The 7 biotech stocks (and their trials) theseexperts are...

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

Dr Bianca Ogden and Hashan De Silva share the companies and trials theyfind interesting in the constantly innovating biotech sector.

September 20, 2024 09:19 September 20, 2024 09:19

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

Layman investors might well be aware of the importance of trials as aprocess to get products or treatments to commercial shelves, but notnecessarily the finer details or even what trials the experts are watching.

The world of biotechnology and clinical trials is not always easy tointerpret and in light of that, I spoke to two experts to discuss some of theclinical trials they are monitoring in Australia and globally and why, alongwith 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 experiencewithin the biotech industry and before making the move into investments. Ogdenworked as a molecular biologist on new HIV drugs and oncology drug targets withNovartis and Johnson & Johnson before working in investments, while DeSilva worked at Eli Lilly.

The ins and outs of clinicaltrials

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

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

Ogden cautions that clinical trial data is “a data point in time” andoften a bit more grey than we might anticipate. Trials are about expandingknowledge of a disease and a molecule and understanding whether you are takingthe right approach. Data points can be unclear, leaving companies to decidewhat the next step might be. And that step may not even be in the directionoriginally planned.

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

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

Dr BiancaOgden, Portfolio Manager – Health Care Strategies, Platinum AssetManagement

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

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

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

Getting through the trials is only part of the challenge. Approvals canbe time-consuming too, and that’s before you factor in the final process to geta product to shelves, such as negotiating with governments who each havedifferent policies and processes, then building reimbursement with privatehealth 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 offailure. In some cases, it can mean the end of a company if they don’t havealternative options.

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

Choosing companies tomonitor and invest in

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

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

She encourages investors to ask what could go wrong, what does thisparticular company do that is different from competitors - and can it becommercialised?

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

“The issue now is I don’t know how many oral molecules we need [forobesity]. There’s a lot of them and there’s a lot of side effects. There are alot 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 theexperts are watching

Without medical expertise, it can be difficult to decipher companyproducts and trials – there is a reason after all that you’ll find most (if notall) investors in this space have medical degrees and have worked in theresearch space before moving to become investors.

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

Local listed andup-and-coming companies

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

Neuren's (ASX: NEU) trialsfor NNZ-2591

“Neuren are planning on going straight to Phase 3 trials following thecompletion of these four Phase 2 trials thus the clinical data will be veryimportant to inform the size, design etc. of future Phase 3 trials,” De Silvasays.

Neuren is developing NNZ-2591 for us in multiple debilitatingneurological disorders that emerge in early childhood. It released results forPhase 2 testing on children withAngelman 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 trialassessing TLX591 in prostate cancer. While early days, this is a big milestonefor the company as it pushes ahead into a pivotal trial of its leadtherapeutic. Radiopharma remains a very hot area with multiple transactions inthe past two years.”

Syntara’s (ASX: SNT) Phase2a Trial in myelofibrosis

“Positive data would build on data from the previous trial and place thecompany 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’smarket cap.

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

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

Hashan DeSilva, Founder and Managing Partner, KP Rx

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’ (NASDAQ: BCYC) Bicyclemolecules

BicycleTherapeutics 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 itlooks 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 opentargets that have been difficult to target with antibodies. It’s a veryinteresting platform and as a company, we feel strongly about it,” Ogden says.

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

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

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

Candid Therapeutics’ bispecifics (T-cell engagers): CND106 Antibody andCND261 Antibody

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

“We look at the area of bispecific or T cell engagers rather than celltherapies. Cell therapies are cumbersome because you initially have to stripout 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 depletingB cells to get a similar response,” Ogden says.

The field is progressing and the idea that therapeutics can achieve animmune system reset and achieve long-term remission for patients suffering fromautoimmune diseases is striking. There are many companies in this space, publicand private, with Candid Therapeutics a recent addition. It is run by a teamthat 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 iscritical - trials take time, and sometimes the results may force a company totake a different direction or back to the drawing board entirely.

As Ogden puts it, "You need to decide if you are a punter and youjust 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 thelives of patients.