and it separates out those lymphocytes, and it grows them into the billions. It doesn't manipulate the cells in any way. That's kind of a good thing because these are cells that have already figured out a way to find the tumor. So, they take these cells, they grow them by the billions, and then they reinfuse them back in the patients. In late stage cervical cancer -- you always have to have the caveat, this is just dozens of patients; we have to see more data over time -- 44% of women with late stage cervical cancer saw tumor shrinkage, so, responded to this drug. Just to put that in historical perspective, the last drug that was approved in that type of patient population, which was actually this KEYTRUDA drug from Merck, only had a 14% response rate. So, it's very exciting to see such a high response rate, especially in such an unmet need like cervical cancer. So I think that looks very promising.

The bigger picture significance of this is, there seems to be a cell therapy working in solid tumors. This is something that we've been complaining about with CAR-T for years and years, and now it seems that somebody might have cracked that code. Maybe this TIL approach will have promise in other types of solid tumors. Now we've already seen melanoma, cervical cancer. They'll be able to try it in other things, which they are right now. Hopefully, it'll work in other things.

So, that's a major learning -- there's a cell therapy that seems to be working in solid tumors.

Campbell: I want to piggyback on that. You mentioned that company. The shares actually responded pretty well to it. Do you think that there's more gas in the tank for investors in that? Or are we just going to have to wait and see more data from more patients before we can say that?

Loncar: I think two things. I think their chances of partnering this more widely with large pharmaceutical companies has significantly increased now that they've presented this. I wouldn't be surprised if they have some type of partnership announcement or some announcement that they're expanding the research and development of this into more types of cancers. The biggest thing for them is two things to watch out for this year. The most advanced cancer that they're testing this season is in melanoma. They've already started treating the patients in the pivotal trial for that. That will probably read out toward the end of this year. They're hoping to have this drug submitted to the FDA and approved as soon as late 2020. The No. 1 thing is to watch how that goes and see the final data from the clinical trial of that.

In terms of cervical cancer, they need to talk to the FDA and see if there's an expedited pathway for them to run a quick study and get this on the market. A few days after they presented their initial data at ASCO, they received what's called breakthrough therapy designation from the FDA. That was a nice sign to the market that the FDA is probably going to be pretty accommodative about helping them get this into a pivotal study, maybe on the market sooner rather than later. So they'll be meeting with FDA to get the formal guidance on that over the summer. We'll want to watch what that guidance is. Hopefully, it'll be positive. With a breakthrough therapy designation, my expectation is that should be. So, those are the official catalysts. Like I said, maybe we'll get a partnership or something else in the meantime. But those are really the big things to watch with Iovance.

Campbell: Brad, is TIL the mechanism of action that has you excited for the remainder of 2019? We talked a lot about CAR-T, obviously, in 2018. Coming into 2019, I thought we were going to be talking a lot more about biospecifics. The BiTE data that came out at ASCO wasn't necessarily earth shattering relative to CAR-T. Is there a mechanism of action that you're walking away from ASCO with and thinking, "Yeah, this area is the most exciting to me right now"? Is it TILs?

Loncar: I would say a few things. TILs for sure. The only catch with TILs is, there's only one company that's really working on them right now, Iovance. There's another one, CBMG, Cellular Biomedicine Group, that could license a second generation TIL technology from the National Cancer Institute. But they're not even in trials yet. As far as TIL goes, Iovance is a one-company show.

I am very excited about biospecifics. The catch with biospecificsis, they're all first in human studies right now. If anyone follows CAR-T closely, you'll remember a few years ago, when CAR-T was brand new, there were a lot of initial problems with it, especially as it related to toxicity. One of the main side effects of CAR-T is something called cytokine release syndrome. When the CAR-T drugs were in the very early stages of development, in the very first trials, there were a lot of stops and starts. Sadly, there would be patient deaths, and they had to stop the trial and figure out what was going on. They were trying to administer this in a different way and learn how to handle the toxicities. Over time, the CAR-T treatments got there. Now, with much more experience, those toxicities are much more manageable today than they were a few years ago. That's exactly where the biospecifics are today. They're in the first in human studies. They're actually having problems with that same side effect, cytokine release syndrome. What that means is, basically, these drugs put your immune system on overdrive, and it affects everything. It goes overboard to the point where it's too dangerous and hard for patients. Biospecifics are going through that right now. But I expect they'll t be able to figure it out, just like the CAR-T people did.

One thing we've learned with the CAR-T launches, Novartis and Gilead's Kite unit are already commercializing CAR-T treatments, the fact that those are personalized and you have very high logistical and also payer challenges with those, we really do need an alternative to them. I think that the market needs for biospecifics is very high. The data right now seems not so hot, but that's normal. The CAR-T treatments went through the exact same thing. I would still keep a close eye on those. There's a lot of companies conducting really great science that are working on this, and will eventually get over it.

As I said, another tying I'm really excited about is this HER2 space. HER2 is most commonly known for breast cancer, but there are other types of cancers like gastric cancer and colorectal cancer that express this as well. There's a lot of interesting drugs in this space. I mentioned AstraZeneca and Daiichi Sankyo's one, DS-8201. Another one, Shannon asked earlier for a company that was a disappointment, that maybe didn't get enough credit. I would point out MacroGenics. This was one of the big stock decliners at ASCO. I'm a contrarian on this one. I'm a pretty big fan. They have a drug called Margetuximab. The idea behind this drug, Margetuximab, is one of the most important drugs in cancer history is called Herceptin. It was the very first HER2 treatment. It's been around for decades. $5 billion a year. Roche has built this huge HER2 franchise behind it. What MacroGenics did is, they said, "There's been advances in antibody engineering, and we think we can make a better Herceptin."

These are what's called monoclonal antibodies. The best way to think about a monoclonal antibody is, it's like a Y. There's a stem and two arms. The stem is what's called the Fc region. That's what MacroGenics is focused in on with this drug Margetuximab. They have done what they call Fc-optimizing so that the stem interacts with the immune system better. To their credit, they ran a legitimate Phase III trial head to head against Herceptin in late stage HER2-positive breast cancer patients who were no longer responding to other HER2 drugs. Head to head against conception, this drug, Margetuximab, beat it. Statistically significant. It showed it lowered the progression of the cancer compared to Herceptin.

Now, the reason why the stock ultimately ended up going down is, the margin of benefit is very small. For all patients, the benefit was only 5.8 months versus 4.9 months. So, less than a month's benefit in progression-free survival. But there's a group of patients who were genetically predisposed to be better with this type of strategy. Those are called CD16A 158F allele patients. For them, the benefit was wider, 6.9 months progression-free survival with Margetuximab versus 5.1 on Herceptin. That was 1.8 months. Even though the data is not mature, they put out some overall survival data. For all patients, the overall survival advantage so far is about 1.7 months, 6.8 for that specific group of patients.

The market sold this off for two reasons. No. 1, they said, "The progression-free survival benefit is only a month or two. How clinically meaningful is that it?" What I think the market is missing here is, this isn't a benefit over a placebo. This is a benefit over one of the most important cancer drugs of all time. I feel like there's an important proof of concept. They said, "We think we can design a better Herceptin," and that's exactly what they've done. It's like saying you hit two more home runs than Babe Ruth. Some people would say, "Well, it's only two home runs." But it's two more than Babe Ruth. I think that's really the important proof of concept picture here.

The other reason why that one sold off is, for the group of patients that didn't have this genetic profile that would suggest they would respond better to this drug, Margetuximab did not prove statistically that it was non-inferior. What that suggests is that the company is going to have to figure out how to be testing to make sure that this drug gets to that right group of patients. But it's 85% of all patients. If only 15% of patients had this genetic profile, I would say that's a problem, because currently that testing doesn't exist. But the fact that it's the vast majority like that suggests to me that they can figure out how to make it commercial and get over this.

I thought that was one company that, I understood the stock reaction because there were some elements of the data that was disappointing, but I'm going to take a contrarian position on that one. I think it's an important thing that they've bettered Herceptin. I think that can be very valuable one day. I would maybe watch that one for future surprises to the upside.

Campbell: Brad, Shannon, real quick before we jump to this next one, that just clued me in on it. Brad, we are talking about overall survival. Correct me if I'm wrong, I think we're going to get an update on overall survival from their trial later this year. If so, then investors are going to want to focus a lot of attention on that.

Loncar: That's right. The trial is still ongoing, and there'll be an interim look at overall survival later this year. Next year, we'll get the final look at overall survival. The stock market is looking very closely at that because regardless of what that overall survival numbers are, they're planning to file for approval by the end of this year. It'll probably be around this time there year that the FDA is reviewing this. What bears are saying is that the data is marginal enough and wishy washy enough that they don't think progression-free survival will be enough for the approval alone. This interim analysis later this year, it probably will be conclusive on overall survival. But if it's still trending like this first look at overall survival we just got at the conference, it seems to be trending in the drug's favor, that could be the thing that pushes FDA over the top in giving this an accelerated approval.

You're exactly right. That will be a data point that will be coming out later this year. It'll be a big one to watch, especially for the bears who don't think that this can get approved on [...] alone. If that is, at a minimum, trending in the right direction, it might kick some of those out of the bearish camp. We'll be watching that very closely.

Jones: Yeah. For MacroGenics, that's ticker MGNX for our listeners. I do think that's a company, seems to be either you're on the side of it's a lot of hype, or you're saying this is the real deal. A lot to watch there. Brad, one last question for you before we close it out. Of course, there's been a lot of fanfare, a lot of excitement surrounding liquid biopsies, particularly as a simple and non-invasive alternative to surgical biopsies. Any takeaways on the liquid biopsy space and what investors should be looking for moving forward?

Loncar: I think the big companies in terms of ASCO and liquid biopsies is GRAIL. First of all, for full disclosure, this is not my area of expertise. But I do have a few takeaways. First thing I would say is, this is still very early. GRAIL, for example, at ASCO, presented data from a study that did liquid biopsies on like 2,000 patients. The important thing to know about this is, they're going to have to run a study with literally hundreds of thousands of patients to really understand how accurate these tests are, and whether they can get approved or not. We're in the very early stages of that. In fact, it's so early, the method that this company is using to do the cancer detection has recently changed. At first, when they founded the company, all along, they thought they were going to be able to use DNA, and use that as the basis of trying to make diagnoses. Based off of the data they showed at this conference, they switched to something called methylation. It makes me wonder. The fact that they're completely changing their method and how they go about it really shows you how preliminary it is.

But data looked pretty good. For Stage 1 cancers, they're correctly finding about a third of patients. For Stage II cancers, it's more like three-fourths. If those types of numbers hold up in larger studies, it would be a positive.

There's a few things that concern me. Nothing can be perfect, of course. The false positive rate that they're going after right now is 1%. They view that as acceptable false positives. That's fine, I think, for high-risk patients. But the entire idea behind liquid biopsy is you want to use this widely and on a lot of people to catch cancers very early. I worry that doing something like that on a wider swath of the population, and having a 1% false positive rate, for something as stressful and important as cancer ... I'm not sure how that's going to be received in the medical community and in society. I think there's a lot of challenges that these companies still have to figure out.

One thing that's weird about GRAIL is, this is a biotech unicorn. They've raised something like $1.6 billion of venture capital. The last valuation for the company was something like $3-4 billion. As I mentioned, they just shifted their method of looking at this. They just hired a new CEO, a name that I think is familiar to a lot of your listeners, Hans Bishop. He was the CEO of Juno until it was acquired by Celgene. This is the company's fourth CEO in two years. That makes me wonder what's going on there, when you have a $3 billion unicorn that's gone through four CEOs in two years. So, there's a lot of things that need to get figured out about this.

Another thing from a commercial standpoint is cost. If the approach for liquid biopsies is to detect cancers early, it has to come at a very low cost to be used widely. Let's use an example. A really good diagnostic tool that's used today for patients that have cancer is the FoundationOne test, which does genomic profiling of your cancer. That costs about $6,000. But these are patients that already have cancer, and that's a huge, clear value because they need [...] sequenced. When you're talking about something like liquid biopsy, you're talking about a population of users that are 10X-30X greater than that. What kinds of prices are they going to be able to charge for something like this?

I guess, in a roundabout way, what I'm saying is, initial data is intriguing, but I would view this as something that's very early, has a lot of barriers to get over, and we're just getting the very first look at this. These companies need to hone their process and run huge trials to really figure out what the commercial utility of these things is going to be. We're going to be talking about the development of liquid biopsy tests for many ASCOs to come before it's on the market, I think.

Jones: Brad, we will definitely have to have you back on the show to give us even more updates, not just with liquid biopsy, but really across the universe. Always a pleasure to have you on the show.

Loncar: My pleasure. Thanks a lot! Fool on!

Jones: Fool on! And thank you to all of our listeners out there for tuning in. That'll do it for this week's Industry Focus: Healthcare show. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for against, so don't buy or sell stocks based solely on what you hear. This show is being mixed by Austin Morgan. For Todd Campbell and Brad Loncar, I'm Shannon Jones, thanks for listening and Fool on!