This weeks webinair with Imugene CEO Lesley Chong again opened a Pandora’s box of questions surrounding the company’s status when it comes to partnership, licensing and takeover deals. Can Imugene as we know it make the distance? To answer this perplexing question it could be time to explore Imugene, the current biotech market and the world of Big Pharma a little more, to see where that takes us…
Large drugmakers worldwide, particularly in the US, are finding it increasingly difficult to increase revenue by raising drug prices, as they have done so effectively in the past. Drugmakers have been facing increasing resistance from U.S. pharmacy benefit managers, the public and the government over price hikes— a trend that S&P expects will persist this year as net prices of branded drugs remain flat. Many analysts are expecting the flat lining in drug prices to lead to an increase in mergers and acquistions during 2021, and into 2022. What’s more, Big Pharma companies are steadily pulling back from long-held policies of only shouldering conservative debt loads, and are now prepared to take on lower credit ratings, if it means potentially higher dividends for their shareholders down the line. And M&A activity, be it in the form of takeovers, licensing deals, partnerships or simply bolting on products to their own pipelines, has proved successful for Big Pharma in recent years. Peter Behner, Global Life Sciences Transactions leader at EY, notes an increasing share of big pharma’s revenue has come from externally acquired products over the past 20 years, now close to 70% of their total sales on average. “Big pharma essentially is a huge oven that constantly burns IP; you constantly have to throw new IPs in, because at the tail end, you know your products would lose patent protection and you need new drugs, otherwise, you can’t grow,” he says.
A prime example of a Big Pharma company in the centre of the M&A playground is Merck. The New Jersey pharma has been under investor pressure to diversify its portfolio beyond what’s soon to be the world’s best-selling drug—its immuno-oncology therapy Keytruda. The company did strike several deals recently when incoming CEO Rob Davis was behind the M&A wheel as chief financial officer. During the company’s fourth-quarter earnings call, Davis said the company would still be looking at “smaller opportunities where we can find great science earlier in its life” and will not rule out larger-scale deals.
Similarly Bristol-Myers Squibb's CEO Giovanni Caforio just touted his company’s “significant financial flexibility” for doing deals at this year’s annual J.P. Morgan healthcare conference in January and labeled business development a “top priority.” Bristol-Myers Squibb recently acquired Celgene (i.e., Bob Harari of Celularity’s old flagship) in a cash and stock transaction with an equity value of approximately $74 billion. At the time the transaction was said to create “a leading focused specialty biopharma company well positioned to address the needs of patients with cancer, inflammatory and immunologic disease and cardiovascular disease through high-value innovative medicines and leading scientific capabilities. With complementary areas of focus, the combined company was designed to operate with global reach and scale.”
One can visualise the symbiotic relationship existing between the Imugene’s of the world, and Big Pharma companies such as Merck and Bristol Myers Squib. Kristin Pothier, Global and National Healthcare and Life Sciences Strategy Leader at KPMG, notes that on the one hand bio pharma companies are hunting for innovation. On the other hand, “the science in the clinical world is ready for deals, as they have the appropriate platforms and pipelines in the market,” she says. Peter Behner echoes her sentiments in saying “innovative biopharmaceutical companies have generally weaker areas of later-stage clinical development, manufacturing, and commercialization, which is where big pharma companies can step in. Big pharma can also pay huge valuations,” he says.
Imugene has all the hallmarks of a potential takeover target for a Big Pharma company in late 2021. Relatively inexpensive drugs exhibiting early stage safety and efficacy with long patent lives ahead of them. Yet perhaps the companies recent collaboration with Celularity provides a hint as to their future plans to build partnerships, as opposed to an outright takeover. Can Imugene make the distance? When the combination partners in their newly gazetted Her Vaxx Phase 2 trials are revealed, we may find ourselves one step closer to answering this question. If for example Merck’s Keytruda (expiring in 2028) is combined with Imugene’s Her Vaxx (expiring in 2036), then this could play into Kristin Pothier of KPMG’s notion that Big Pharma are utilizing more creative structures in their deals with companies such as Imugene. “As biopharma companies look for innovations, they need to diversify the way they are thinking about a deal” she says. Likewise Peter Behner at EY sees partnership deals as “a great vehicle for risk mitigation"--especially if the biopharma companies don’t want the full piece, or are unsure about efficacy before shelling out the full amount,” he says. He said such a trend is particularly rising in the gene and therapy space, where acquirers are looking beyond buying a product to buying a technology platform that could potentially spawn many different products and indications. And it goes without saying that through a combination with Her Vaxx, Merck could indeed rekindle their existing relationship with Imugene’s Chairman Paul Hopper. Remembering that it was Merck who a few years ago purchased Hopper’s early stage Aussie flagship Viralytics, for a cool US $394 million.
And if Merck is positioning themselves on the doorstep of Imugene’s B cell platform, is Bristol Myers Squib having a closer look at their Oncarlytics, CD19 CF33 PDL1 platform? Surely their recent dealings with Celgene have raised awareness of Imugene’s collaboration with Harari’s newly formed Celularity. And as noted earlier they are focused on patients with cancer whilst at the same time stating business development is a “top priority”. Bristol-Myers Squibb themselves continue to work with Oncolytics Biotech in developing an oncolytic adenovirus. Could this be a future partner for Imugene’s newly acquired Car T CD19 platform? Or indeed the eventual owner? Time will tell I guess.
But one thing is for sure, our recent cornerstone investors are onto something. I, as their healthcare analysts obviously did, viewed Imugene’s November 2020 statements surrounding Her Vaxx’s progress as very promising. And I am of the opinion the forthcoming OS results for this late stage phase 2 drug are going to be just as pleasing. Similarly I am confident the upcoming PD1 results are set to exemplfy continued safety and efficacy, given the data on PD1 Cohorts 1 and 2 earlier this year. So perhaps the ball is in Big Pharma’s court. Their shareholders need to see where their ship is heading. They seek direction. In the meantime the longer Imugene’s pipeline extends and the more resounding their safety and efficacy becomes, the further away they move from a good buy for Big Pharma, as it were, toward an expensive buy. For Imugene now has cash to advance their existing pipeline. They too are pursuing patents in additional markets. In addition they are actively seeking participation in the growing field of CD19 and Oncarlytics. Their wonder drug CF33 is about to be trialled, with the ensuing data only months away. Sooner, rather than later, the potential suitors Roche, Glaxo Smith Kline, Merck and Bristol Myers may find themselves at the behest of the very company they were seeking to court, as opposed to the other way round. It might be high time they jumped on the train themselves, for the opportunity they have of driving it is fast running out.
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