Goldman Sachs' recent list of eight "disruptive technologies" included new therapies to fight cancer, drugs that promise to upend the pharma industry in the next few decades. Most promising is immunotheraphy, an approach being researched and advanced by Bristol-Myers (NYSE:BMY), Merck (NYSE:MRK), and Roche (Nasdaq:RHHBY), among others. While these drugs aren't cancer cures, they appear to be on pace to deliver significant improvements in the length of time cancer patients can expect to live, with a relatively tolerable side-effects.
Virtually any drug that can meaningfully extend the life of patients with melanoma, breast, or lung cancer is likely to generate over $1 billion in revenue per year, as investors can see in sell-side research estimates or through back-of-the-envelope calculations. There are about 25,000 cases of advanced melanoma in the U.S. and European Union each year, more than 70,000 cases of advanced breast cancer, and over 125,000 cases of lung cancer. Oncology drugs with demonstrated efficacy advantages have increasingly been securing reimbursement of close to (and above) $100,000 on the basis of course of treatment. 

SEE: Evaluating Pharmaceutical Companies

Immunotherapy is just one new approach to fighting cancer, but it alone could ultimately encompass vaccines, oncolytic viruses, and adoptive t-cell technologies, creating a market of $25 billion to $40 billion by the end of the next decade. Those estimates are based on the current size of the market and the potential for immunotherapy to gain as much as a 50% share of the oncology market. The basic mechanics of the therapies involve bringing down the “shield” that hides a cancer cell from the immune system – allowing the immune system to see it as a foreign body and attack it. On the stimulation side, it appears possible to actually increase the anti-tumor activity of the patient's own T-cells, basically upgrading their weaponry for fighting cancerous cells
Immuno-Oncology Coming Into View As A Real Opportunity
It wasn't until the 1990's that immunology began to be explored as a way to treat cancer. Early results then weren't great, as tumor responses were pretty modest and toxicity with patients was a real problem. Recently, though, the approach has started looking significantly better.
From the approval of Bristol-Myers' Yervoy drug for melanoma (in March of 2011) to Dendreon's (Nasdaq:DNDN) Provenge, immunotherapy (broadly defined, at any rate), has emerged as real treatment option and a major new area of focus in the oncology space. While Provenge has proven to be a disappointment, Yervoy is already annualizing to $1 billion in revenue, and the low end of sell-side revenue expectations for Roche's new drug Kadcyla is already at about $1 billion within just a few years.  As of now, it looks as though the approach could deliver multiple multi-billion dollar blockbusters for the pharmaceutical industry by 2018, while also meaningfully extending the lives of patients with particular types of cancer.
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Early Leaders In Place
Bristol-Myers, Merck, and Roche have emerged as early leaders in immunotherapy with anti-PD-1/PD-L1 agents (compounds that "unmask" cancer cells and expose them to attack from the patient's immune system) that appear efficacious in treating melanoma, non-small cell lung cancer, and renal carcinoma. These drugs have already shown very encouraging improvements in response rates and survival and analysts are suggesting approval over the next three to four years with sales potential upwards of $7 billion a year (each) at the peak.
These therapies represent significant growth opportunities for both Bristol-Myers and Merck. For Roche, though, it's more complicated. As Roche already enjoys a very large oncology franchise (due to the success of biologics like Avastin), there is more of an element of the company protecting what it already has, though that only applies to this first generation of compounds. On the other hand, if these new immunotherapy agents work synergisticly with existing drugs (and you can bet there will be trials exploring that), it could create an even greater opportunity for the company.
Plenty Of Others Can Play A Role
While Bristol-Myers, Merck, and Roche have arguably the most advanced portfolios of immunotherapy agents, AstraZeneca (NYSE:AZN) also has a credible portfolio of early checkpoint-based immunotherapy approaches, and Glaxo (NYSE:GSK) has both an early-stage checkpoint immunotherapy and a therapeutic vaccine. Novartis (NYSE:NVS) has interesting research in the cell therapy side, while Incyte's (Nasdaq:INCY) small molecule IDO inhibitor is also worth watching.
Beyond this are a host of drugs in pre-clinical or very early stage human studies at a variety of small biotechs. Assuming that no major safety issues appear in the late-stage trials of the anti-PD-1/PD-L1 approaches, it seems safe to assume that a wave of in-licensing and acquisitions will occur as Big Pharma players with weak immunotherapy portfolios look to strengthen their hand.
The Bottom Line
It's very, very early, but immunotherapy holds a great deal of promise to improve the treatment of cancer and the lives of those who have it. Immunotherapy won't offer cures, but meaningful survival benefits coupled with tolerable side-effect profiles could make this the dominant approach to fighting cancer in 2020 and a market worth over $25 billion.
All of that said, some perspective is in order. Bristol-Myers is small enough that a single blockbuster could be transformative, but the impact is likely to be smaller at companies like Merck and Roche. So while success with immunotherapy is certainly part of the bullish thesis for all three of these companies, it is only a part of a more complicated investment perspective.
Disclosure – At the time of writing, the author owned shares of Roche

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