What Incyte's Phase 3 Fail Means for Immuno-Oncology

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Last week wasn't fun for Incyte (NASDAQ: INCY) shareholders, but it also wasn't fun for anyone invested in immuno-oncology.

In this Industry Focus: Healthcare segment, host Michael Douglass and Motley Fool contributor Shannon Jones explain how one trial had ramifications all across a sector, a few of the particular companies that got hit by the fallout, and some general advice for investing in biotech.

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A full transcript follows the video.

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This video was recorded on April 11, 2018.

Michael Douglass: Let's talk about the broader industry very briefly, and then we'll head on to our second topic. This is just bad news for immuno oncology across the board, because we finally now have a really clear sign of a combo drug whiffing. And frankly, there are a lot of combo drugs being tested out there right now. The last time I checked, which was maybe a month ago, there were over 800 clinical trials involving either Keytruda or Opdivo, which are the two big leaders in PD-1.

Shannon Jones: Yeah, absolutely. Just on the IDO inhibitor space alone, you saw, when this news came out for Incyte, NewLink Genetics, for instance, fell 42%. This is a company relatively new on the scene. They have a pipeline; their core two assets are all IDO Inhibitors. They fell 42% on Friday alone. Nektar Therapeutics wasn't immune either, fell 7%. And even Bristol-Myers Squibb, with Opdivo, fell slightly on the news. I will make mention, though, Bristol's IDO inhibitor, same class, slightly different mechanism of action. So, time will tell how it plays out for Bristol.

But really, across the board, I think what you're seeing is, investor sentiment is really changing for these combination strategies. There's a big question mark within the industry. And I think, from an everyday investor's perspective, this really drives home the point, take those Phase II result with a grain of salt. It is not uncommon for a Phase II drug to look really great, but then come in Phase III and utterly bomb out just like this drug did. So, take it with a grain of salt. Recognize that you might see some promising signs, but as it gets exposed to larger patient populations, if it's not a safety issue, it'll be an efficacy issue, and either way you need to use some caution.

Douglass: Yeah, absolutely. This is the classic thing with all biotech. There's a 90% failure rate once a drug enters Phase I. It's still not better than a coin toss even at Phase III. You just have to play those odds. That's why I think all of us, when we invest in healthcare, tend to try to go for fairly diversified portfolios. Some are going to do well, some will whiff, and predicting them beforehand is not the easiest thing in the world.

Michael Douglass has no position in any of the stocks mentioned. Shannon Jones has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.