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This Small-Cap Biotech is a Sneaky Play on Next-Gen Drugs

Selecta Biosciences is one of the most mature companies in an area attracting the attention of industry titans.

There always seems to be a "next big thing" in drug development. Selecta Biosciences  (SELB) - Get Free Report is well positioned to ride one emerging wave.

Industry titans are increasingly showing interest in an emerging therapeutic approach called immune tolerance. Investors can think of it as the opposite of a vaccine. Instead of training the immune system to recognize and attack a specific molecular target, immune tolerance aims to coax the immune system into allowing certain misidentified threats to slip through its defenses.

Immune tolerance has the potential to treat autoimmune diseases, which are characterized by the body attacking its own cells in error. The therapeutic approach could also increase the safety and efficiency of biologic drugs such as enzymes and genetic medicines, which are easily confused with real threats from viral or bacterial infections.

As one of the only immune tolerance drug developers with clinical data from human patients, Selecta Biosciences could be a sneaky investment opportunity – so long as management executes.

Why 'Tregs' Have Legs

The many applications of immune tolerance all flow through the same type of immune cell called a regulatory T cell, or Treg. These specialized cells sit at an important intersection in the immune system. When activated, they "turn off" immune responses to threats or healthy cells. When dormant, the immune system rallies the troops and goes on the attack.

Many start-ups are developing immune-tolerance tools based on cell therapies. Some use engineered Treg cells directly, while others use more familiar CAR-T cells engineered to affect Treg cells present in the body. Both approaches have the potential to treat inflammatory bowel diseases, rheumatoid arthritis, type 1 diabetes, and other ailments. However, cell therapies are challenged by expensive and complex manufacturing, risky administration, and questions over the durability of treatment.

Only one Treg cell therapy, a kidney transplant treatment from Sangamo Therapeutics  (SGMO) - Get Free Report, has entered clinical trials. Industry titans are showing increased interest in the field nonetheless.

GentiBio inked a deal with Bristol Myers Squibb  (BMY) - Get Free Report in August 2022 that could earn the small company up to $1.9 billion in payouts. Novartis  (NVS) - Get Free Report has invested in the start-up through its venture arm. Meanwhile, Gilead Sciences  (GILD) - Get Free Report invested in an early fundraising round for Kyverna Therapeutics. Many others are subsisting on venture capital as they progress toward clinical trials in the coming years.

Can Selecta Biosciences Lead the Field?

So, where does Selecta Biosciences fit into the competitive landscape? The company is taking a unique approach to immune tolerance with a simple tool called ImmTOR.

The ImmTOR platform takes the common immune suppression drug rapamycin and packages it into nanoparticles, which are processed by the body's lymphatic system. That just so happens to be where Tregs are made. The approach allows lower doses of rapamycin and with a much more targeted effect compared to traditional rapamycin use, most commonly for organ transplants.

Selecta Biosciences wants to develop immune tolerance drug candidates in autoimmune diseases, much like the peers listed above. But the simplicity and versatility of ImmTOR makes many other opportunities accessible.

For example, one of the biggest limitations of biologic drugs is the formation of anti-drug antibodies (ADAs). Although many patients respond to a new treatment initially, the benefits wane over time. That's because their immune system creates ADAs that neutralize the drug, rendering it ineffective. Immune tolerance -- creating Tregs to the biologic drug so ADAs never form -- could represent the perfect solution.

This may be the first time you've heard of ADAs, but they represent a major challenge. Humira is the world's best-selling drug of all time and will generate full-year 2022 sales of at least $18 billion. The antibody drug is used to treat various autoimmune diseases. However, 70% of patients taking the drug develop ADAs, and only 4% of these individuals will achieve long-term remission of symptoms.

That's Humira. Now imagine all the drug candidates that failed clinical trials due to the formation of ADAs.

Neutralizing antibodies are a significant challenge in gene therapy, too. Gene therapies are commonly delivered using viral vectors. A patient's immune system often creates ADAs to viral delivery shuttles, which are identified as a threat. That forces drug developers to use very high doses to ensure enough of the therapeutic payload makes it into a patient's cells, knowing the rest will be neutralized.

However, high-dose gene therapy can cause severe liver toxicity and even patient deaths. Neutralizing antibodies also tend to stick around, which means many gene therapies cannot be dosed multiple times. Investors may think they're "one-and-done" treatments due to their curative potential, but it's actually because of the safety concerns around ADAs.

Selecta Biosciences has shown in a clinical trial that ImmTOR can be dosed alongside gene therapies to reduce ADA formation, which could pave the way for the industry to use multiple, lower doses while achieving greater effects. Bayer  (BAYRY) - Get Free Report, Takeda Pharmaceutical  (TKPHF) , and Sarepta Therapeutics  (SRPT) - Get Free Report have snagged licenses to use ImmTOR with their own gene therapy programs.

Is There Value in Simplicity?

The industry has certainly shown interest in ImmTOR. A next-generation tool could be even better.

Selecta Biosciences is still optimizing the tool, called ImmTOR-IL, but early data suggest it could be safer, more effective, and require lower doses than ImmTOR. Investors can expect it to replace the first-generation tool across autoimmune diseases, gene therapy, and other applications – eventually.

For now, investors should focus on the small-cap biotech's execution. It has enough cash to fund operations into mid-2024 after a painful amount of dilution earlier this year. The next several announcements will include development updates on preclinical assets, portfolio optimization, and two phase 3 data readouts for an ImmTOR-powered drug candidate in Q1 2023. The latter will be the most important for the stock.

If the experimental gout therapy proves successful, then Selecta Biosciences may look to immediately monetize the royalty stream. That could bring in over $100 million in cash and accelerate development of the core platform. It would also turn some heads – potentially putting this sneaky immune tolerance play onto the radar for good.