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 After decades in which progress meant extending life by weeks or
months, new cancer treatments hold promise of adding years to
patients' lives and billions of dollars in revenue to the companies
that own them. Some of the most promising, known as immunotherapy,
harness the body's own defense system to fight cancer.
For many pharmaceutical companies, this wave of innovation couldn't
have come at a better time. A generation of mainstay drugs have gone
off patent, raising the stakes for companies vying for a foothold in
the burgeoning oncology market.
In recent months, executives at many big pharmaceutical companies
have expressed interest in building cancer treatment portfolios
through acquisitions.
They range from well-established incumbents, such as Roche Holding
AG and Amgen Inc, to relative outsiders, including Sanofi and
Gilead, according to public statements from the companies and
several sources familiar with the companies plans and who requested
anonymity because they were not authorized to speak to the media.
Amgen declined to comment. Roche, Sanofi and Gilead did not respond
to requests to comment.
Among the most logical acquisition targets are Incyte Corporation
and Seattle Genetics, which have respective market capitalizations
of about $16 billion and $6 billion, said Michael King, a
biotechnology analyst at JMP Securities.
Incyte's blood cancer drug, Jakafi, produced more than $600 million
in sales last year. Seattle Genetic's lymphoma drug, ADCETRIS,
earned revenues of nearly $450 million. Both companies declined to
comment.
The acquisition of promising cancer drugs is "going to be a major
theme in the life sciences sector for the next several years," said
Kennen MacKay, a biotechnology analyst at Credit Suisse Group AG.
MORE DEALS EXPECTED
Acquisitions of cancer drug companies accounted for about 20 percent
of the $63 billion in pharmaceutical and biotech M&A announced this
year, according to data from Thomson Reuters. Cancer deals accounted
for a smaller share - 16 percent - of a larger pharmaceutical M&A
pie during the first half of 2015.
Deals involving cancer drugs are expected to rise in the second half
of the year, as corporate boards of potential target companies begin
to accept the lower valuations the sector has seen in recent months
and become more open to deals.
The Nasdaq Biotech Index, a common measure of life sciences
companies' performance, has plunged more than 30 percent from 2015
highs, as political criticism of drug prices fueled investor
concerns.
Global spending on cancer drugs is on the rise and may reach $178
billion by 2020, up from $107 billion in 2015, according to market
research firm IMS Health. About half of that will occur in the
United States.
That makes oncology medication to be one of the single biggest
anticipated drivers of prescription drug revenue growth over the
next five years, according to data from consultancy Ernst and Young.
"I think an uptick in activity is very likely," said Jeff Greene,
global transactions leader for life sciences at EY. "We have seen
some big deals already, and we are likely to see even more, large
and small, in the second half of this year."
Recent deals include AbbVie Inc's $10 billion acquisition of lung
cancer company Stemcentryx, Jazz Pharmaceuticals' $1.5 billion
takeover of leukemia drug maker Celator Pharmaceuticals Inc, and
Bristol-Myers Squibb Co's roughly $500 million acquisition of
Cormorant Pharmaceuticals.
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More dealmaking is on the way. Earlier this month, Medivation Inc, a
U.S. prostate cancer drug company with a market capitalization of
$10 billion, said it would open its books to Sanofi SA as part of a
sale process that sources said also has attracted Pfizer Inc and
Celgene Corp.
REFRESHING PORTFOLIOS
For some, laying claim to a piece of the oncology sector's
blockbuster growth could help offset the waning fortunes of mature
drugs.
For example, Sanofi's blockbuster diabetes drug, Lantus, will face
heightened generic drug competition in December. Gilead faces
increased pressure on its liver disease franchise, which makes up
two-thirds of its revenues.
Abbvie, which purchased two oncology companies in the past year,
Pharmacyclics and Stemcentryx, is facing potential competition for
its biggest drug, Humira, for arthritis. A U.S. Food and Drug
Administration (FDA) panel recently recommended approval of an
application by Amgen to sell a similar product.
Best equipped to play a leading role are major pharmaceutical
companies because bringing the new generation of cancer medicines
under development to market requires scale and resources.
"Oncology is a go-big-or-go-home category," said Brian Corvino, a
life sciences consultant at Decision Resources Group. "The amount of
investment to develop and commercialize oncology drugs is massive
and only becomes efficient at a certain scale."
The benefits of scale have only grown in recent years, as insurance
companies increasingly have demanded drug makers justify prices in
terms of the value they add to patient's health.
A large player in oncology is better equipped to partner with health
care providers to collect data on a drug's efficacy and argue the
case to major insurers, Corvino said.
From an acquirer's perspective, the most attractive targets are
companies with drugs that are already generating some revenue and
are treating diseases where competition is scant.
"For players that are looking to build an oncology presence, you
need to buy a company that already has a blockbuster out there,"
MacKay said.
Companies whose drugs are still in development pose greater risk.
Shares of Juno Therapeutics, for example, dropped about 30 percent
earlier this month when the FDA placed a hold on a clinical trial
for its main leukemia drug after two people died. The hold was later
reversed and the stock partly recovered.
(Reporting by Carl O'Donnell in New York; Editing by Greg
Roumeliotis and Lisa Girion)
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