Investing in Immunotherapy

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Author: Sandra Nwokeoha Edited by: Sandra Ionescu

Conceptually, immunotherapy presents an attractive route in cancer treatment for a plethora of reasons.  Exploiting the human body’s innate resources towards the evolution of a defence mechanism against malignant tissue that would be exclusively treated, is thus far unattained in conventional cancer therapies. The involvement of multiple genes and complex molecular pathways that engender cancer marks a long, steep road ahead before ubiquitous treatment success is noted. Yet, the significantly raised profile of biomedical research productivity and the benefits of immunotherapy, alongside the universal desire to decimate cancer and perhaps the satisfaction and pay-off that comes in waiting for a cure have driven venture capital (VC) investment in biotechnology companies irrespective of size.

Leading the top European venture capitalists in biotech, Woodford Funds’ top ten holdings comprise six healthcare related companies whose prime focus is the development of game-changing therapeutics. As an investor in various sectors, Woodford did not limit itself to a small percentage of healthcare companies in its portfolio despite the sector being regarded as niche from an investment point of view. Woodford is strategically aligned for longer-term returns, which works due to the unwaveringly growing value of the biotech market. The NASDAQ Biotechnology Index (NBI) for the second quarter (Q2) of 2017 closed with a 5.87% yield following a positive Q1 performance, in which the top two companies were the biopharmaceutical providers Celgene Corporation and Amgen Inc. However, based on the businesses listed on the London Stock Exchange, there’s been a decline on the money raised by the healthcare sector this year, with takings of £16.4m compared to the £658.47m of August 2016.

In recent years the variability of biotech stock prices has been noted as follows: last year, despite averagely seeing ‘buy’ ratings, stock prices fell across biotech businesses (e.g. Prothena Co. PLC, Aduro BioTech Inc., Celldex Therapeutics to name a few), prompting `hold’ rating recommendations from some eminent analysts.  This was contrary to the last quarter of 2015, when companies such as Prothena Co. PLC – a late clinical stage biotechnology company based on protein immunotherapies – were heavily invested in, with several hedge funds increasing their stakes in the company’s stock. So far in 2017, although venture capital rounds are yet to match those of 2015, financiers have shown an increased propensity to fund early stage start-ups as demonstrated by the highest rise in biopharma initial public offerings in nearly two years.

Furthermore, merger and acquisition activity has shown a keen hand for immunotherapy focused companies. Examples include 3Legs Resources PLC buying SalvaRx Ltd – a cancer immunotherapy development company; Gilead Sciences’ acquisition of Kite Pharma’s CAR-T therapies, and the formation of joint venture Avvinity Therapeutics between Horizon Discovery Group PLC and Centauri Therapeutics Ltd.  As a result, companies may issue more stock as part of the deal, contributing to the health of the market and tipping the balance in favour of external financing. 

The opportunity for money-making investment in Biotech is bolstered by a large basket of stocks if big pharma companies are included, and an even broader basket in the case of small-cap companies, as conveyed by Stephen Dunn, a sector expert in 2015. Hitherto employing this approach, Woodford Funds also set a strong portfolio consideration for UK-based companies, protecting the fund from exchange rate vicissitudes. On the other hand, threats may arise from investee clinical trial hurdles such as competition to enrol patients and insufficient recruits within desired time frames, as well as the waiting time for MHRA or FDA approvals. With a quoted 3 – 5 years to exit for VCs and Woodford’s early-stage investment plan of 5 – 10 years but sometimes longer, it is clear to see that the latter is set for gain in the biotech context.

Across the continent, the number of financial institutions trading with immunotherapy-focused firms is limited. However, under the portfolio of VC Abingworth LLP in the UK, CRISPR Therapeutics show incredible potential in curing genetic diseases (such as cancer), whose high quality products place respective investors in ranks higher than where they would otherwise be. 

In conclusion, immunotherapy is a hot area with offerings not only in oncology but also in anti-microbial and anti-allergy treatments. Based on this premise, investors in immunotherapy are more likely than not, to keep their heads above water.

This piece was originally written for Panacea Innovation.