When we look for interesting investment ideas, we spend a lot of time thinking about the future. Not simply the next quarter or next year, but rather how the world will look 10, 20, even 50 years from now. This long-term focus helps us to be early in our investments and potentially maximize the benefit we can deliver to our clients as other investors start to recognize the direction the world is moving and invest in the companies we’ve owned all along.
One of the largest areas of investment in our portfolio is in the health care sector. This is an area where innovation is extremely prevalent. Companies with novel approaches to treating disease can both improve peoples’ lives and make a substantial profit while doing so. We steer clear of larger drug companies, insurers, and hospitals because we believe there is little potential for transformational growth in these areas. Instead, we focus on smaller firms that are designing new and innovative ways to address unmet medical needs.
When thinking about the future of medicine, it often helps to look to the past. If you examine medical treatments over the past 100 years, consider what was once commonly practiced:
- Lobotomies: Portions of a patient’s brain would be removed to treat schizophrenia and other neurological disorders before we invented drugs to treat these conditions.
- Amputations: Infected limbs often had to be severed to save the patient and avoid the spread of the infection because antibiotics had not yet been invented.
- Surgery without anesthesia: One of the key qualifications to be a nurse used to be great physical strength, as they were responsible for holding down a patient while the doctor performed a surgery before there were any drugs to numb the pain.
Looking back now, these treatments seem rudimentary and perhaps even cruel. At the time, however, they were our best options to treat life-threatening conditions that, left untreated, may have resulted in death. It was only through continued health care innovation and the invention of new drugs and techniques that these procedures were consigned to history.
Which of today’s treatments may become dated?
With these experiences in mind, we spend a lot of time looking forward and thinking about which medical procedures that are commonly used today will seem rudimentary and cruel to people 100 years from now. One of the biggest things we keep coming back to is the use of chemotherapy to treat cancer.
Cancer has been part of the human condition since antiquity. It was written about in ancient Greek times, and tumors have been found in Egyptian mummies. Using chemotherapy to treat cancer was a major breakthrough. It has cured and extended the life of countless people, but we believe that chemotherapy will one day be viewed as antiquated as lobotomies and surgery without numbing medication.
Chemotherapy introduces a poisonous substance into the body, with the hope that it will kill the fast-growing tumor before too many healthy cells succumb to the poison. Chemo also has a negative impact on the body’s immune system, which is something doctors are desperately trying to avoid in the age of COVID-19, and could have an accelerating impact on new, innovative alternatives.
Alternatives to chemotherapy have already been approved. The mystery of the human immune system is slowly being solved. Cells in our body get mutated constantly, and our immune system is capable of dealing with these. Cancer occurs when these mutated cells find a way to evade the immune system’s surveillance.
There are many kinds of cells that make up the immune system, from antibodies, which were known about in the 1890s, to Antigen-Specific Natural Killer cells that were discovered as recently as 2006; as well as T-Cells, B-Cells, and other types of Natural Killer cells. There is no central controller of the immune system. These cells all work together, taking their cues from interactions with other cells, and from signals coming from elsewhere in the body. Imagine an ant hill running mostly smoothly, without any committee meetings to direct strategy. When the colony is under attack, the witnessing ants release pheromones to alert ants in other locations to come and assist in the defense. Chemotherapy is akin to washing out the ant hill, effectively displacing all the ants to get rid of the attacker.
Antibodies have been used since the 1980s to treat human diseases. Our improved understanding of them has more recently enabled us to treat cancers of the immune system with antibodies. We own two companies — Genmab and MorphoSys — that have platforms that can create antibodies with the desired properties. They both have antibodies that target blood cancers.
MorphoSys earlier this year entered into a collaboration and licensing agreement with another drug company to further develop and commercialize one of their promising antibody treatments, and is in trials for the treatment of lymphoma, which is a cancer of the lymph nodes.
Genmab’s Darzalex, an antibody which they developed in partnership with Janssen (which is part of Johnson & Johnson), targets T cells, B cells, and Natural Killer cells that have mutated and turned cancerous, and it is approved for the treatment multiple myeloma, a form of blood cancer.
Two of the “SOS” pheromones released by the body – Interleukin (IL)-1 and IL-2 — were discovered and characterized from 1980 to 1983, and IL-2 was approved as an anti-cancer drug in 1992. While it was great at getting rid of the tumor, a very high dose was needed, and it caused toxic side effects that were unacceptable to patients and doctors.
We know now that IL-2 stimulates the production of killer T cells, memory T cells, and regulatory T cells, but regulatory T cells were not discovered until 1995, three years after IL-2 was first approved. Regulatory T cells, as the name implies, calm down the immune response in the body, and too many of them can calm down the killer T cells before tumor control is achieved. Higher doses of IL-2 lead to more killer T cell production, but also raises your odds of producing a cytokine storm within the body, which is a cascading overreaction of the immune system that is the cause of the toxic side effects of early IL-2 treatments.
Nektar Therapeutics, one of our largest and longest-held positions, has used its specialty PEGylation process to change the structure of the IL-2 molecule to make it more efficient at recruiting killer T cells and memory T cells. It does so while reducing the number of regulatory T cells being recruited, and that allows for smaller doses of a drug to be administered, thereby rending the therapy safe enough for widespread use. Nektar’s IL-2 formulation is known as Bempeg, and it is currently in phase III trials in combination with an approved immunoncology drug named Opdivo.
Excitement around immunotherapy picked up from 2010, with the approval of Bristol Myers’ Opdivo and Yervoy, and Merck’s Keytruda. These drugs work on an immune function called the cell cycle checkpoint, which helps cells check to see if all is well.
Cancer cells evade the immune system by nefariously producing false “all-is-well” signals, thereby silencing the immune system near the tumor. Opdivo, Yervoy, and Keytruda shut down these “all-is-well” signals and allow the immune system to work near the tumor again. Pairing IL-2 with Opdivo is complementary and allows the immune system to get near the tumor and recruit more T cells to deal with it.
Nektar has more Immune-Oncology drugs in its pipeline, and these drugs have novel mechanisms of action. NKTR-262 is another drug that is involved in signaling for help by using a class of proteins known as toll-like receptors (TLRs). (There are similarities between IL-1 and TLRs). NKTR-262 is injected into the tumor, causing damage and displacing fragments of the tumor. The drug stimulates the production of TLRs and the TLRs aid in the process of making antigen specific killer T cells. Here, antigens are the fragments of the tumor, and the antigen-presenting cells teach the T cells what they should target in the fight, i.e. anything that looks like the tumor fragment. NKTR-262 is being tested in combination with Bempeg, which stimulates killer T cells and memory T cells.
NKTR-255 is a PEGylated version of IL-15. IL-15 was discovered in 1994 and is in the same family of signals as IL-2. It stimulates the growth of memory and killer T cells as well as Natural Killer cells, and naturally doesn’t affect the regulatory T cells. There are a number of trials ongoing with NKTR-255 both alone and in combination with some of the antibody drugs mentioned above. Nektar’s PEGylated version of IL-15 is designed to last longer in the body, thereby facilitating smaller and less frequent dosing for the patient.
Getting in early
We invest in companies that we think have years of transformational growth ahead of them. Many of these types of companies are at the forefront of the fight against cancer. We’re envisioning a future where breakthrough immunotherapies produced by small, innovative companies can treat this disease more effectively without debilitating side effects, while also lowering the cost of treatment. Through our early investments in these companies, our investors can potentially benefit from these companies’ innovations and their potential to transform health care.
As of 3/31/20, Bristol-Myers Squibb represented 0.0% of Invesco Oppenheimer Global Opportunities Fund’s holdings; Merck & Co., 0 0%; MorphoSys: 1.29%; Genmab, 1.12%; Nektar Therapeutics, 11.03%; Janssen, Pharmaceuticals, 0.0%; and Johnson & Johnson, 0.0%.
Holdings are subject to change and are for illustrative purposes only and should not be construed as buy/sell recommendations.
The health care industry is subject to risk relating to government regulation, obsolescence caused by scientific advances and technological innovations.
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Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Investments in securities of growth companies may be volatile. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Investing significantly in a particular region, industry, sector or issuer may increase volatility and risk.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
The opinions referenced above are those of the authors as of June 9, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.