The text below is from a US Investment bank that specialises in the Bio technology space .... Nice Sunday read
This update is intended to describe trends in the oncology market, deal intentions and recent developments from the ASCO conference.
In general, the level of activity at ASCO was off the charts as pharma companies showed off ever deeper pipelines. A number of game-changing therapeutic developments were on display.
We will provide a regular weekly update on the biopharma sector, starting next week (June 16th).
Trends in Oncology Therapeutics
Global Cancer Prevalence
A recent study by the World Health Organization found that nearly 10 million people die of cancer annually. The most common cause of death from cancer is lung cancer followed by colorectal and liver cancer.
We have seen substantial progress in the last two decades in cancer treatment with more than a 150% improvement in survival time from first diagnosis in pancreatic cancer. Other cancers with once dismal prognoses have also seen over 75% improvement in survival times including liver and lung cancer.
Cancer types where survival times have not improved include brain cancer, larynx cancer, melanoma and thyroid cancer.
Despite the progress of modern medicine, the likelihood of getting cancer is not going down as fast as one might hope.
The reason is paradoxical: as we survive longer the odds of eventually getting cancer go up.
Cancer is a disease of old age and thus, as societies live longer, we can expect to see more cancer overall.
A corollary to this depressing theorem is that we should expect to see much more cancer in the next two decades in developing countries. A recent study by the IARC Cancer Observatory notes that it is in these countries where life expectancy is expected to improve the most, hence increasing the total amount of cancer that will be seen by the relevant populations.
Because of the paradoxical relationship between growing life expectancies and cancer incidence, the demand for cancer therapeutics is likely to rise disproportionately to overall pharma spend for at least several decades to come.
Cancer Drug Spending Growth
A study released just before ASCO by the IQVIA Institute is well worth a read. They forecast 9.9% annual growth in cancer therapeutics between 2024 and 2028. This is well north of the average expected growth rate for the pharmaceutical sector.
Total spend on cancer drugs this year is expected to be a whopping $255 billion. With the expected growth trajectory, we should see cancer drug spend exceed $400 billion by 2028.
It’s no surprise that the exhibit hall at ASCO is jammed packed with pharmaceutical company booths highlighting drugs that they have developed for various types of cancers.
Oncology drug development is a large business indeed.
Evaluate Pharma recently noted that oncology drugs accounted for 18% of total drug spend in 2023 and they estimate that by 2028, oncology will account for 22% of total drug spend.
The level of scientific focus and engagement on novel approaches to oncology is unprecedented.
Oncologists are rapidly embracing novel and improved ways to treat cancer. While legacy cytotoxics and targeted therapies will be with us for many decades yet, the interest is particularly high in several new areas which include:
- precision therapies which offer the potential for very high efficacy, if even curative potential in genetically selected subsets of tumors;
- enhanced targeted therapies leveraging breakthroughs in understanding how to drug hard targets and to exploit synthetic lethality in drug design;
- antibody drug conjugates such as Enhertu® and PADCEV® and the many emerging variations on conjugate engineering;
- T-cell engagers which have the promise of ADCs but instead use the immune system to ablate tumorigenic cells;
- antibodies against checkpoints that stretch well beyond PD-1 and CTLA-4 and
- cell therapies such as YESCARTA® and CARVYKTI®. The innovation in engineered TCR’s, and CAR-T’s has been impressive.
The winds of innovation are shifting quickly in our industry.
Today, the top marketers of oncology drugs, in order, are Merck, BMS and Roche. Due to heavy investment in pipeline, Evaluate Pharma forecasts that the top three in 2030 will be J&J, AZ and Roche.
Quite the change.
Big drivers of share growth include growth in ADCs and growth in B-cell drugs like Darzalex®.
The company forecast to gain the most share is Daiichi-Sankyo. In 2023, Daiichi was the #13 marketer of oncology drugs by total sales. By 2030, Daiichi is expected to become the #6 marketer, on the back of success with ADCs.
ASCO Highlights
We very much enjoyed attending ASCO this year. The sheer volume of activity was borderline overwhelming and advertisements for cancer drugs were everywhere: in the airport, in the elevators, on our hotel room doors.
You name it.
It was an assault on the senses that reminds one of a walk through a Turkish bazaar.
Things were relatively quiet at ASCO from a biotech investment perspective but not at all quiet for innovation.
Some pharmas like AZ, GSK and J&J are doing quite a good job of licensing relevant innovation early – such that public biotech is playing perhaps less of a role now than before.
There is so much to discuss and we don’t want to fill up your email box with too much detail.
Here are some key highlights:
#1: The Summit / Akeso announcement
We opened ASCO with a press release from Summit Therapeutics entitled: “Ivonescimab Monotherapy Decisively Beats Pembrolizumab Monotherapy Head-to-Head, Achieves Statistically Significant Superiority in PFS in First-Line Treatment of Patients with PD-L1 Positive NSCLC in China.”
To quote Adrian Cronauer (Robin Williams): “Good morning, Vietnam! Hey, this is not a test. This is rock and roll. Time to rock it from the delta to the DMZ!”
Holy smokes.
Summit is predicting that Ivonescimab is going to take out Pembrolizumab, the biggest cancer drug in history.
As is the fashion this year, these data were previewed but not actually released. We will see them at the World Oncology Congress which takes place in Geneva Switzerland on Sep 17thto 19th.
Summit’s ASCO press release indicating a decisive win against Keytruda® was the biggest news at ASCO this year.
Very similar to Amgen’s move on its recent earnings release where it previewed that MariTide is going to beat up on the current market leaders in obesity.
As one might guess, a chorus of skepticism emerged immediately. Some noted that we will need to see OS data. Others said that you could just use Avastin® with Keytruda® and get the same thing. Some said, it’s Chinese data – who knows what it really means?
Of course, for the King (Keytruda®) to really be dethroned we will need to see a decisive survival advantage. This Fall’s PFS data will just be a preview of what is to come.
Summit is on track to deliver OS data with itsHarmoni trial– which involves a head-to-head study of ivo against pembro in squamous first-line lung cancer.
The Harmoni study will be fully enrolled this year and should report out initial results in 2025. We may need to wait until 2026 to see fully matured survival data. We should also see survival data out of China in 2025.
Importantly, the design of ivo involves a tetravalent structure (four binding sites) designed to enable higher avidity in the tumor microenvironment with over 18-fold increased binding affinity to PD-1 in the presence of VEGFin vitro. Ivo isn’t really a PD-1 and Avastin stuck together. It’s a bispecific with the advantage of delivering Avastin to the tumor site in a way that widens the VEGF therapeutic window in a meaningful way. It strikes us as likely that ivo will, indeed, show a survival benefit versus pembro when Harmoni reads out in the next year or two.
Let’s see.
#2: Remarkable Results with PD-1 antibodies in Mismatch-Repair Deficient Cancers.
If we began ASCO with an IO shocker, we ended it with another one. BMS published a paper on June 6thin theNew England Journal of Medicineentitled “Neoadjuvant Immunotherapy in Locally Advanced Mismatch Repair-Deficient Colon Cancer”.
Mismatch repair deficiency (dMMR) is found in up to 15% of nonmetastatic colon cancers, and dMMR tumors are, at present, managed similarly to the way mismatch repair–proficient (pMMR) tumors are managed.
BMS’ study on dMMR colon cancer used an ipi/nivo combo saw a 98% pathological response rate and the disappearance of tumors completely in 68% of patients treated.
The “waterfall chart” of responses wasn’t really a waterfall chart because there was little variation in response. All patients benefitted greatly from the therapy. Perhaps, we can just start calling this a “wall chart” instead.
Equally impressive were GSK’s results reported on June 3rdupdating their previous study of dostarlimab (their PD-1mAb) in dMMR rectal cancer. They showed a remarkable 100% cure rate in this study.
Wow.
#3: AZ/Daiichi DESTINY-Breast06 Study
The DESTINY-Breast06 study, presented at the ASCO 2024 conference, focused on evaluating Enhertu® in treating HR-positive, HER2-low metastatic breast cancer. The study demonstrated significant improvements in progression-free survival (PFS) for patients treated with Enhertu® compared to those receiving standard chemotherapy.
Enhertu® significantly outperformed standard chemotherapy in delaying tumor progression or death among patients who had tried at least one prior line of endocrine therapy.
The study included a broader population, showing benefits in patients with even lower HER2 expression, termed HER2-ultralow. Enhertu® demonstrated a "statistically significant and clinically meaningful" improvement in PFS across both HER2-low and HER2-ultralow subgroups.
This study is quite clinically important because it substantially widens the population of patients that would benefit from Enhertu®. The study was discussed on Friday’sBiotech Hangoutpodcast at some length. Madeleine Armstrong ofOncologyPipelineasked why should we test for HER2 at all. Wouldn’t one just use Enhertu in all breast cancers regardless of HER2 status?
Fair point.
We would raise a related point – which is that today’s HER2 assays just aren’t that great. A somewhat obscure Korean company called Proteina has noted that HER2 IHC or Fish assays don’t do a great job of picking up on aberrant HER2/HER3 interactions (what really matters) and that one can do much better with a direct assay for the interaction. They went on to show that they could predict responses to trastuzumab much better with a HER2/HER3 interaction test.
#4: Merus Phase 2 Study in First Line Recurrent Head and Neck Cancer
The Phase 2 study by Merus evaluating petosemtamab (MCLA-158) in combination with pembrolizumab for first-line treatment of recurrent/metastatic head and neck squamous cell carcinoma (HNSCC) showed striking results. Presented at the 2024 ASCO Annual Meeting, the study involved 45 patients as of the March 2024 data cutoff, with 24 patients meeting the criteria for efficacy evaluation.
The study demonstrated an impressive overall response rate of 67%, with one complete response and twelve confirmed partial responses. Notably, responses were observed across various levels of PD-L1 expression.
It appears that petosemtamab combined with pembrolizumab has potential as a new standard of care for first-line treatment in recurrent head and neck cancer.
Merus shares jumped over 30% on this data.
#5: AbelZeta/AstraZeneca GPC3 Data
AbelZeta has announced clinical data indicating preliminary anti-tumor activity for their armored autologous GPC3 CAR-T therapy, named C-CAR031, in patients with advanced hepatocellular carcinoma (HCC). The study highlights that C-CAR031, which is designed to enhance the immune response against cancer cells, has shown promising results in terms of reducing tumor size and controlling disease progression in this patient population.
This was one of the more impressive findings from the conference, highlighting the emerging potential of CAR-t therapy in solid tumors.
#6: Pfizer’s Data for Lorlatinib in NSCLC
Pfizer's ALK inhibitor, Lorlatinib, has shown remarkable results in a study presented at the ASCO conference for patients with ALK-positive non-small cell lung cancer (NSCLC). After five years of follow-up, the median progression-free survival (PFS) has not yet been reached for patients treated with Lorlatinib. This represents the longest PFS reported with any single-agent molecular targeted treatment in advanced NSCLC and across all metastatic solid tumors. These results, combined with prolonged intracranial efficacy and the absence of new safety signals, highlight an unprecedented outcome for advanced ALK-positive NSCLC patients, setting a new benchmark for targeted cancer therapies.
#7: Innovent’s Remarkable Claudin18.2 Data in Pancreatic Cancer
The Phase I study of IBI389 (Claudin18.2 T-Cell Engager) in patients with advanced pancreatic ductal adenocarcinoma has shown promising preliminary results regarding safety and efficacy.
Preliminary data indicates that IBI389 has demonstrated anti-tumor activity in patients, with 30% experiencing partial responses and disease stabilization. This suggests potential as a therapeutic option for advanced pancreatic ductal adenocarcinoma.
Advanced pancreatic cancer has been a death sentence, and the potential of this therapy is tangible and important. We think that both Claudin18.2 engagers and ADCs have far broader potential than has heretofore been recognized.
This study highlights a key trend we picked up on at ASCO - which is big pharma’s growing interest in T-cell engagers for solid tumors.
Oncology Pharmaceuticals Environment and Deals
While oncology drug sales are growing as a fraction of the total pie, the amount of investment in venture and early-stage oncology companies as a fraction of total investment is declining.
DealForma data reveal that 40% of venture dollars invested in therapeutics companies so far this year have gone into oncology. This is down from peak levels over 50% prior to the Pandemic.
Oncology is still #1 as an area for venture investment but is becoming less dominant as areas like neuroscience, obesity drugs and immunology drugs attract interest.
Further, the oncology therapeutics field accounts for only 18% of all private capital raised in IPO’s in 2024. This is down from peak levels over 50% as recently as 2021. Other areas such as I&I and cardiometabolic have risen in relative popularity with investors.
We looked at dealmaking activity by big pharma in oncology from 2015 to 2024 using DealForma data.
BMS and Pfizer has been the heaviest spenders in oncology business development activity.
BMS, Roche and Merck lead in terms of the sheer number of deals over the last decade.
Interestingly, BMS’ market cap now is well below the amount it has spent on oncology deals.
Oncology Biopharma M&A Activity
It’s an election year with Democrats in power and a vigilant FTC. As a result, M&A this year has been quite light in the oncology field.
Thirty-one percent of all therapeutics M&A dollars spent in the first five months of 2024 were for oncology targets. This is not out of line with previous periods. We saw the most spend for a year in 2023 when Seagen was done in an otherwise light year and the least done in the 2008 to 2012 period when oncology was less important as an overall part of the bioeconomy.
Notably, deal count in 2024 is near an all-time high level. Deals, on average, are smaller right now than in past years.
From a dollar perspective, the buyers in oncology are overwhelmingly from big pharma ranks.
But from a deal count perspective, smaller biotech companies comprise over half of the deals.
Through the end of May 2024, big pharma has spent $8.5 billion in oncology M&A. This is far less than usual while mid-sized pharma (such as Genmab) has been active. As a result, big pharma buyers account for about 65% of total volume versus 90%+ in previous years.
ADCs and targeted therapies (largely built around kinase inhibitors) have dominated M&A over the last decade.
M&A interests have shifted dramatically in the last two years – away from cytotoxics and targeted oncology and towards ADCs, radiopharma and T-cell engagers. Interest in precision oncology remains robust.
The average M&A price rises exponentially as drug candidates approach commercialization. There is a huge payoff for sellers to allowing their drug candidates to be de-risked and mature.
As companies go up the revenue curve the forward revenue multiples paid for assets go down. Clinical stage assets are, to a significant degree, being bought at relatively high multiples versus potential revenue. We find that Phase 3 programs tend to draw the highest prices in the clinical sphere.
Forward revenue multiples paid in oncology M&A deals are down rather substantially this year (average of 3.4x) versus the 2019 to 2022 period (average of 7.6x).
We think this is a reflection of several factors: (1) prices have come down substantially since the Pandemic and (2) after passage of the IRA, buyers are simply not willing to pay as much for assets.
Oncology Biopharma Licensing Activity
While M&A activity in oncology is way down this year, licensing activity is not.
The total number of oncology licensing deals in the first half of 2024 (annualized) would equal or exceed the previous record year of 2020.
Importantly, oncology licensees are increasing focused on Phase 2 assets. The total dollar volume (by upfront payments) of oncology licensing deals in the Phase 2 stage has risen on a relative basis in the last two years.
Licensees are increasing shopping within asset classes that are seen as less risky including antibody-drug conjugates, related conjugate structures, T-cell engagers and genetically-driven targets (precision oncology). There is declining interest in cell therapy and traditional targeted oncology (TKIs, cell surface targets etc.). Interest in immuno-oncology has fallen off a cliff after the 2022 time period.
Upfronts have risen in recent years and go up substantially once assets hit the Phase 2 point. The median upfront on a Phase 2 deal in the last 18 months has been $160 million. Compare to $150 million in the 2016 to 2022 period and $35 million upfront in the 2008 to 2015 period.
What Pharma Buyers are Looking for in Oncology Deals
We have met with over a dozen pharma buyers in oncology in recent weeks with a spate of meetings at ASCO and BIO.
First and foremost, the interest is highest in mid and late-stage assets in tumors where there is an unmet need, particularly, lung, breast, CRC and liver.
Buyers are looking for efficacy in late-stage assets that would differentiate from the standard of care.
Pharma’s broad view is that biotech has been heavily picked over for good assets and that the most attractive assets are quite expensive for what they offer. Investors are seen as too enthusiastic about many leading companies.
Pharma buyers see most biotechs as focused on tumor types that don’t serve enough patients.
A minority of companies are interested mainly in high science approaches that are pre-clinical. There is particular interest in novel targets for ADCs and engagers.
Buyers are spending much more time than before scrubbing Chinese biotechs for interesting assets – particularly those that are first-in-class or late stage. Buyers are also scrutinizing Japanese and European biotech pipelines.
Buyers are concerned about “target modality hopscotching”. You get a great radiopharma FAP and then someone comes along with much more agile ADC for the same target, for example. This happened last year with PSMA radiopharmaceuticals (Ambrx over Pluvicto®) and we heard substantial concerns about modality competition and therapeutic crowding in the most promising target spaces.
In terms of modality, there is a strong preference for antibodies, ADCs and T-cell engagers. The focus on ADCs, might not quite be at the fever pitch level of last year and the interest in engagers is rising fast.
The engager space is of particular interest right now in solid tumors. Following Merck’s acquisition of Harpoon we have seen a number of groups with promising engager data including Cytomx, Janux, Merus and Xencor.
Interest in radiopharma remains really high. Buyers talked about the scarcity of manufacturing, interest in copper/lead platforms and a relentless search for novel radio targets.
There remains serious interest in targeted oncology stories. Most frequently mentioned targets were KRAS isoforms, CDK selective isoforms (particularly CDK2) and cMYC. There is a lot going on in stealth right now in MYC – an area of perennial interest.
There is remarkably little interest in cell therapies despite success of drugs like Yescarta®. Several companies noted that sales of these drugs have flattened out. Quiet sneers about talk of being able to deliver these drugs for less. A sense that CAR-t is just too expensive for payors.
In ADCs far more discernment over payloads and linkers rather than just new targets. A tangible sense through ASCO halls that ADCs are really transforming medicine.
Publicly Listed Biotechs in Oncology
We identified 168 public biotechs in the U.S. (or NASDAQ listed) that are principally focused on oncology as of June 2024. The count is down only slightly from a year ago but roughly 20% of last year’s list have been replaced due to M&A, dissolutions or graduations (to become commercial stage companies).
The most common areas of focus of listed biotechs include targeted oncology and immuno-oncology biologics.
We distinguish precision oncology from targeted oncology and note that 18 public companies are focused on targets which result from somatic mutations in key cancer growth proteins (e.g., KRAS).
The market has 28 companies focused on cell therapy. Even though ADCs, radiopharma and T-cell engagers are highly sought after by buyers there are relative few companies of this type.
The proportion of the population focused on precision oncology (somatic genetic cancer targets) jumped up in 2022 and has since shrunk while more companies today are focused on targeted oncology – a group of companies that excludes those pursuing somatic mutations. We are seeing a long-term drop in supportive care companies. The proportion of the market pursuing cytotoxics has been steady since 2022 and there are substantially more companies today than before pursuing hard targets such as KRAS or cMYC.
The total value of the oncology biotech sector exceeded $100 billion in Feb 2021 (Pandemic peak) and plunged in 2022 and 2023. By June 2023 the value of the entire sector was down to $29.8 billion (a 75% drop).
Today, the total sector is worth $52.9 billion, anchored by a surge in Summit Therapeutics (now the most valued oncology biotech). While the sector is up 79% from the nadir of a year ago, it is still down 50% from the market peak.
Last year’s class of top 10 oncology biotechs (by enterprise value) was worth $14.9 billion. This year, the top ten group is worth $28.6 billion (almost double). Four of the companies on last year’s list remain on this year’s list. A number of last year’s biotech company’s got drugs approved such as Geron, ImunityBio, Iovance and Springworks and thus are off this year’s list.
The four most valued types of oncology biotechs on the U.S. markets are those focused on hard targets, precision oncology, T-cell engagers and synthetic lethality. The least valuable are in cytotoxics and RNA therapies. Despite the high M&A interest, ADC biotechs are trading
The average company focused on hard targets (think Revolution Medicines) is worth $750 million. In contrast, the average biotech focused on cytotoxics is worth $15 million.
Investors are incredibly focused on the latest developments and flock to high innovation companies.
Typically, the premium for a quality biotech dataset rises as drugs get to be later stage. Today, the quality premium curve in oncology is inverted. That is, the average value of a Phase 1 stage oncology company with a very good dataset is $1.6 billion. In contrast, the average value of a Phase 3 oncology biotech with a very good dataset is $1 billion.
The reason is clear enough when one peruses the data. There are no surviving Phase 3 oncology companies with game-changing datasets for large markets. The most promising companies today in oncology are generally through Phase 1 (e.g. RevMed or Nuvalent) or have just started to produce Phase 2 data (e.g., Summit Therapeutics).
By comparison, Phase 1 biotechs with “good” datasets are worth 80% less – roughly $200 million.
The market is highly discerning – looking for companies with great datasets and the latest technologies. All other companies get much lower valuations.
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