How Amazon Is Shaking Up Telemedicine, Plus 1 Winner and 1 Loser Exiting ESMO

Every fall, pharmaceutical industry leaders, clinicians, and interested observers of all stripes gather at the annual European Society for Medical Oncology (ESMO) Congress to discuss the latest news in the ongoing attempts to cure various types of cancer. This year, a number of companies unveiled market-moving data from cancer drug trials at the event. However, it was arguably Seattle Genetics (SGEN) that was the conference's biggest winner, and Amgen (AMGN 1.11%) that was its biggest loser.

In this episode of The Motley Fool's Industry Focus: Healthcare, host Shannon Jones is joined by contributor Todd Campbell to explain how Seattle Genetics could reshape how doctors treat bladder cancer, and why Amgen's promising KRAS-targeting drug candidate, AMG 510, appears to be falling short of expectations.

Also, Jones and Campbell weigh in on Amazon's (AMZN 1.49%) latest attempt to rein in runaway healthcare costs by launching a virtual health program for its workers. Here's why Amazon's making this move, and why it may not be bad news for telemedicine leader Teladoc (TDOC 2.46%).

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 2, 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, Oct. 2, and we're talking Healthcare. I'm Shannon Jones, your host, and I am joined by healthcare guru Todd Campbell. Todd, how's it going?

Todd Campbell: I'm doing well, Shannon. As always, happy to be here and talk all things, healthcare.

Jones: One of my favorite treats of the week, and today is no exception, because we're going to be diving into Amazon's latest step into healthcare and what that could mean for Fool favorites like Teladoc. We're also going to be diving into one of the biggest cancer conferences that just happened in Europe, giving you some updates there.

Todd, let's kick things off with Amazon. For those that don't know, that's ticker symbol AMZN. Amazon has been making a series of moves into the healthcare space. They just announced something called Amazon Care, a new way of delivering healthcare to its employees. Todd, what exactly is happening here?

Campbell: What's interesting is, everybody's so fascinated by Amazon because they have this tendency to approach something as an internal project, and then boom, it becomes a business model and a source of revenue. With so much money at stake in healthcare, the thinking has been that Amazon has larger designs than just simply offering better healthcare to its own employees. What we saw in 2018 was Amazon teaming up with Berkshire Hathaway and JPMorgan to create Haven, a research-driven company that's going to try and find better ways to deliver healthcare to their employees. More recently, this week, Amazon rolled out something that they're calling Amazon Care. It's going to begin for employees only in the Seattle area, but it's widely expected that if it works well, they'll roll that out to other geographic areas of the country where they happen to employ a lot of people.

What Amazon Care is going to do for those employees, it's going to provide them with telemedicine, so, virtual health visits with a doctor. It's going to provide employees with an opportunity for an at-home visit, if, for example, a test needs to get done and they need to collect a sample, like a blood sample. They're going to be delivering prescriptions straight to the home. And they're going to incorporate a chat feature that allows you, if you have a quick question, to be able to chat quickly with, say, a nurse or a nurse practitioner.

One of the things that's really fascinating about this is, it shows just how focused big companies are on trying to figure out how to rein in this Goliath, this unstoppable force that is healthcare spending.

Jones: Yes, and it's really no wonder that Amazon is taking the approach of this employer-based model to try to drive down costs. There was a recent survey from Kaiser Foundation, about half of the U.S. right now is receiving some employer-sponsored health insurance. In 2019, annual family premiums for employer health insurance rose 5% to an average of $20,576. If we break that down a little bit further, workers are actually paying roughly about $6,000 toward that premium cost. That means employers are having to foot the bill for about 75%. With half the population getting their insurance, it makes complete sense to me that as Amazon tries to tackle, basically, the war on healthcare spending, it makes sense to me to do it, of course, in-house, as they always have done with many of their initiatives, and focus on that employer-based model.

I've mentioned the Haven healthcare that they're doing. Would not surprise me at all to see this rolled up into that initiative. They've been pretty mum about what's happening with Berkshire and JP Morgan, and Amazon with this initiative. But I could easily see that.

You also can't forget, they did that acquisition with PillPack, the online pharmacy, back in June. And, they just announced that they are actually rolling out earbuds. They're getting into the earbuds business with a project that will basically allow you to put an earbud in your ear, and it basically becomes a fitness tracker. This is a really interesting move, especially with the likes of Livongo Health, which recently made its debut onto the market, digital health monitoring. Livongo was actually the first company to have an Alexa-enabled skill built in for controlling diabetes. You see Amazon taking this series of steps to try to tackle not just healthcare spending, but also drive actual patient outcomes over the long term as well.

Campbell: You hit on an important number, and I'm going to drive that home for investors and listeners. Private health insurance spending: $1.2 trillion-plus annually. $1.2 trillion. What's really interesting -- I've talked about this a lot in the past -- we focus a lot of attention on trying to curb spending on drug prices and drug costs. The reality is that we spend way more money on physician and clinical services. We spend, as a healthcare system, $3.5 trillion a year, and 20% of that is on physician and clinical services. If you really want to move the needle on cost, you've got to figure out -- we keep doing these demand-oriented solutions, where we're going to increase access to care. That doesn't help on price. We really need to start focusing on innovative new ways to increase supply. Make supply more efficient. One of the best ways, in my view, to do that is to make the best use of the time that you have available now. If you have a doctor available today, take a look at how much of that doctor's time is being spent on things like patient cancellations, or admin duties, and say, "We're going to remove all of that, and we're just going to allow you to meet with patients on-demand as they need it." We've seen this in the industry. We mentioned Teladoc at the top of the show. The average meeting on a virtual health [platform] is only 15 or 20 minutes, something like that. So you can pack these right in, and you never have to worry about someone no-showing. And then, of course, from the employee side or the patient side, what a convenience factor. You've got the flu? You don't have to drag yourself out of bed. You can just go on your app, click a button, and find out if you need a prescription.

Jones: Great point, Todd. Going back to Teladoc, I think the question right now on a lot of investors' minds -- here at The Fool, we follow Teladoc quite a bit, ticker TDOC. Teladoc is far and away the leader in the telemedicine space. It's hard for some of the competitors out there to even try to match what they're doing. They've got an expert panel of doctors. They employ around 50,000 medical experts across 450 different specialties. They have a little over 26 million paying members, and that's still less than 10% of the U.S. opportunity ahead of them. Todd, the question is, what does this mean for Teladoc? One of the first things I think of is, why isn't Amazon buying or partnering with Teladoc when they have such an expansive reach?

Campbell: They have so much technology already at their disposal. If you're not convinced yet that you want to go this direction, it's better probably to do something small, internally. Then, when you decide that you want to roll this out or do something broader, then go out, maybe, and do an acquisition.

Teladoc is down 10% as of the time of recording, 10% in one day. That follows, obviously, getting hit on this Amazon news. I think that's a complete overreaction. Listen, Teladoc did 2.8 million visits last year. They'll probably do 4 million visits this year. Shannon, how many primary care visits would you guess happen in the U.S. every year?

Jones: Oh, gosh.

Campbell: Just throw a number out.

Jones: I'll say 5 million.

Campbell: Primary care visits in the U.S.: 500 million. Half a billion visits. So, to be concerned about the growth opportunity ahead of Teladoc with Amazon dipping its toe in, I think that's foolish. This might be a buying opportunity presenting itself here. It's something, obviously, we're going to want to watch. But I think this market is so big that you're not just going to have one player.

Jones: Exactly. Telehealth is the way of the future. It's not just Teladoc. You're seeing other medical specialties jump on the telehealth bandwagon with teledentistry now. That is the way of the world. If I'm an investor, I want to invest where I think the world is going and the future that I want to see. Teladoc is one of those companies.

Alright. In other news, we do have some big updates on companies that recently presented at one of Europe's most closely watch medical conferences. That's none other than the European Society of Medical Oncology, or ESMO, as we like to call it. The first update actually came from biotech behemoth Amgen, ticker AMGN. This is a company that made headlines for one of its drugs. It turned a lot of heads earlier this year, in June and again in September, for impressive results related to its drug AMG 510, specifically in lung cancer. But, for this conference, Amgen released data for AMG 510 in colorectal cancer. Todd, what did we see in this indication?

Campbell: This is part of this whole idea of getting to precision medicine, where we're actually able to drill right down and find these targets that we wouldn't have been able to find before, and actually be able to move the needle, not based on where the cancer originated, but basically based on the makeup of it or the causes behind it. In this case, we're targeting something called KRAS. We're specifically targeting KRAS G12C. That's found in about 13% of non-small-cell lung cancers, about 3% to 5% of colorectal cancers. And, we're talking about a patient population that Amgen estimates is about 30,000 people diagnosed every year. They've known about this as a target for a long time. But up until very recently, they considered it undruggable, they couldn't figure out a way to exploit it. As a result, a lot of people were thinking, "This could be a really exciting opportunity for Amgen," and for one of its competitors, which we'll talk about in a second.

But, all of the hype you saw earlier in the year fizzled out a little bit on this latest update at ESMO, because in the colorectal cancer group, the results were nothing overly spectacular. The cohort that was available was only 12 patients. That's a very small number of people. We have to keep that mind. But, only one patient experienced a partial response. That's an 8% response rate. They did argue that 10 of the patients had stable disease. That's a disease control rate of 92%. But we're talking a very, very short window of time to be evaluating that. So, I think a lot of people came out of the ESMO update for Amgen and said, "Oh, maybe this isn't as exciting as we once thought it to be."

Jones:  Yeah, so true. You mentioned, with this particular target, the KRAS target, as being undruggable. We've known about this target for over 30 years now. Trying to figure out a way to crack the code has been tough. It comes down to a lack of binding pockets on the surface of the protein itself. Amgen was hoping, with this drug in colorectal cancer, that they could crack the drug in this particular indication. But I think what we're seeing time and time again is, colorectal cancer is an indication that is not a mono-therapy indication. You're probably going to have to go at it with some sort of combination strategy. I think what's driving this is that colorectal cancer is so different. There are probably several mutations that are happening to actually drive this cancer growth. We don't necessarily know what those are, but it becomes a much harder target to go after.

There is another company that is going after this opportunity, and it's a company called Mirati Therapeutics (MRTX), MRTX. They've got their drug, MRT849 that they're studying in this indication. We could actually get data from them later in the month. There is a cancer meeting happening at the end of October that we'll be closely watching to see where they are going in this particular space.

Campbell: Right. It's very important for investors now to shift their focus to thinking about that. What we saw earlier in the year is, when Amgen reported data that was viewed more positively, Mirati's share price took off. Then, we saw some data that was a little bit meh, and Mirati's shares took off again because people were thinking, "Maybe Mirati has a better drug in development. Maybe they could deliver better results." Again, no data yet to be able to parse out of Mirati on their drug.

This time around, Mirati did fall. It's going to be very important -- Mirati doesn't have any drugs on the market right now. Roughly $3 billion market cap. So, all eyes now for investors should shift to Mirati, and see what their data looks like at the end of the month.

Jones: Exactly. Still, for Amgen, a big lung cancer opportunity. We're by no means writing off this drug. We're just getting closer now in the science where we're starting to see where that personalized medicine approach does work and where it doesn't. I think what's even more helpful is seeing the efficacy data.

Let's talk about another update, and that is none other than Seattle Genetics, ticker SGEN, along with its partner Astellas also reported data at ESMO. They're studying a drug called enfortumab vedotin. Why couldn't they make it one word, Todd? Why did they have to have two difficult words for the name of this drug? Anyway, they're studying it in combination with Merck's immuno-oncology wonder drug Keytruda in a certain type of bladder cancer. What did we see there, Todd?

Campbell: Let's just call it EV for short.

Jones: I like it.

Campbell: This is a really interesting medicine. It's an antibody drug conjugate. Basically, what you're doing is, you're taking something that can go out and attach itself to a molecule, and then you're taking that and combining it with something that can then cause the cancer cell to die. This is a very intriguing approach. The whole mechanism of action has been proven out because Seattle Genetics already has one of their drugs on the market in a different indication. What we saw at ESMO was Seattle Genetics and its partner Astellas, they're partnered on this drug 50/50. Each of them shares 50% of the cost to produce it, and if it gets approved and hits the market, they'll share 50% of the profits.

What they reported was that if you used this particular medicine, EV, you can actually have really strong response rates in first-line cancer. That's really impressive, first-line bladder cancer. The confirmed objective response rate was 71%. The complete response rate was 13%. And yeah, obviously, there were some adverse events and such, but they looked pretty manageable.

Now, that's really encouraging because they already have filed for approval and received priority review status from the FDA for this medicine, EV, in later-line use. So, heavily pre-treated patients who are out of other treatment options. A decision on that is expected in March 2020. This data that just came out of ESMO, in my view, not only increases the possibility, the likelihood, of the FDA giving this a green light in the later lines, but eventually getting this so that it can get a label expansion into the early lines, which, of course, allows for more patients to be treated and theoretically more revenue and increased profitability.

Jones: Yeah. You mentioned the safety issues. I think it was 51% had at least a serious side effect. Grade three. There was one patient that did die, unfortunately. This was a patient that had multiple diseases and died due to multiple organ dysfunction. But ultimately, Todd, these results here well beat chemotherapy alone. That has about a 41% objective response rate. The data coming out of ESMO for this company, just like you said, it's extremely encouraging, extremely impressive.

Doesn't mean there's not competition out there, though, because there is a smaller company, Immunomedics, IMMU. They've got a therapy out there, similar target, saw 29% of its patients respond. Of course, their shares took a tumble off of this news coming out of Seattle Genetics. All in all, Seattle Genetics, looking at this data, definitely gets a checkmark from me. Granted, there are some safety concerns, but all in all, pretty impressive.

Campbell: Yeah. To put some numbers out there for listeners to keep in mind, 12,000 people in the U.S. roughly pass away because of late-stage bladder cancer. That would be, theoretically, the target market initially, if it is approved next March, those 12,000 patients with limited treatment options. And then, overall, about 82,000 Americans are diagnosed with bladder cancer in the U.S. every year. Theoretically, six times more if they eventually get the approval for earlier line therapy.

Jones: Yeah. A lot to watch here. I believe they've got a March 2020 PDUFA date. That's when we could see approval here. We still need to see durability of these responses over time. But all in all, positive checkmarks.

As for us, that'll do it for this week's Industry Focus: Healthcare show. If you're looking for more stock ideas and recommendations, be sure to check out our Stock Advisor service. This is our flagship service here at The Motley Fool. You'll get stock recommendations from David and Tom Gardner every single month. In addition, you'll get Best Buys Now and a whole lot more. Just go to if.fool.com. We've got a special 50% discount for all of our Industry Focus: Healthcare listeners out there.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or 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, I'm Shannon Jones. Thanks for listening and Fool on!