It takes a tremendous amount of time and patience to get an experimental drug through the testing and approval process. What's more, drugs in clinical development have a 90% failure rate. Even after crossing that hurdle, the product still has to sell.
But relative newbies Legend Biotech (LEGN 0.83%) and Immunocore Holdings (IMCR 2.67%) are already making a splash with their recently approved debut therapies. In major wins for the young companies, this winter the FDA approved Legend Biotech's Carvykti and Immunocore's Kimmtrak, both groundbreaking treatments for rare forms of different cancers.
Still, one key question to ask when valuing biotech stocks is: "Can this concept be expanded to other areas of need?" Currently, the total addressable markets for Legend and Immunocore's just-approved drugs are small. However, both therapies have the potential for expansion, making these two biotech companies look like winning investments in the long run.
1. Legend Biotech
In February, the FDA approved Carvykti, a one-time CAR-T therapy for fifth-line treatment of multiple myeloma in the U.S. In March, the European Medicines Agency (EMA) recommended the treatment's approval in the EU. These milestones pave the way for multibillion-dollar potential and likely EU approval -- and yet, the market yawned. Legend Biotech has actually traded down about 2% since the FDA news while the S&P 500 is up over 5% in the same time frame.
Carvykti is a treatment for patients with a rare type of plasma cancer, and is approved as treatment for those who have unsuccessfully tried four other regimens. While Carvykti faces competition from Bristol Myers Squibb's Abecma, current data suggest Legend's treatment is better. With improved response rates and a better side-effect profile, Carvykti is well-positioned to win the lion's share of the market over time. Plus, it's worth noting that Legend Biotech has financial support from Johnson and Johnson (JNJ 0.29%); the companies will share a 50-50 split from treatment profits in the U.S., Europe, and Japan.
Legend Biotech has already begun the process of expanding its multiple myeloma CAR-T cell therapy into earlier lines of treatment, having recently wrapped up a Phase 3 study investigating this very prospect. If trials continue to be positive, Legend Biotech may very well realize the $5 billion estimated annual sales for the treatment. Not to mention that Legend plans to move a second compound into clinical trials in the U.S. in 2022.
Image source: Getty Images.
At current prices, this biotech may also be an attractive buyout candidate. Keep in mind that CAR-T pioneer Kite pharma was bought for $11.9 billion by Gilead in 2017 and didn't have an approved drug at that time.
With a best-in-class therapy, a deep-pocketed partner, multiple trials aimed at pushing the drug into earlier lines of treatment, and other drugs entering trials, Legend seems poised to reward investors.
2. Immunocore Holdings
Immunocore is celebrating some major regulatory wins: Kimmtrak was approved for a rare form of metastatic melanoma by the FDA in January and by the European Commission this past weekend. Kimmtrak is the first-ever T cell receptor (TCR) immunotherapy to receive approval by these entities. By redirecting the patient's immune system to attack the tumor, this therapy increases overall survival in its tested patient population. With no other previously approved therapy for this condition, this is great news for patients.
Kimmtrak's initial approval for unresectable, metastatic uveal melanoma -- that is, a form of cancer of the eye that has spread to other parts of the body and cannot be surgically removed -- is a minuscule market. There are only about a thousand eligible patients in the U.S. and EU combined, so even at a list price of $400,000 annually, Kimmtrak's total addressable market is likely less than $400 million a year.
Investors, though, should look at the big picture. Immunocore management is moving treatment into the broader melanoma market next, with a Phase 2 trial starting later this year. Seeing as there are an estimated 7,660 deaths from melanoma annually in the U.S. alone, that increases the treatment's total addressable market by at least $3 billion.
But this isn't just the story of a single drug -- it's the story of an entire platform and treatment method. The company creates molecules that allow a patient's own immune system to recognize and kill cancerous cells. If its system works, Kimmtrak's potential $3 billion annual revenue is just the beginning. Immunocore estimates the addressable market for its other two cancer-fighting TCR molecules in phase one trials to be approximately 30,000 and 75,000 patients in the U.S. annually. More updates on those trials are expected in the back half of 2022. But when all is said and done, the treatment's $400,000 price tag points to a total addressable market of $40 billion annually.
It's still quite early in the development process for these drugs, but we'll find out more soon. If it becomes increasingly clear that TCR therapy holds promise, I expect Immunocore will play a major role in the excitement.
