Paul and Brett's Alpha

For those of you who have made it this far into the monthly missive, we feel a bit of levity and positivity is required. So, let us leave behind market meandering and our maladroit macro-economic observations and delve into some blue-sky optimism.

We start with a question: what are the most important clinical programmes ongoing in the world today, in terms of the potential future impact on alleviating humanity’s burden of morbidity and suffering.

We have listed our views on a few of the more interesting ones below that cover the three key areas of either detecting, preventing or managing a potentially serious medical condition in a way that could impact many lives and also save society tens of billions of dollars in avoided medical costs and improved quality years of life for those impacted.

Hopefully, these summaries will serve as a reminder to us all how amazing and constructive science can be and also demonstrate once more that, when people work together, they can achieve the most incredible things.

There is so much in the world right now to worry about, let’s take a little time to out appreciate the objective truth that today is still the best time for the average human being to have been alive, apart from tomorrow, which will be better again.

There are some nine million people in the world living with Type 1 diabetes, a third of whom are in lower income countries. All these patients must inject insulin for the rest of their lives.

Whilst pumps controlled by algorithms and continuous glucose monitoring technology have greatly improved control for those fortunate enough to be able to afford them, it is still a reality that high blood sugar damages peripheral nerves and vasculature and increases the long-term risks of macro cardiovascular and neuro-degenerative diseases.

Low blood sugar episodes can range from merely very unpleasant to fatal. The lifetime costs of managing a Type 1 diabetes patient in the US have been estimated at ~$1 million.

Whilst it would be lovely to imagine this disease being confined to history, its underlying cause remains elusive. Some foreign agent appears to induce an immune reaction that creates auto-antibodies which also attack the islet cells of the pancreas.

A number of common viruses have been implicated but not definitively and there is no clarity as to why some people manage to cope with infections of these viruses without any long-term complications, whereas others succumb to diabetes.

This has led to various attempts at building a synthetic pancreas, either technologically (impossible to make small enough to be implantable) or using cadaverous islet cell transplants (not enough donor tissue, a theme we will return to). However, cell engineering has progressed to the point where it is possible to generate synthetic islet cells.

Fortunately, the body’s islet cell mass is tiny (around 1cm3 of tissue, not all of which are insulin-secreting cells) and can thus be enveloped into a container that allows tissue fluid in and out but does not allow immune cells to ‘see’ the synthetic cells and attack them.

There are a couple of companies working on this type of approach, but the most advanced programme is Vertex Pharmaceutical’s VX-880 programme, where the first few patients are seeing good results with unencapsulated cells and concomitant transplant rejection drugs. The encapsulated cell trials without the immune-suppressive drugs have yet to commence.

Given the costs of managing the disease and the patient benefit of potentially being able to go back to leading a ‘normal’ life after receiving one of these cellular implants, the commercial opportunity here is significant, as are the potential benefits to society. The programme is not yet advanced anywhere near enough to be a justification for owing Vertex in its own right, but this bio-engineering project offers some interesting upside optionality that could, in time, transform millions of lives. Vertex Pharmaceuticals is included in the BBH portfolio.

Regular readers will know that we are seldom fans of ‘big pharma’ and often cite GSK as the apotheosis of the persistent mediocrity that defines the breed. Just as a broken clock can be right twice per day, then so even the most mediocre can rise to be exceptional.

GSK’s vaccine Mosquirix (a.k.a. RTS,S) has been in development since 1987, but only received a recommendation from the World Health Organisation in 2021, some 34 years later; such are the complexities of developing a vaccine against a pathogen with multiple life cycle stages and also intended for delivery in remote locations that complicate delivery and storage.

The phase 3 trial followed some 15,500 children for more than four years. Whilst a lot of the funding has come from various foundations and NGOs, the company has nonetheless devoted time, money and resources to this programme for decades and continues to support manufacturing and donations of finished vaccine doses (it is a four-dose vaccination).

A number of pilot programmes are underway across sub-Saharan Africa and long-term follow up studies from earlier cohorts suggest the vaccine has a durable impact on the incidence of severe malaria going out to about 10 years. GSK’s programme will continue to follow these cohorts for several more years to come. It is planned that that vaccine manufacturing know-how will ultimately be shared with other local companies in a manner similar to the Oxford (AZN) COVID vaccine.

The economic and health burden of malaria cannot be overstated. Half the world’s population live in areas where people are at risk of catching Malaria and an estimated 250 million people are laid low by serious cases of infection, leaving them unable to work, attend school or care for their families.

More than 95% of these serious cases are in sub-Saharan Africa. The disease kills more than 600,000 people every year and 80% of these are in children under the age of five. The socio-economic burden of the disease is very hard to measure, but is estimated by the CDC at $12 billion per annum.

All of GSK’s work has shown the RTS,S vaccine is both safe and effective in young children. If the vaccine can reduce severe illness and death in these crucial early years, it will hopefully leave people stronger and healthier to cope with the risks of infection later in life (as yet we do not have enough data on this latter point, but the trend is a positive one so far). Humanity has enjoyed some tremendous success with preventative vaccination programmes: smallpox, polio, measles, mumps, rubella and most recently SARS-CoV-2.

Within a few years, Mosquirix will have joined this list and the world will be a better place for many children yet to be born. We can confidently say that GSK will never be in the BBH portfolio, but we are not so narrow minded as to not doff our cap to a tremendous piece of philanthropic medical research.

We previously described how there are not enough harvestable islet cells to offer cadaverous insulin implants. However, exogenous insulin is there as a readily available life-long alternative. There is a more serious general shortage of organs for transplant, owing to the majority of people dying in old age (with organ failure being a common aspect of eventual death) and the need for a high degree of immunological matching between donor and recipient.

In the US alone, there are about 40,000 organ transplants every year and around 106,000 on the waiting list at any given time. Around 20 people on the list die each day without receiving their potentially life-saving transplant and less than half of those who go on to the waiting list can realistically expect to eventually receive an organ in time.

One potential solution to this challenge is to genetically engineer animal strains to be less immunogenic (i.e. more compatible with human tissue) and then farm animals as a source of organs. This is referred to as xenotransplantation and the first whole organ xenotransplants (from engineered pigs) into a live patient were undertaken in early 2022.

Both hearts and kidneys have been transplanted. These pigs are bio-engineered, having received a number of genetic modifications to reduce the risk of acute (i.e. immediate) rejection. Further genetic modifications to improve bio-compatibility are likely over the coming years. This pioneering research is being led by the University of Maryland Medical Center in Baltimore, USA.

The other alternative is to “grow” new human organs to order. Whilst this does not immediately resolve the issue of rejection, we are much more familiar with managing human donor rejection from decades of traditional transplant surgeries and, in time, we may also be able to develop human stem cell lines that are less inherently immunogenic so that people could receive an ‘off the shelf’ organ.

Immunogenicity aside, the main challenge with replacing a functioning organ with anything synthetic (“bio-engineered”) is one of structure. Even if you had a supply of the relevant stem cells to grow an organ, it is not as simple as putting a few cells in a dish and then waiting for a fully formed heart to emerge a few months later.

The cells need a scaffold to form the correct structure: the “extra-cellular matrix”. This is an incredibly complex and delicate three dimensional structure, whose constituents vary with each organ system but is chiefly composed of three types of protein that readers will be familiar with: collagen, elastin and keratin.

Bio-engineering “Blade Runner” style remains a science-fiction fantasy. We currently lack the technological know-how to 3D print a whole-organ ECM to order, although this may be possible one day and there is some work ongoing to produce specialised sheets of ECM material using 3D-printing  to repair damaged tissue in the heart or the lung. The Biomedical Engineering department at Carnegie Mellon University in the United States is doing some interesting work in this area.

Whilst it is a delicate structure, the ECM is much more robust one than the cells which it contains and it is thus possible to denude the matrix of cells to leave the matrix structure intact. Theoretically then, we could harvest organ ECMs from cadavers. The harvested ECM is not immunogenic and thus can be recycled as a scaffold to grow a new organ.

There will be a far greater supply of viable ECMs from organ donors than whole organs, so this is an exciting prospective step in improving the supply of donor organs. A micro-cap US biotechnology company called Miromatrix is active in this area.

The nature of the matrix itself seems to impart information to progenitor cells such that they “know” what part of an organ they are supposed to become and you see specialisation and migration of the progenitor cells over the matrix to eventually form the complex organ that is desired. However, the business of growing a functioning heart, lung or kidney is still complex and we are many years away from having the first viable synthetic organs for transplant.

Coming back to xenotransplants; simple structures for wound repair (including synthetic ECM materials derived from pigs) have been used for various surgeries for some years now (e.g. prosthetic cornea ECMs known as a keratoprosthesis).

In contrast to the bio-engineering examples cited previously, liquid biopsy is a technology that we know “works” and is technically feasible today. The key questions for society are related to its deployment. Used appropriately, this could be a game changer for society. Used inappropriately, it could be an expensive folly that sows more misery than good.

Any early stage diagnostic is trying to balance two opposing, but equally important parameters: sensitivity and specificity. The first dictates how likely the test is to pick up a positive result. When you are on a fishing expedition for early stage (i.e. asymptomatic disease), a high degree of sensitivity is required; you want to catch as many real cases as possible.

On the other hand, one needs a test with a high degree of specificity to reduce the risk of false positives. Anyone who has ever been referred to an oncologist themselves, or had this happen to someone they care about, knows the excruciating wait for confirmatory tests to clarify whether or not someone has cancer and what their prognosis is. Time literally stands still.

There are two broad diagnostic panels for the detection of multiple types of early stage cancer (“MCED test”) that are close to widespread commercialisation: Galleri from GRAIL (a subsidiary of Illumina) and Exact Sciences, whose MCED is called CancerSEEK. Galleri is designed to detect a wider range of tumour types (50) than CancerSEEK. Both tests have demonstrated their detective power for early stage tumours that would not otherwise be detected.

The Trust is a shareholder in Exact Sciences, but the optionality of exposure to its MCED is not a key plank of our investment thesis, rather one that is discounted to zero in the current valuation. You will also find many analysts commenting that GRAIL is considered to be a drag on the valuation of Illumina (i.e. the shares would re-rate higher if this business was spun off). Why are investors not so excited by this potential revolution in cancer detection and treatment?

There are two key challenges. The first is obviously cost and the second is the reality of false positive results. We can illustrate these points with some data. In GRAIL’s PATHFINDER trial, 6,621 outwardly healthy people aged 50+ were screened with its Galleri test, yielding 92 positive signals (1.4%). Subsequent investigations (scans and other tests including physical biopsy samples) confirmed cancer in 35 of these patients within three months (i.e. 38% of the initial positives were confirmed as true positives), which suggests that 57 (i.e. 62%) were false positives.

Since the PATHFINDER data was initially published, the algorithms have been refined and today only 59 of those 92 would still be considered to be a positive sample. Nonetheless, that means at best there are nearly as many false positive results (41%) as true positives. These are lab-based tests so they can continue to evolve and it is likely that the false positive result can be further reduced. However, our research tells us that there will be quite a lot of physician resistance to recommending these tests if false positive results remain at such levels.

If we extrapolate the data available today to the population level and imagine that, for every 100,000 over 50s screened for early cancer, 900 would test positive. Of those, 531 would go on to receive a confirmatory diagnosis and 369 would be deemed to be negative. At $950 per test and let’s call it $3,000 for all of the secondary tests and scans, we would have spent $95,000 on the primary screening and $2.7m on the follow-up, equal to $2.8m in total or $5,200 per true positive result.

We would also have scared the bejesus out of 369 healthy people (it may well also be the case that the passage of time will show that some of those false positives become true positives, but more data is needed to clarify this point).

Exact Sciences initial screening study with CancerSEEK was called DETECT-A. In that study, 9,911 healthy women aged 65-75 were screened. 490 of these were initially deemed positive and these were re-tested. 134 were positive the second time around and 127 of these were then sent for imaging, leading to 26 imaging-confirmed (i.e. per protocol) cancers.

One can safely assume that the re-test need not be a notifiable event, but the same thing applies here that 127 women were sent for further studies and only 26 of these (21%) were ultimately true positives. Moreover, 22 of those 101 women ultimately determined not to have cancer went on to have much more invasive testing than simple imaging.

There were also 67 cases of cancer in the 9,421 women who tested negative initially (0.7%) after one year of follow-up, so one could argue that the test missed more cancers than it caught for whatever costs were involved.

In the total ‘per protocol’ sample, there were 96 confirmed cancer cases (0.97%) and the early stage test detected only 27% of these. Again, we would stress this data is more than two years old and the CancerSEEK test has continued to evolve, making the actual numbers of true and false positives of limited relevance now.

However, it does serve to highlight that whatever diagnostic pathways are used with these tests will require further refinement and also careful patient selection. There is simply no merit in using these sorts of tests in a younger population for example.

We remain very excited about the long-term potential for MCED tests to transform cancer care, but we are still far away from this becoming a routine diagnostic procedure like a PSA test, mammogram or pap smear.

Even assuming that we can reach a false positive versus detection threshold that society deems acceptable, the costs of widespread screening will be high and the whole medical system will need adapt because our current oncological approach is hugely geared to later-stage cancers that are not amenable to surgical resection or radio-ablation. 

That leads us to the most exciting element of the early CancerSEEK data: of those 26 positive confirmed cases, 15 were found to be loco-regional and nine were amenable to curative surgery. So 9/26 or 34% of those who were found to have cancer they didn’t yet know about were “cured” because the tumour was found so early. That is an outcome that oncologists dream about and is the reason why we need to persist with the development and evaluation of these testing approaches.

All of the caveats being made, the examples cited above enable us to imagine a world that is very different to the one we inhabit today, where literally tens of millions of people could benefit from life-changing novel interventions to either detect, prevent or manage serious medical conditions.

We are not fantasists, but pragmatists. We only invest in things that are supported by real data. Many of the ideas described above are either very early stage or still generating the necessary data. We may have exposure to some of these, but none are core elements of an investment thesis to which we ascribe a positive net present value, but rather side projects.

However, we consider ourselves long-term investors and we continue to monitor the frontiers of medical progress to wait for those compelling opportunities to enter (e.g. our four-year wait to get involved in gene therapy, ultimately with Sarepta).

Being able to evaluate and follow these exciting medical developments is one of the most interesting and uplifting elements of being a healthcare portfolio manager and certainly helps one to retain a positive frame of mind amidst an otherwise dispiriting geo-political and economic discourse.

We always appreciate the opportunity to interact with our investors directly and you can submit questions regarding the Trust at any time via:

shareholder_questions@bellevuehealthcaretrust.com

As ever, we will endeavour to respond in a timely fashion and we thank you for your continued support during these volatile months.

Paul Major and Brett Darke