Citigroup (NYSE:C) Senior Analyst Explains New Biotech Ecosystem:  Liquid Biopsy from Cancer Genetics (NASDAQ:CGIX) May Lead to Personal Genomic Medicine from Loxo Oncology (NASDAQ:LOXO)

May 3, 2017

Yigal Nochomovitz, Ph.D. is a Director and Smid-Cap biotech analyst at Citigroup (NYSE:C) Investment Research & Analysis.  In a recent interview with the Wall Street Transcript, Dr. Nochomovitz states that “Loxo has a drug for a rare type of cancer, and so it is going to need to engage with companies that are developing next-generation sequencing tests to do more genetic profiling of tumors.”  Specifically, according to Loxo Oncology (NASDAQ:LOXO):

“Growing research suggests that the NTRK genes, which encode for TRKs, can become abnormally fused to other genes, resulting in growth signals that can lead to cancer in many sites of the body. Larotrectinib (LOXO-101) was purpose-built to directly target TRK, and nothing else, turning off the signaling pathway that allows TRK fusion cancers to grow.”

In order to find patients with this specific genetic pattern in their cancer, the company must engage “clinical, laboratory and molecular pathology partners who integrate multiplex genetic testing into their routine clinical practice.”  Fortunately, this formerly labor intensive process has now become much more efficient.  The development of liquid biopsy testing in place of invasive surgical biopsies, with data automatically entered into a national or even international database, has provided a quicker path for patients to find cutting edge treatment.

The President and CEO of Cancer Genetics, Panna Sharma, puts it this way in an interview with the Wall Street Transcript:  “Imagine if you are a lung-cancer patient or a kidney-cancer patient and you are being treated and have to be monitored for whether or not and how that cancer might be changing or recurring, or whether the therapeutic regimen is effective or not. These questions are all being answered today by invasive biopsies and can be replaced by a simple blood draw, which is less costly and less painful…In three years, the vast majority of lung cancer is going to be monitored, not at initial diagnosis but in regard to therapeutic effectiveness, from liquid biopsy.”

Indeed, both Debjit Chattopadhyay, Ph.D. a Managing Director, Biotechnology, at Janney Montgomery Scott, and Edward Nash, a Managing Director in SunTrust (NYSE:STI) Robinson Humphrey’s Equity Research department, both warn that cures for widespread diseases may result in worse economics for the biotech sector.  Dr. Chattopadhyay puts it this way  in his interview with the Wall Street Transcript:  “for example, look at Gilead (NASDAQ:GILD). Curing hepatitis C is great, but they realize now curing hepatitis C means your patient pool is decreasing every year. So curing a disease may not be the best for business, because suddenly your revenue keeps falling after a certain time as the patients get cured, and there are not enough patients left.”

Mr. Nash puts it this way in his interview:   “There are drugs commercially available now that cost hundreds of thousands of dollars annually, but only treat the disease. How do you price a cure? Expensive drugs that treat diseases are already raising the ire of payers and legislators…The industry is being tasked to deal with this question sooner rather than later as the first gene therapy to be potentially approved will have a BLA submission into the FDA in 2H17, and I am referring to “buy”-rated Spark Therapeutics’ (NASDAQ:ONCE) lead therapy for inherited retinal dystrophies. These are nice problems the industry has to be dealing with, but any decisions made be done so understanding that it will affect future R&D efforts for potentially curative therapies.”

Mr. Nash does not think this potential cure for a range of blindness causing genetic diseases should detract from the company that has developed this treatment:  “I mentioned the company earlier. Spark has done a very good job in clinical trial design, and the methodical approach that they have gone through in trying to understand what the optimal approaches are to best maximize results for the patient are remarkable. The scientific caliber of their team is top notch and clearly has had a significant impact on their success…The company from a business standpoint has partnered certain indications which have resulted in bolstering the balance sheet with nondilutive cash, but has also allowed them to understand the optimal approach to address certain diseases on someone else’s dime while they retain the larger and potentially more lucrative indications for themselves. I think this is a must-own name for investors looking at the gene therapy space. It is a $1.6B market cap name, so is quite liquid, and with a current trading price around $50 and our 12-month price target set at $72, there is plenty of upside to go at these levels.”

For more stock recommendations from these top research analysts and in depth interviews with CEOs of cutting edge biotech firms, go to the Wall Street Transcript for our latest report.