The 7 biotech stocks (and their trials) these experts are watching right now

Somewhere in the world right now, a scientist could be plotting a game-changing molecular treatment for the world’s most challenging illnesses. Or such a treatment could be in trial right now. Such is the extraordinary nature and pace of advances in biotechnology today.

Layman investors might well be aware of the importance of trials as a process to get products or treatments to commercial shelves, but not necessarily the finer details or even what trials the experts are watching.

The world of biotechnology and clinical trials is not always easy to interpret and in light of that, I spoke to two experts to discuss some of the clinical trials they are monitoring in Australia and globally and why, along with their recommendations for other investors.

• Dr Bianca Ogden, Portfolio Manager – Health Care Strategies, Platinum Asset Management
• Hashan De Silva, Founder and Managing Partner, KP Rx

Both these experts possess medical backgrounds and years of experience within the biotech industry and before making the move into investments. Ogden worked as a molecular biologist on new HIV drugs and oncology drug targets with Novartis and Johnson & Johnson before working in investments, while De Silva worked at Eli Lilly.

The ins and outs of clinical trials

At the very base level, a clinical trial is where a company tests a hypothesis.

“You design it in a certain way, but keeping the commercial world in mind. Then you look at the data and you try to be as objective as you can to understand: Is this what we are expecting, is the side-effect profile the pharmacokinetics of the product working as we expected?” says Ogden.

Ogden cautions that clinical trial data is “a data point in time” and often a bit more grey than we might anticipate. Trials are about expanding knowledge of a disease and a molecule and understanding whether you are taking the right approach. Data points can be unclear, leaving companies to decide what the next step might be. And that step may not even be in the direction originally planned.

“It’s a data point that highlights what can be done with a product, whether it is worthwhile going forward, if it's a commercially viable product. It comes down to: does our hypothesis for the molecule or disease holds up on the metrics we now see?” says Ogden.

This is obviously not a short process – even getting to the trials can be lengthy too, though enhanced technology has improved time frames.

As De Silva points out, “generally, an asset will go through years of preclinical studies from the start of discovery into lead candidate optimisation, animal studies, GLP toxicology before entering clinical trials.”

There are typically three phases of trials, with the first typically taken on healthy volunteers as a safety profile, the second phase is used to consider patient population, dose, dosing regimen and other factors to pursue in the third phase of trials.

The third phase is a large, randomised placebo-controlled trial that is necessary for the approval processes with bodies like the Food and Drug Administration (FDA) in the US.

Getting through the trials is only part of the challenge. Approvals can be time-consuming too, and that’s before you factor in the final process to get a product to shelves, such as negotiating with governments who each have different policies and processes, then building reimbursement with private health insurers or agreements with intermediaries like pharmacies.

While everyone loves a success story, like Neuren Pharmaceuticals' successful trials of trofinetide in Retts Syndrome, there are many stories of failure. In some cases, it can mean the end of a company if they don’t have alternative options.

“The average success rate from Phase 1 to FDA approval is around 11%. Alchemia, Hexima, Factor Therapeutics and Innate Immunotherapeutics are examples where trial failures resulted in the death of the companies,” says De Silva.

Choosing companies to monitor and invest in

When it comes to monitoring company trials and investing, Ogden believes it is important to focus on those that “change the standard of care and can move something forward”.

“We look at what therapeutic modalities can make life easier for a patient, or allow a patient to take the drug longer. That’s often an issue because of toxicity meaning a patient can’t tolerate the proper dose and they don’t then get the deep response,” Ogden says.

She encourages investors to ask what could go wrong, what does this particular company do that is different from competitors - and can it be commercialised?

There are often trends across the industry, such as the obesity drugs in the past year – and while Ogden watches and invests in these, she notes you have to consider market saturation and whether there is still opportunity.

“The issue now is I don’t know how many oral molecules we need [for obesity]. There’s a lot of them and there’s a lot of side effects. There are a lot of fast titrations happening, so deciphering that is a bit more difficult. So, we try and find other areas of interest to look at,” she says.

7 interesting trials the experts are watching

Without medical expertise, it can be difficult to decipher company products and trials – there is a reason after all that you’ll find most (if not all) investors in this space have medical degrees and have worked in the research space before moving to become investors.

With so much on offer to sift through, De Silva and Ogden shared the trials they are monitoring and investing in.

Local listed and up-and-coming companies

De Silva is a venture capitalist who focuses on Australian and New Zealand healthcare companies. His picks follow:

“Neuren are planning on going straight to Phase 3 trials following the completion of these four Phase 2 trials thus the clinical data will be very important to inform the size, design etc. of future Phase 3 trials,” De Silva says.

Neuren is developing NNZ-2591 for us in multiple debilitating neurological disorders that emerge in early childhood. It released results for Phase 2 testing on children with Angelman syndrome on 9 August which showed clinically significant improvement in areas including communication, behaviour, cognition and motor abilities.

Telix's (ASX: TLX) ProstAct Global

“Telix has been working hard to commence its global Phase 3 trial assessing TLX591 in prostate cancer. While early days, this is a big milestone for the company as it pushes ahead into a pivotal trial of its lead therapeutic. Radiopharma remains a very hot area with multiple transactions in the past two years.”

Syntara’s (ASX: SNT) Phase 2a Trial in myelofibrosis

“Positive data would build on data from the previous trial and place the company very well in a disease state with a lot of corporate activity. Acquisitions in this space are north of US$1bn which is well over 30x Syntara’s market cap.

Opthea’s (ASX: OPT) Phase 3 trial in wet age-related macular degeneration (wet AMD)

“Opthea is one of the very few ASX-listed biotechs that has been able to self-fund a Phase 3 trial, truly a monumental achievement. While we remain cautious on the commercial attractiveness of the products, we are excited to see Australian innovation be developed all the way through within Australia.”

Global companies to watch

While domestic companies such as Immutep (ASX: IMM) are still part of Ogden's remit, her focus is global and these are a few trials she is watching.

Bicycle Therapeutics is a biotech focusing on a new class of molecules called Bicycles. These molecules can be conjugated to toxins, radionucletides and potentially other “active ingredients”. At this stage the company has Bicycle Toxin Conjugates in Phase 2 and Phase 3 clinical trials, while Bicycle Radionucelotide Conjugates are gradually coming into view.

“They have had some really interesting oncology data come through and it looks like patients respond better compared to one that is on the market. There’s a lot of opportunity if the Bicycle modality pans out as it may open targets that have been difficult to target with antibodies. It’s a very interesting platform and as a company, we feel strongly about it,” Ogden says.

Centessa’s (NASDAQ: CNTA) orexin receptor 2 agonist program in sleep-wake disorders

“When you look at people with narcolepsy, patients struggle to stay awake, it’s a terrible disease. Often these patients have to take scheduled drugs - which is not ideal. In recent years we have seen real innovation in the space.”

Centessa is one of the top 10 companies in Ogden’s portfolio. She is also monitoring competitors like Takeda and Alkermes, always keeping a close eye on the side-effect profiles of these next generation narcolepsy assets

Candid Therapeutics’ bispecifics (T-cell engagers): CND106 Antibody and CND261 Antibody

Inflammatory diseases has been an area of innovation for some time. Recently cell therapy (see Platinum’s July quarterly report) has been making progress but it remains in its infancy.

“We look at the area of bispecific or T cell engagers rather than cell therapies. Cell therapies are cumbersome because you initially have to strip out the immune system and populate it with the therapy and it’s not very nice. Instead there is quite a bit of work in this space using bispecifics depleting B cells to get a similar response,” Ogden says.

The field is progressing and the idea that therapeutics can achieve an immune system reset and achieve long-term remission for patients suffering from autoimmune diseases is striking. There are many companies in this space, public and private, with Candid Therapeutics a recent addition. It is run by a team that Ogden respects and has invested in previously (Rayzebio) .  

A final word of caution to investors

Both De Silva and Ogden advise investors in this space that patience is critical - trials take time, and sometimes the results may force a company to take a different direction or back to the drawing board entirely.

As Ogden puts it, "You need to decide if you are a punter and you just want a quick gain and then exit, or if you are an investor."

In the case of these two biotech investors, this also means passion, belief and an interest in seeing genuine innovation and improvements in the lives of patients.

Managed Fund

Platinum International Health Sciences Fund

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Managed Fund

KP Rx Healthcare Opportunities Fund

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