We know that MSB is committed to partnering for its bigger product candidates, notably Heart Failure and Chronic Lower Back Pain, even if it goes it alone on aGvHD, after several positive statements at international presentations, in the cash flow statements and in updates on conference calls. Direct, no-nonsense statements from the CEO. So, we have a seller.
We know that most of the big phama companies have partnering teams (they invite you to contact them direct via their websites), have a lot of cash to spend and are researching new drugs and spending big money on trials. So, we have multiple potential buyers.
So, yes, with a willing seller and willing buyers we are likely to see a deal
2. However, this has been going on for a long time, so what’s the delay?
My guess is that MSB wants a big price for an exclusive partnership in the US – after all the US market represents 45% of global pharma sales (estimated global pharma industry sales of $US 1,430bn pa by 2020, and $US 150bn pa in global R&D). It is a much bigger deal cracking the US than cracking China (though maybe not in 10 years).
They are probably looking for a $100m upfront payment for HF or CLBP. These should be blockbuster drugs in the US – ie peak annual sales >$1 billion.
3. Is $100m upfront in the ballpark?
Undoubtedly! On 5 Feb GSK paid $US343m upfront to license Merck’s oncology M7824 (for PDL1 expressing non-small cell lung cancers) even though it is only in Phase 2 trials (8 phase 2 trials either ongoing or starting in 2019 with hopes it will compete with Keytruda). Sure M7824 could be huge, but MSB is in phase 3 with Heart Failure and Chronic Low Back Pain, which could also be huge.
Oncology has been the biggest area for licensing deals in the past decade, but there have been many upfront deals well over $100m upfront in other areas. Since 2010, there has been $US18 billion spent on upfronts for cancer treatments. In the first 6 months of 2018, there was $1.82bn spent on 22 oncology deals and $0.9bn spent on CNS (neurological disorders) as the big two areas.
Other big deals in the past 2 years have included BMS licensing Nektar Therapeutics oncology in 2018 for $US1.85bn upfront (cash and shares); Biogen licensing Ionis in 2018 for $350m upfront in neurological disorders; Biogen licensing BMS in 2017 for $300m upfront in Alzheimer’s.
Also consider Merck paying $US230m upfront to Vertx for 2 DNA dependent protein linase inhibitors; Novo Nordisk paying $US400m for worldwide rights to EpiDestiny’s sickle cells licence (includes development and sales milestones, so not all upfront) and many other big licensing deals well over $100m but with financial details undisclosed, or combined upfronts and milestones – some of these deals are very low upfronts (say $10m) with big milestones (I have seen $400-800m).
Tasly licensing MSB’s heart product candidates for China could well amount to several hundred millions in milestone payments if it is like other big global deals with a relatively small upfront payment – it is so far undisclosed.
Finally, in the heart related area, consider United Therapeutics $US800m upfront payment for licensing Arena’s pulmonary arterial hypertension PAH drug, ralinepag – the Nov 2018 deal includes $400m in extra milestones and low double-digit royalties.
4. It is worth waiting for a partnering deal
I will write another piece on big pharma takeovers and how much could be expected to be paid for MSB, but the focus of this piece is a partnering deal and I doubt the major MSB shareholders or the prof would want to sell anywhere near current prices given the huge progress in clinical trials.
You can see from the above that big pharma is prepared to pay multiples of the $100m upfront that I believe MSB should be seeking (and for trials that are only in phase 2). Obviously, these deals can modify the upfront to consider risks by having big milestone payments for clinical and marketing milestones, and then the royalty rate can also typically be anywhere from single digits to 20% - and licences can be limited to certain disease indications and certain exclusive parts of the world.
Given that the US is a bit less than half of the world drug market, MSB should be looking for at least $100m upfront, with due consideration to these issues of exclusivity, milestones and royalty amounts. Heart and CLBP are both potential blockbusters and that’s what big pharma is looking for. Sure they may spend most on oncology, but the unmet needs in heart and CLBP, combined with government priorities on the opioid crisis and exploding levels of obesity and therefore high growth in heart (and diabetes) problems means that if big pharma could well turn their attention to these products if they were confident that MSB’s cells are the answer.
MSB’s success so far in the phase 3 trials is gaining attention. Most of the big pharma I consider likely to be looking at MSB were presenting at the JP Morgan conference in January where the prof was speaking. Have a look at their presentations and at their websites. I think a deal is doable and the prof thinks he is close.
And don’t just look at US players – consider also French giant Sanofi who say “Global business development and licensing is a key component of our strategy” and whose partnering contact for diabetes and cardiovascular is ex Cephalon and ex Teva France (I don’t know if that’s good or bad, but is interesting!); consider Swiss giant Novartis who have 200 projects in clinical development and more than 500 ongoing trials, planning to launch 10 potential blockbusters by 2020 and are Australia’s largest sponsor of clinical trials (and who spoke at the JP Morgan conference) – their Australian Chief Scientific Officer said “we know the research undertaken in Australia is as good as anything globally”. Also look at Roche who say” We are embracing the best technology and partnerships that leverage the power of our unique structure to advance science and develop new therapies”.
Of course, the US giants are likely contenders – J&J’s Janssen company has a cardiovascular and metabolic division and says, “We are committed to partnering with those whose innovative thinking will bring new and creative solutions to the field of medicine”. Then include all the other big US pharma – any of them could do a deal, I don’t need to list them all here.
Takeda can’t be ruled out as wanting to expand further after their monster acquisition of Shire and Takeda already have a relationship with MSB. Shire has stretched their balance sheet but a $100m upfront payment to MSB would be easily absorbed.
I hope this all shows the willingness of MSB to partner is matched by willingness of big pharma to expand into new blockbuster drugs and that they are still making big upfront payments to license these drugs or fund trials.
Finally note, there is still plenty of money around for takeovers – in 2018 there were 111 global M&A deals in pharma for a total of $US265 billion which was up 26% vs 2017. I may write more on these another time, but I don’t think MSB is in imminent danger of a takeover that the major holders would be willing to accept.
So, I'm happy to wait to get the right deal for the important US market (and European market). I think it's taken a lot to convince the pharma industry that MSB's cells meet a big demand in heart and CLBP - and maybe they're not convinced yet, but it will come. It has probably taken a bit of convincing to move their focus from oncology and now that we have products in phase 3, and partnering deals in China and Japan I think it will become compelling for one of the big global pharma to licence MSB products. Many of them will have become more aware at the January JP Morgan conference that the Prof is looking to licence in the near term and this may push them to move more quickly or the opportunity may be gone. You can't hurry love, you just have to wait - meanwhile we have plenty of cash runway and more trial results coming in 2019 to further increase our value proposition.
MSB Price at posting:
$1.17 Sentiment: Hold Disclosure: Held
(20min delay)