Curing cancer: Will ImmunityBio (IBRX) achieve its moonshot?
Updated: Jul 12
Company: ImmunityBio Inc.
Market cap: $6.5bn (4/11/2021)
ImmunityBio (IBRX) is a late-stage clinical company. Their immunotherapy is focused on strengthening the patient’s natural immune system, potentially enabling it to eliminate cancerous or infected cells. The company has an enormous clinical trial pipeline of more than 40 Phase I, II, or III clinical trials in development, across 19 indications in solid and liquid cancers and infectious diseases. Their approach is drastically different to current cancer treatment standards and vaccine development. If their trials work out, this would be a game changer and cure the world of cancer and COVID-19.
In this blog post I cover the company, its founder and why I even see the bear case for this stock lead to a 44 bagger, with a price per share of $749 (5 year target).
The Elon Musk of Biotech
Breaking the dogma in cancer treatment
Macro view at cancer
According to the WHO cancer is the second leading cause of death globally and responsible for about 10 million deaths per year. in addition, every 6th death globally is due to cancer.
The topic of cancer research and treatments is a personal topic for me, as I lost two close family members to cancer. This explains why my passion for this topic is not limited to the investing aspects but also in support of scientists and innovative companies that develop ways to not just treat cancer but rather cure people of the disease.
One of those genius, scientific minds is Dr. Patrick Soon-Shiong, a South African-American transplant surgeon.
Dr. Patrick Soon-Shiong - the Elon Musk of Biotech
"The story goes that there were two South African guys of any importance in LA — and then Elon left" Paul Ash
Soon-Shiong is of South African descent, earned his master's degree at the University of British Columbia (Ca), moved to the USA in 1979 and became a board-certified surgeon in 1984. His career evolved and he found himself in 1985/86 doing the first research on stem cells and nanoparticles funded by NASA, as part of his work for the Johnson Space Shuttle program. In 1990 he wrote his first paper on the natural killer cell.
He invented the chemotherapy drug Abraxne in 1991. A real breakthrough in cancer therapy. However. it took until 2005 for it to be approved by the FDA and be available to patients. This disappointing experience lead to him having several realizations.
First, giving low dose chemo was completely counter intuitive to what he learnt in science. Every day there are 10,000 cancer cells generated by our body. The natural killer cells, that are part of our immune system, are floating around, recognizing cancer cells and killing them. When thinking about it this way, it does not make sense to give high dose chemotherapy, as this wipes out the immune system. Dr. Soon-Shiong concludes that we have been thinking about cancer the wrong way: As a battle rather than a war. Giving high dose chemo means you win the battle but not the war, because as soon as the tumor shrinks the mutations wake and spread through the body. This means you lost the war. However, low dose chemotherapy is counter to the interests of the pharma industry, as they make billions with high-dose chemo therapy and also because of the dogma in the cancer science/research community.
Second, he knew that he needed an infrastructure the USA did not have. A good example for this is whole genome sequencing, which involves 22,000 genes.
The mathematical problem: Every human has 3 billion base pairs, those base pairs generate 22,000 genes (3 billion times 22,000). Those 22,000 genes speak to 200,000 RNA those 200,000 RNA speak to 2 million proteins, times 10,000 protein networks in order to find the network that is abnormal. The generation of such data for one patient is a couple of terabyte. 10,000 cancer patients per day means petabytes of data per day.
He realized that nobody would built this infrastructure and he would need private investing. In order to fulfill his vision, he would have to sell both of his companies and go on his internal campaign, as he knew that his approach to curing cancer would disrupt traditional pharma. In 2010 he sold his companies to Celgene and Fresenius and for the next 5 years went into stealth mode with his team.
The below video interview from 2016 was part of the launch event, at which IBRX left stealth mode. "The solution is here now but the question is, if it takes 10 years? If we can do it in 5 years, that would be incredible". Dr. Soon-Shiong 2016.
Keeping his timeline in mind, 2021 should be a good year to deep dive into IBRX.
Apart from their shared South African heritage, the other reasons I can't help but think of Elon Musk when listening to Dr. Soon-Shiong, are his first principles thinking approach, having a lot of skin in the game at his companies & his track record. Similar to how Tesla thought long before others about deep vertical integration, building up charging infrastructure, developing their own AI chips and building the "machine that builds the machine", Dr. Soon-Shiong mentions that he built up 400,000 sq feet GMP manufacturing capacity in California.
Since Dr. Soon-Shiong started to go on his internal campaign to cure cancer 10 years ago,
there have always been commentators using the word controversial when describing him. In Dr. Soon-Shiong's point of view, the word controversial is only used when people don't understand what you are trying to do and more importantly, when you are trying to make change. Dr. Soon-Shiong has the firm belief, that it is wrong to give people high dose chemo therapy, wiping out the whole immune system along the way, when that is an illogical thing to do.
As controversial as some people think Dr. Soon-Shiong is, he is well respected and has a proven track record. Being one of the most prolific figures in cancer research, he consulted the Biden family, when Beau Biden was battling cancer (during 2013 - 2015). In January 2021 President Biden met with healthcare leaders to consult on how they can launch another moonshot for cancer, after it was neglected for the last 4 years. I assume cancer moonshot 2.0 will be one of Biden's highest priorities, after getting his infrastructure plan passed.
"Pursue your passion, believe in yourself and don't listen to the naysayers. If you are doing something important, there will be a naysayer. If you are doing something nobody will care about, nobody will care anyway." Dr. Patrick Soon-Shiong
Dr. Soon-Shiong is involved in multiple companies. However, this article is focused on his work at ImmunityBio. IBRX operated under the name Nantkwest (Ticker: NK) before, but merged with one of Dr. Soon-Shiong's other companies ImmunityBio early 2021. The combined company is called ImmunityBio:
"a late-stage clinical company with more than 40 Phase I, II, or III clinical trials in development across 19 indications in solid and liquid cancers and infectious diseases.
Our proprietary natural killer cell platform can be easily expanded, genetically modified, and cryopreserved and offers multiple modes of cytotoxicity. Our lead antibody cytokine fusion protein, Anktiva, has received FDA Breakthrough Therapy designation for one of the most common and difficult to treat types of bladder cancer.
Our work is led by a senior team with highly complementary and broad expertise across novel scientific areas including genomics and proteomics, monoclonal antibodies, fusion proteins, vaccines and autologous and allogeneic cell therapy, based on experiences at companies ranging from biotech startups to large commercial pharmaceutical enterprises." ImmunityBio website
Breaking the dogma in cancer treatment
In contrast to traditional cancer treatment, which includes high dose chemotherapy, IBRX is focused on developing cell and immunotherapy products that aim at activating each patient’s natural immune system, with the goal to kill cancerous or infected cells. An important element of this approach are the natural killer (NK) cells. They are part of the immune system's diverse cell families and can be classified as the body's first line of defense. By orchestrating the NK-cells with other cells, IBRX developed their "triangle" offense:
"Our investigational immunotherapy products are tailored to each patient’s needs. We employ a “triangle” offense designed to deliver durable, complete responses in cancer and infectious diseases." ImmunityBio
The immune system consists of many cells, imagine them as a basketball team: you need somebody to block but also someone to take shots, if you want to win the game.
Different cell types need to be synched and activated at the right time. The main players are the NK-cell, genomic sequencing and fusion protein. The output of bringing those together leads to astonishing results. As an example, on December 21st 2020 IBRX announced positive data from the first cohort of a pivotal Phase 2/3 trial (QUILT 3.032) for non-muscle invasive bladder cancer in high risk carcinoma in situ (CIS) disease:
"The data showed 51 out of 71 evaluable patients (72%) had a complete response (at any time) to intravesical BCG plus N-803 (Anktiva), with 59% probability of these patients maintaining a complete response for at least 12 months, with a median duration of complete response of 19.2 months to date."
The FDA has already granted IBRX Breakthrough Therapy Designation for the trial and IBRX is supposed to submit Phase 3 data to the FDA in August/September 20201. This could be an exciting catalyst for the stock.
IBRX had already been working on several infectious disease vaccines, when the news about COVID-19 broke. They were very much prepared and in June 2020 the first dose of its COVID-19 vaccine was already available for testing. It was not cleared for human trials
until November 2020, even though it had been selected as one of “Operation Warp Speed” program contenders.
Similar to taking a unique approach at treating cancer, Dr. Soon-Shiong approaches vaccine development with a novel approach. IBRX leverages their experience with cell therapies and kills the virus. Existing vaccines just generate antibodies to the spike protein on the surface of the coronavirus. ImmunityBio's vaccine generates killer T cells that aim to kill the yellow globe in the middle which is a part less prone to mutation.
(Source: CBS News)
IBRX's vaccine could be a game changer, because it can be administered in the form of a pill or a shot and seems to offer protection against any COVID-19 variant/mutation. In addition, a vaccine in capsule form does not have to be kept in cold storage. A billion people worldwide live in areas where there isn't a cold chain infrastructure and in turn, would not have the option to get vaccinated.
“If those billion people don’t get vaccinated and they get infected — especially in places where there’s HIV and immune-suppression — you will have continuous mutations because the viral evolution will cause this virus to find a way"
On April 8th 2021 IBRX released new data confirming that the mean level of T cells generated in response to the hAd5 S+N T cell vaccine were ten times higher for N specific T cells. These encouraging results position the vaccine for use as a “Universal T Cell Booster” to enhance T cell immunity in people who already had their vaccine shot or as initial vaccination. We would take the pill or shot and would not have to get vaccinated every year.
It could very well be the solution for solving the COVID-19 problem forever.
The IBRX pipeline is extremely impressive. 40 clinical cancer trials and 4 are already in phase 3.
(Source: ImmunityBio Corporate Overview March 2021)
Infectious diseases (COVID-19, HIV):
There are a lot of companies aiming their research at curing cancer, but from all of those in my opinion IBRX has the most realistic chance to cure cancer. To put things into perspective, one could take a look at the pipeline of Fate Therapeutics, a very popular stock that is also part of the ARKG ETF. Fate has a market cap of $7.3bn.
(Source: Fate Therapeutics)
They only have 7 clinical trials running. Of those trials only 2 are related to cancer and none of the trials are currently further than phase 1. In my opinion, this comparison showcases very well how far along IBRX is and explains why I have such high conviction in the stock.
Looking at the share structure shows that there is very high insider ownership of more than 70%. This is a good sign and proves the high conviction management has in what IBRX is able to achieve.
(Source: Seeking Alpha)
It is tough to put a valuation on biotech stocks that makes sense. Below is a list of the biggest pharma companies by market cap 2020 (Source: Wikipedia).
I am not a valuation expert so take the following with a grain of salt. It is just my opinion and none of the content on this blog is financial advise.
Currently IBRX has a market cap of $6.5bn. They have a realistic chance of curing cancer and their COVID-19 vaccine is a game changer as well. Dr. Soon-Shiong wants to build a new type of big pharma company, so being acquired by a bigger company is of the table and if they are successful, they could become one of the companies on the above list.
If their market cap multiplies by 10, they would still not even be in the top 10 pharma companies and none of those currently offers a cure for cancer. Quite the opposite, their business model relies on treating patients with recurring doses of drugs.
Similar to some of the genomics stocks, but even more radical, IBRX is disrupting Big Pharma's current business model, by aiming to cure patients instead of treating the disease. Examples of companies that disrupted industries:
Apple: Market cap of $2T
Tesla: Market cap of $650Bn, which is more than the next top 6 car companies combined
To estimate a total addressable market (TAM) for my valuation, I referred to Ark invest's big ideas 2021 page 111 "The combination of cell therapy innovation and allogeneic cells could add an additional $150 billion and increase the overall TAM for oncology gene therapy by roughly 20-fold to more than $260 billion."
(Source: Ark Invest)
The TAM I am working with for this calculation is $260bn and this would not factor in the revenue for the COVID-19 vaccine, in order to be conservative.
As I assume IBRX will have first mover advantage they should (at least for the initial time) be market leader and get the biggest chunk of potential revenues.
Let's work with 20% = $52bn revenue.
The healthcare sector forward price/Sales median is 7.93 (bear case: 5.55, bull case: 10.31)
Current market cap $6.5bn (4/11/2021)
Share price: $16.87 (4/11/2021)
This is not financial advise. Please find my calculation in the table below. The targets are with a 5 year horizon in mind. As you can see, even the bear case would lead to a 44X increase in market cap and a price per share of $749:
As with other biotech stocks there is a lot of volatility to be expected and if volatility worries you, you should not invest in IBRX or biotech companies at all. You should also be aware of the stock moves that happen in expectation of trial results and that there can be sell the news type of events. So this is not a stock that you buy and then put in the drawer for 10 years. It is a position you have to actively manage.
Additional risk factors are the trials having unfavorable results, another company beating IBRX in time to market or the FDA approval time frame being prolonged.
IBRX has a realistic chance to cure cancer and bring a one of its kind type of COVID-19 vaccine to market
Huge pipeline which offers diversification benefits
44 bagger potential (5 years time horizon)
>70% insider ownership and very thin free float
Potential of becoming a new type of big pharma company, curing patients and unlocking massive shareholder value
Biden administration potentially starting cancer moonshot 2.0
Ready for prime time in 2021 (based on the 2016 assumption that 5 years is a realistic time frame for their trials to show favorable results)
Founder / operator Executive Chairman with a high level of skin in the game: Dr. Patrick Soon-Shiong's legacy depends on IBRX's success. The outcomes of IBRX's trials is the accumulation of his life's work. He will do everything possible, to make this a success.
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WHO cancer stats: https://www.who.int/news-room/fact-sheets/detail/cancer
"Call for Biden to revive the Cancer Moonshot", Éanna Kelly: https://sciencebusiness.net/news/call-biden-revive-cancer-moonshot
Video interview Nantkwest / ImmunityBio merger:
In this talk from 2014 Dr. Soon-Shiong is talking about genomics and proteomics. https://youtu.be/XsztFuNY0QM?t=463
Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research before taking investment decisions. I am long IBRX.