Delivering takeouts

25th annual Buyside View sees investors eyeing mid-cap M&A targets in 2017

BioCentury’s 25th annual Buyside View finds biotech investors focusing on mid-cap names with late-stage or marketed products that could become M&A targets.

“The main theme playing at the moment is investors like us are looking more and more to M&A plays rather than clinical data,” said HBM Partners’ Ivo Staijen. “That’s because we have had some pretty bad disappointments this year, and we haven’t seen any new big classes of drugs being launched since HCV.”

Even the large caps could be on the block, they say.

“If repatriation really happens, and we get access to overseas cash, I think it is not unreasonable to believe that some of the larger companies could go,” said ClearBridge Investments’ Marshall Gordon. “They wouldn’t go cheap, but you’d have the cash that you’ve been struggling to get at for a long time.”

The buysiders’ picks for 2017 fall into therapeutic areas including some old favorites and some newcomers, with investor interest driven by diverse factors ranging from competition in the clinic to reimbursement risk.

Appetite remains strong for immuno-oncology even as the sheer volume of combination regimens in the clinic means sifting out winners will continue to pose a challenge. A few investors expect additional clarity this year on agents that could complement PD-1 or PD-L1 inhibitors.

Investors are also anticipating possible first FDA approvals for CAR T therapies from Novartis AG and Kite Pharma Inc. and a gene therapy from Spark Therapeutics Inc., which would shed light on how the market will respond to pricing for novel therapeutic modalities with curative potential.

Keeping with the pricing theme, several buysiders are following data from rare disease plays, which they believe remain immune to downward pricing pressure.

“It is not unreasonable to believe that some of the larger companies could go.”

Marshall Gordon, ClearBridge

A new space on the buysiders’ radar is CNS disease. Multiple investors noted clinical readouts and regulatory actions in the coming year could attract pharma acquirers looking to gain an edge in broad indications with high unmet need, including Parkinson’s disease, Alzheimer’s disease and migraine.

Large cap players are also expected to continue reporting milestones that could drive long-term growth. The most notable of these are the cardiovascular outcomes data for Amgen Inc.’s Repatha evolocumab and Praluent alirocumab from Sanofi and Regeneron Pharmaceuticals Inc.

Positive data could lead to a commercial boost for the PCSK9 inhibitors and provide a positive read-through for other cholesterol-lowering compounds in the clinic.

Sifting combos

Most investors named immuno-oncology combinations as a continuing therapeutic theme for 2017, and a few believe the coming year could reveal leading combination mechanisms.

Loncar Fund’s Brad Loncar, OrbiMed Advisors’ Sven Borho and Gordon are following AstraZeneca plc’s Phase III MYSTIC study evaluating PD-L1 inhibitor durvalumab with or without anti-CTLA4 mAb tremelimumab as a first-line therapy for non-small cell lung cancer (NSCLC) patients regardless of PD-L1 status. Data are due in 1H17.

“If that’s positive, it could be a real needle mover for AZ,” said Loncar. “One of the biggest events [in 2016] was Opdivo failing in that first-line setting.”

In August, Bristol-Myers Squibb Co. reported Opdivo nivolumab missed its primary endpoint in the Phase III CheckMate -026 study in first-line NSCLC. The company remains $16.88 (22%) below its close of $75.32 on Aug. 4, before the data were announced.

Rival PD-1 mAb Keytruda pembrolizumab from Merck & Co. Inc. gained FDA approval in October as a first-line treatment for NSCLC patients, but the label is limited to patients whose tumors express PD-L1.

“It is too early to call a winner there, and we haven’t positioned ourselves really in any particular molecule yet.”

Ivo Staijen, HBM Partners

Incyte Corp. remains a popular pick and was named by four investors as a take-out target. Buysiders expect incremental Phase I/II data in 2017 from epacadostat (INCB24360), an inhibitor of indoleamine 2,3-dioxygenase (INDO; IDO), in combination with multiple PD-1 or PD-L1 inhibitors.

Borho is watching for Phase I/II lung cancer data from the various epacadostat combos, while Medical Strategy GmbH’s Mario Linimeier looks forward to data from the Phase III ECHO-301 trial of epacadostat plus Keytruda in melanoma, which is due to read out in 2018.

EcoR1 Capital’s Oleg Nodelman likes Bristol-Myers Squibb Co.’s combination of Opdivo with FPA008, a colony stimulating factor 1 receptor (CSF1R; CD115) antibody licensed from Five Prime Therapeutics Inc. The combination is in a Phase Ia/b study in NSCLC, melanoma, squamous cell cancer of the head and neck (SCCHN), pancreatic cancer, colorectal cancer and glioblastoma multiforme (GBM).

However, Staijen and Bain Capital’s Daniel Krizek are hesitant to make predictions on winning combinations.

“That’s a bit of a minefield for me,” said Staijen. “It is too early to call

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