Written by Dan Cohen and Scott Matusow

These days, it seems as if every major pharmaceutical company is working on their own PD-1 targeted therapeutic regimen and for good reason. Biotech was on a historic bull-run from 2011-2015, owing much of its gains to significant advances made in oncology and a favorable political environment. Specifically, approaches that redirect and harness the unique potential of our own immune system, better known as immuno-oncology (IO), were finally validated in the clinic and approved by the FDA. The first wave of truly successful IO therapeutics were antibodies against two targets, the checkpoint inhibitors anti PD-1 Merck’s (NYSE:MRKKeytruda and Bristol-Myers Squibb Co (NYSE:BMYOpdivo and Bristol’s CTLA4 Yevroy, in difficult to treat melanomas.

This approach in effect ‘releases the brakes’ from the immune system and potentially offers a more robust response to the tumor. However, the investment community has over speculated due to what we believe to be a mischaracterization of the effectiveness of these therapies. Rather than viewing checkpoint inhibition (CPI) as the be-all answer to oncology as many mistakenly have, we see CPI as a bridge to enable novel mechanisms of action to work more potently.

Much of 2016 has been dominated with skepticism surrounding the biotech industry as well as the potential for a shift to a much harsher political climate. While we won’t touch on the dynamics of the political situation in-depth here, investors have responded favorably to the election of Donald Trump and the failure of Proposition 61 in California. Now that these potential headwinds have been lifted, investors are now searching for additional alpha to the initial success that we have seen from CPIs. The industry can ill-afford to remain complacent to this end, Merck and Bristol Meyers Squibb are now facing a wave of competition from AstraZeneca (NYSE:AZN) Durvalumab, Roche’s Atezolizumab, and Pfizer’s (NYSE:PFE) (formerly Medivation’s) Pidilizumab. So how do these companies separate themselves from the pack?

The clearest answer to this question is now being actively pursued by nearly all of the above companies – combination therapies.

Not all combinations are created equal, and there has been some justified skepticism surrounding the validity of these combo therapies. Often times we see trials where biopharmas are engaging in not-so-viable programs in combination with a CPI just to see if it can be salvaged without a meaningful scientific rationale. Other times we see trials where a very potent cocktail of agents are trying to push the efficacy bar.

The industry is desperate to maintain the momentum from the success of IO, but a great deal of caution to this approach is warranted. Considering we are dealing with agents that directly engage the cytotoxic potential of immune cells, one of the biggest hurdles for success is mitigating autoimmune-like side effects from these therapies. The key here is to balance the side effect profile with efficacy while enabling a durable response by promoting immunologic memory.

Additional considerations must be made on the business side as well. The costs of these therapies aren’t cheap; Bristol Meyers Squibb’s Opdivo costs roughly $150k for the first 12-week phase and if we tack on Yevroy, the total costs exceed $250k for the treatment of melanoma. At what point does it become unrealistic to utilize these combinations?

In order to better differentiate which agents will be able to thread the needle in combination with CPIs, it’s important to understand the dynamics between the immune system and the tumor. Recent scientific studies have demonstrated that tumors have evolved in several ways to evade immune detection or to even use immune cells to promote their own survival in a process known as ‘immunoediting’.

It’s important to recognize that cancers contain much of the same genotype as other cells in the body, and within that genome exists important mechanisms that cells utilize to avoid autoimmunity. Through time immune selection of the mutated tumor mass favors cells that have mutations which avoid immune response.

Complete activation of a T-cell against a target requires a three-signal process. The first signal being the detection of the cell’s major histocompatibility complex ((MHC)), a peptide presentation platform which shows the T-cell fragments of its intracellular proteins. If these proteins are mutated or show evidence of viral infection, this would be a first confirmatory signal for activation. However, this is not an efficient means of T-cell activation in the tumor micro-environment (TME) on its own.

These peptide platforms are generally a low-affinity receptor to T-cells since higher affinity T-cell receptors are deleted before entering circulation by the thymus. Also, tumor cells tend to express less MHC receptors than healthy cells. To overcome this hurdle, biologic and cellular therapeutic approaches are being actively pursued to improve T-cell affinity to specific oncologic peptides expressed on MHC receptors.

Biologics towards this target include Immunocore’s ImmTACs and more recently Affimed (NASDAQ:AFMD) TandAbs, which contain engineered MHC targeted domains bound to CD3, an activation receptor on T-cells. Cellular therapies involve engineering a higher affinity TCR domain into a T-cell culture before administering to a patient – notable companies in this space include Adaptimmune (NASDAQ:ADAP), Bluebird bio (NASDAQ:BLUE), and Kite Pharma (NASDAQ:KITE).

The second signal derives from external signaling compounds known as cytokines. The presence of certain pro-immune cytokines such as IL-2, IFN-γ, and TNF-α help increase the cytotoxic potential of the immune cells in the TME. Initial attempts to harness the power of these cytokines were done by administering them in a non-specific manner, often resulting in the over activation of the immune system in healthy tissue.

These compounds are more naturally produced by complimentary immune cells such as those from the innate compartment. Of note are Natural Killer Cells (NK), which have the ability to produce a plethora of these immune stimulatory cytokines. These cells are not MHC restricted, and have the potential to discover previously unknown targets to the body such as those resulting from oncologic mutations. As a target for therapy, there has been significant early successes of monoclonal antibodies against specific tumor associated antigens. These antibodies act as homing devices on the tumor cells, signaling NK cells and macrophages to attack the tumor by the binding of the Fc to the immune cells CD16 domain.

Affimed is currently exploring ways of enhancing NK response to these antibodies by swapping out the heavy Fc chain for higher affinity CD16a domains. Their lead product AFM-13, a CD30/CD16a bispecifc is being evaluated in combination with Merck’s Keytruda. Other approaches to engage NK cells in a complimentary fashion to CPIs include Innate Pharma’s Lirilumab, an anti-KIR antibody intended to block the tumor’s ability to turn off the NK response. Lirilumab is currently being evaluated in combination with Opdivo in multiple cancer settings.

However, tumors can also produce inhibitory cytokines such as TGF-β or recruit myeloid-derived suppressor cells (MDSCs), and tumor associated macrophages (TAMs) capable of producing their own cocktail of immuno-suppressive signaling molecules to dampen response. Interestingly, much of the mass found in solid tumors such as non-small cell lung cancer (NSCLC) have been demonstrated to be in-fact, MDSCs.

These MDSCs and TAMs have a powerful ability to shift the balance of the TME and are thus an interesting target for therapy. These cells can induce a hypoxic environment by nitration as well as the production of reactive oxygen species, leading to increased arginase-1 expression and even re-signaling immune cells to increase blood flow to the tumor. TAMs have been demonstrated to correlate directly with T-cell exhaustion in the TME. To counteract these effects a few different approaches are being explored. For example, Five Prime Therapeutics (NASDAQ:FPRX) entered into a partnership with Bristol Meyers Squibb for Cabiralizumab (FPA008), an antibody that inhibits CSF-1R, which blocks the activation and survival of TAMs. Another approach being explored involves shifting the metabolic profile of the TME with small molecule inhibitors.

The company which will be our main focus in these series of write-ups, Calithera Biosciences Inc (NASDAQ:CALA) Biosciences develops both an arginase inhibitor (CB-1158), aimed to block the arginase derived de-activation of T and NK-cells in the TME. Calithera is also working on a glutaminase-1 inhibitor (CB-839) which is specifically designed to block the tumor uptake of glutamine. Glutamine is the primary fuel for many tumor types, especially those with the MYC oncogene. MYC is the third most commonly amplified gene in cancers. When glutaminase-1 is inhibited there is an increase of availability of glutamine in the TME to T-cells, which rely on an alternative, glutaminase-2, to process glutamine as a fuel source. FPA008CB-1158, and CB-839 are all being currently evaluated in combination with Bristol Meyers Squibb’s Opdivo.

The third signal is the co-stimulatory (such as markers of cell stress) or co-inhibitory receptors known as checkpoints. This third signal is determinant of T-cell function and can lead to either a potent response or a dampened one. The detection of an inhibitory signal like PD-L1 leads to increased expression of PD-1 on the T-cell, inhibited T-cell metabolism to prevent proliferation, decreased cytokine signaling pathways, as well as impaired production of its own immune stimulatory cytokines.

Recently, researchers have specifically noted the metabolic reprogramming of T-cells following the detection of PD-L1. They noticed that T-cells do not uptake glucose or glutamine and as such, CPIs will continue to play a key role in supporting the proliferation of T-cells and cellular therapies. Combination attempts with multiple T-cell CPIs have shown remarkable efficacy (such as Opdivo + Yevroy), however, such combinations are also known to have severe toxicity profiles. As the focus of the The U.S. Food and Drug Administration (FDA) along with health providers shifts from purely aiming for efficacy in improvements in quality of life, these combination approaches will likely struggle.

The immune system is a complex yet robust system to generate anti-tumor response. Despite the seemingly endless combination strategies being employed, careful consideration must be made in approaching therapies in a synergistic and non-competitive fashion. The puzzle of IO is slowly being pieced together as the industry finds new meaningful pathways and prognostic biomarkers to enhance patient response to treatment.

It is almost certain that CPIs, particularly those that target PD-1/L1 interaction will continue be a cornerstone of treatment in this new paradigm. What will inevitably separate the winners from the losers in this highly completive space will be the ability to select and design meaningful combinations which strike the key balance of safety, efficacy, and durability. As the political headwinds of 2016 give way, now is the time to position correctly for the future of therapy. In the second part of our series we will be specifically focusing on Calithera and the pathway forward for Bristol Meyers Squibb as they attempt to recover from this year’s stumble at European Society For Medical Oncology (ESMO) in NSCLC.

Disclosure: I am/we are long CALA, AFMD.

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky — always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.