Biotechnology is rapidly giving rise to ground-breaking new medicines that are dramatically changing the outlook for devastating diseases such as hepatitis C, malaria, and, perhaps most astoundingly, cancer. This innovation boom has gone hand in hand with both an unprecedented number of IPOs and a general rise in market caps across the industry as a whole.
The dizzying number of new technologies emanating out of biotech these days, though, may make it hard for investors to gauge what the most promising areas are for long-term gains.
While this is certainly a difficult question to answer, I think a good place to start is to take a deeper look at the field of immuno-oncology. Here's why.
Immuno-oncology is a top focus in big pharma
It's no secret that the majority of top drugmakers in the world, including AstraZeneca (NYSE:AZN), Bristol-Myers Squibb (NYSE:BMY), Pfizer (NYSE:PFE), Merck & Co. (NYSE:MRK), and Roche (NASDAQOTH:RHHBY), all have robust immuno-oncology pipelines at the moment. The reason for this trend is simple: Immuno-therapies are widely believed to have the potential to revolutionize cancer treatment, perhaps even displacing chemotherapy as the standard of care in many instances.
So, what is immuno-oncology? The basic idea is to develop therapies that trigger the immune system to fight cancer. Normally, one's immune system is actively protecting you against pre-cancerous and cancerous cells. But when this physiological system fails for some reason, such as old age or an inability to recognize a malignancy due to certain tricks these types of cells can play to "fit-in," so to speak, the end result is cancer.
And once it gets started, the immune system can have an increasingly difficult time attempting to regain the upper hand. That's where immuno-therapies come into play. The aim is to use these novel therapies to boost the immune system's ability to recognize tumors and subsequently eliminate them.
Truth be told, immuno-therapies come in a wide variety of flavors -- such as monoclonal antibodies, genetically engineered bacterial vectors, and vaccines -- because cancer itself is a highly diverse disease.
One of the most promising approaches, though, is the use of monoclonal antibodies to target so-called "checkpoint inhibitors" such as PD-1 (Programmed cell death-1). Tumor cells that express the PD-1 protein are known to suppress the immune system, keeping it from being able to attack a tumor.
Monoclonal antibodies like Bristol's Opdivo and Merck's Keytruda target the PD-1 pathway, inhibiting a tumor's immunosuppressive capabilities. So far, these two drugs have shown some astounding results in several cancers, including advanced melanoma, non-small cell lung cancer, and renal cell carcinoma, among others.
Some experts believe Opdivo could rake in over $7 billion in sales for its first two approved indications (advanced melanoma and squamous non-small cell lung cancer) by 2020 alone -- although considerable debate does exist over this estimate.
Which big pharma has the best immuno-oncology pipeline?
Bristol and Merck are currently leading the field with their commercially available PD-1 inhibitors, but AstraZeneca probably has the best pipeline overall.
Astra's immuno-oncology pipeline comes off as the "best" because it is targeting three broad areas: antigen presentation, T-cell killing, and altering the tumor's micro-environment. And most importantly, the company's diverse approach to immuno-therapies gives it a clear advantage in the race to test potential combo therapies, with the British pharma already in the throes of conducting a noteworthy 29 clinical trials testing various combinations that span all three therapeutic pathways.
Bristol and Merck, by contrast, have both had to look outside their companies, for the most part, to explore the use of their lead immuno-oncology candidates with other cancer-fighting drugs.
The dark horse in this race, though, is Pfizer. Last year, Pfizer teamed up with German Merck to begin developing some early-stage assets, but we don't really know much beyond that at this point.
On a final note, Roche is taking an almost entirely different approach by pairing up with -- or flat out buying out -- cancer screening companies that have the ability to build out vast protein libraries via their next-generation molecular sequencing tech. That could force many big pharmas to come to Roche for novel therapeutic targets later down the road.
Smaller biotechs might offer the biggest upside for investors
From an investing standpoint, I think the smaller players in the field probably offer the best opportunities. Advaxis (NASDAQ:ADXS), for instance, is a small-cap biotech that has grabbed the attention of big pharma with its Listeria monocytogenes (bacteria) based immunotherapy platform. And if this approach bears fruit, the stock should have significant upside remaining, despite already being one of the best performers of 2015 to date.
Another name to consider is Agenus (NASDAQ:AGEN). Agenus bought out 4-Antibody last year, giving it a rather respectable immuno-oncology pipeline.
And last but not least, I'm a big fan of Five Prime Therapeutics (NASDAQ:FPRX). This tiny biotech has the best protein library in the game, which is already being used to develop several immuno-oncology drug candidates, making this stock worth a much deeper look by retail investors.
Is immuno-oncology the "best" area of biotech?
Personally, I am a tad skeptical regarding the share of the oncology market immuno-therapies products are predicted to gobble up by 2030. Specifically, the current estimates range from 40%-60% within the next 15 years, meaning this field is believed to be worth somewhere around $50 billion going forward.
Having said that, I don't see any serious rival to immuno-oncology in terms of commercial prowess -- even if these estimates are off by a large degree -- making it arguably the best area of biotech for investors with a long-term outlook.