The Biotechnology sector is placing a big bet on oncology. Throughout 2020, M&A in the Biotechnology sector has focused heavily on targets involving oncology research and products, both in deal volume and spending. Of the 97 Biotechnology deals reported through September 30, 26% involved oncology targets, with $37.25 billion in deal value, or 65% of the sector’s total announced spending, according to search results in our HealthCareMandA.com Deal Database. In the first three quarters of 2019, demand for oncology targets hit only 20% of deal volume, revealing an increased interest in 2020. Spending in 2019 for oncology targets and collaborations easily eclipsed the total this year, however, due to the takeover of Celgene Corporation by Bristol-Myers Squibb (NYSE: BMY) valued at approximately $74 billion.
The M&A numbers correlate with the projected market growth as well. According to an analysis by Fortune Business Insights, the global oncology drug market is expected to reach $394.24 billion by 2027, exhibiting a CAGR of 11.6% during the forecast period. Further, an increase in licensing deals and collaborations has lowered the threshold to enter the market. Licensing agreements allow companies, both small and large, to explore new therapies while better managing risk and not having to commit as much capital. Out of the 26 transactions in oncology, 14 of those were licensing deals or collaborations.
In September, Merck & Co., Inc. (NYSE: MRK) and Seattle Genetics (NASDAQ: SGEN) struck two deals together in oncology research. In one, the two companies partnered up to co-develop and co-commercialize Seattle Genetics’ antibody-drug conjugate ladiratuzumab vedotin globally. Ladiratuzumab vedotin is an investigational antibody-drug conjugate (ADC) targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors.
Merck will pay Seattle Genetics $600 million upfront and make a $1 billion equity investment in 5 million shares of Seattle Genetics’ stock at $200 per share. In addition, Seattle Genetics could get $2.6 billion in potential milestone payments.
In the other deal, Seattle Genetics and Merck signed an agreement to give Merck an exclusive license to commercialize Tukysa, a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. For the agreement, Merck is paying $125 million upfront. Seattle Genetics is eligible for progress-dependent milestones of up to $65 million.
However, companies are still committing to takeovers, which also include much more risk. In the largest transaction of the year, Gilead Sciences, Inc. (NASDAQ: GILD) acquired Immunomedics (NASDAQ: IMMU) for $21 billion, or $88 per share, representing a 108% premium to Immunomedics’ closing price on September 11, 2020. The deal will be funded through approximately $15 billion in cash on hand, as well as approximately $6 billion in newly issued debt.
Immunomedics is a company involved in next-generation antibody-drug conjugate (ADC) technology focused on researching therapeutics for hard-to-treat cancers. The company’s proprietary ADC platform is the first to be approved by the FDA for the treatment of people with metastatic triple-negative breast cancer. In this deal, Gilead will gain Trodelvy, Immunomedics’ proprietary antibody-drug conjugate platform which was granted accelerated approval by the FDA based on tumor response rate and duration of response.
What struck us and many analysts about the acquisition by Gilead Science is the incredibly high premium. Gilead Sciences is spending $21 billion on a company that only generated $203.7 million in revenues, an expensive acquisition. Trodelvy is the most notable product in Immunomedics’ portfolio, and according to Immunomedics’ second-quarter report, Trodelvy generated $20.1 million net sales in the first two months after its May 2020 launch.
However, EvaluatePharma predicts Trodelvy will only have a net present value of $11.7 billion, meaning Gilead will have to work vigorously to expand Trodelvy in order to make the acquisition worth its price. We’ll have to wait and see if there will be any regret for Gilead’s shareholders, but it’s a competitive market, with plenty of room for success.
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