Cancer: The New Cure

Four years ago, Bob Carlson learned he had lung cancer and would probably be dead in 24 months. He endured witches’ brews of chemotherapies, but each treatment eventually failed and made the 72-year-old Connecticut retiree feel so sick that he wished he wasdead. Then a doctor at Yale’s Smilow Cancer Hospital got him into an early-stage clinical trial of a drug from the Genentech unit 

of Roche Holding. One of a new class of drugs that helps the immune system find and fight cancer cells, the Roche treatment shrank Carlson’s tumors without the noxious side effects of chemotherapy. He has been on the drug for two years now, and the tumors have stayed shrunk. 

No one’s more astonished by Carlson’s reprieve than he is: “I said all the goodbyes I had to say, and then at the end of two years…here I am.”

Lasting recoveries from chemo-resistant diseases such as lung cancer and melanoma have raised high hopes for so-called immuno-oncology treatments like the yet-unapproved Roche drug received by Carlson. “This is a man who came in with almost no options,” recalls Yale’s oncology chief Roy Herbst. “Now he brings me his new photographs of birds every time he comes in.”

Successes like Carlson’s occur in one-of-four patients, and Herbst says his goal is to make the treatment work for the other three. Immuno-oncology strategies arise from understanding the defenses used by cancer cells to evade the normal search-and-destroy operations of our immune system. By foiling those tumor defenses, I-O drugs allow the immune machinery to do its job of clearing away cancer cells.

SINCE Bristol-Myers Squibb (ticker: BMY) launched the first I-O drug Yervoy against melanoma in 2011, its shares have doubled, and rivals like Merck (MRK), Roche (ROG.Switzerland), AstraZeneca (AZN), and Pfizer (PFE) are investing heavily in a wide range of treatment combinations for many varieties of cancer. There’s opportunity for all. Dozens of biotech firms, such as Celgene (CELG), Regeneron Pharmaceuticals (REGN), and Incyte (INCY), are also pursuing promising leads. Immuno-oncology products could eventually ring up annual sales worth tens of billions of dollars for pharmaceutical companies that have struggled with patent expirations on previous blockbusters.

Investors have justly awarded Bristol a premium valuation for its I-O leadership with Yervoy and the even more effective drug Opdivo, which the Food and Drug Administration approved against melanoma in December 2014 and lung cancer in March. With studies under way on nearly two dozen tumor types, Bristol could get a third of its sales from I-O drugs by 2020. There’s still I-O upside to its $61 shares, possibly 20% or more.

However, the less-loved stocks of Merck and Roche could be better bets, with gains of more than 20% -- plus yields of 3.2% and 3%, respectively. Merck has been marketing its I-O drug Keytruda against advanced melanoma for a year in the U.S. and just won approval in Europe. The drug should get U.S. approval against lung cancer in October and is in more than 100 clinical trials on over 30 types of tumors.

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