Big pharma is making a push right now to expand margins and investing billions into innovation for new treatments and drug therapies. In fact, drug companies have created venture capital funds and incubators to invest in promising start-ups working on new drug technologies.
The economic challenge the industry faces is immense. The reason is that the average cost to develop and win marketing as well as FDA approval for a new prescription drug in the United States is roughly $2.6 billion, according to reports. As a result, industry leaders like Novo Holdings (NVO), Merck (MRK), Johnson & Johnson (JNJ), Sanofi (SNY), Pfizer (PFE) and others are setting up venture capital funds. These companies are investing in emerging growth companies and even going as far as licensing technology to boost their own pipelines.
The impact is very real within the industry. In fact, most of drugs that have been approved in recent years started at emerging stage companies. A total of 63% of them over the last five years HBM Partners, which is a health-care investing firm. Investors shouldn’t ignore the “warning signs” of exponential growth. This is a global market growing at 6.5% on a compounded annual growth rate that is also anticipated to reach $1.06 trillion by 2022, according to HBM forecasts.
Sanofi-Sunrise, for instance is a unit Of Sanofi’s R&D group that works with outside scientists in R&D. "The idea is to access science early and co-create a company that we can later invest in and partner with. It helps us bring in new products in Sanofi's pipeline. The benefit for entrepreneurs is that they get to work with our senior scientists and scale up production quickly. We often invest and license their technology as well," said Sanofi's vice president of global R&D, Kathy Bowdish, Ph.D. in a statement.
Recently GT Biopharma, Inc. (GTBP), an emerging growth company focusing on a drug therapy pipeline that includes treatments for numerous cancers and pain management, has brought on new team members that have all had direct experience with many of these “industry leading” companies. Dr. Raymond Urbanski, for instance is the former business unit chief medical officer and senior director of oncology research and development with Pfizer. He has come on board as GT Biopharma’s Chief Medical Officer.
Dr. Urbanski played a vital role in developing and overseeing clinical studies, including phase 3b and phase 4 studies for Pfizer’s sunitinib (Sutent), exemestane (Aromasin), irinotecan (Camptosar), epirubicin (Ellence), axitinib (Inlyta) and tremelimumab (now in investigation by MedImmune, a wholly owned subsidiary of AstraZeneca).
A previous head of CNS development at Sanofi, Dr. Kathleen Clarence-Smith heads up GT Biopharma’s neurology division. Her previous experience at Hoffmann-La Roche, Chase Pharmaceuticals, as well as Sanofi placed her at the heart of several key deals within the biotechnology industry. She aided Chase with helping to build out an organization that was eventually acquired by Allergan PLC in 2016. In all reality, the deal could be valued at nearly $900 million with milestones.
As the head of CNS development at Sanofi, Hoffmann-La Roche and Otsuka, Dr. Clarence-Smith developed, secured approval for and supported the launches of significant neurological treatments. This includes Abilify® (aripiprazole), which is a $7 billion peak-year sales pharmaceutical drug used in the treatment of schizophrenia and bipolar disorder.
The company has also been supported by other key leadership that brings long-standing financial experience with it as well. Shawn M. Cross, recently came on board the GT Biopharma Inc. (GTBP) team as president, chief operating officer, and was also appointed as chairman and CEO. His 20 years of experience includes positions as managing director, head of biotechnology investment banking at Deutsche Bank Securities Inc. as well as managing director and head of Biopharmaceutical Investment Banking at Wells Fargo Securities LLC.
The Next Wave Coming for Small Companies In Biotech
Right now, investors seem to be favoring smaller biotech companies. The performance of the market-cap-weighted iShares Nasdaq Biotechnology ETF gained 30% over the past 12 months, and the equal-weighted SPDR S&P Biotech ETF climbed 54% during the same period. Like the market a few years ago, it was the investors who found opportunity in discounted biotech stocks that saw some of the biggest profit potential over the last few decades.
But it isn’t just Big Pharma making a few investments here and there either. They are pushing for major mergers and record setting acquisitions. Within the last 12 months we have seen some of the largest biopharma buyouts in history. Last year, Gilead Sciences Inc. (GILD) acquired Kite Pharma Inc. in a deal that was valued at nearly $12 billion.
This year we’ve already begun to see the trend continue after Bioverativ Inc. (BIVV) was acquired by French biotech company, Sanofi SA ADR in an $11.6 billion deal. Furthermore, Celgene Corp. (CELG) has recently acquired Juno Therapeutics Inc. (JUNO) which valued Juno at about $9 billion in the transaction. AbbVie, Inc. (ABBV) has also made some noise and has stated that it could seek deals to build onto or complement its early-stage Alzheimer's disease pipeline have kept the fire piping hot for biotech buyouts this year.
With this in mind, there’s no doubt that the future could hold even larger deals in the biopharma space considering immense advancements that this sector is seeing right now.
Unique Oncology Treatments Which Will Push Boundaries
New, and emerging developments in oncology could build the framework for the next move in biotech. CAR-T therapy breakthroughs, for instance include utilization of intracellular domain to induce T-cell proliferation before reinfusion into patients. Over the last two decades, targeted therapies like imatinib (Gleevec®) and trastuzumab (Herceptin®), that target cancer cells by homing in on specific molecular changes seen primarily in those cells have begun to solidify themselves as standard treatments for many cancers.
But over the past several years, immunotherapy, which strengthens the power of a patient’s immune system to attack tumors, has emerged as what many in the cancer community now call the “fifth pillar” of cancer treatment. CAR-T is one such immunotherapy. In 2017, two CAR T-cell therapies were approved by the Food and Drug Administration, one for the treatment of children with acute lymphoblastic leukemia (ALL) and the other for adults with advanced lymphomas.
The first CAR T-cell therapy to receive FDA approval was tisagenlecleucel (Kymriah™), which is manufactured by Novartis. The second approval, announced October 18, covers the use of axicabtagene ciloleucel (Yescarta™) and was licensed to Kite Pharma (a subsidiary of Gilead), for further development and commercialization.
Some of the biggest investment banks in the world have placed their bets on companies that are in this space right now. Amgen (AMGN), Gilead, and Kite (when it was public) had billions of dollars of investment coming in from the likes of Credit Suisse, BNP Parabas, UBS, Vanguard Group, Black Rock, Goldman Sachs, and Fidelity to name a few. In fact, some of these banks have upped their stake by as much as 27% in cases like Fidelity’s bump in its Amgen holdings.
Notably, others are developing alternative forms of CAR-T therapies that could be less costly than drugs from Gilead, Amgen, and Novartis. Notably, GT Biopharma has developed a treatment for B-cell Leukemias and Lymphomas. Its OXS-1550 is currently in Phase 2 trials and FDA-approved clinical trial is being conducted at the University of Minnesota's Masonic Cancer Center. There are currently 18 patients enrolled in this clinical trial.
Known as TriKEs, this type of therapy has the protein version of CAR-T but with multiple clinical and practical advantages according to Dr. Jeffrey Miller, Deputy Director of the Masonic Cancer Center, University of Minnesota. This offers a real opportunity for GT Biopharma to take full advantage of the cost benefits for its therapy compared to a costlier CAR-T treatment. Where CAR-T and CAR-NK Cell therapies can cost between $500K‐$1 million per patient, the TriKE NK cell engager therapy is estimated to be between $100k-$200k per patient and is the same drug for all patients as opposed to a personalized treatment with CAR-T.
GT Biopharma stated that its platform technologies have the potential to treat large patient populations and substantial markets. The biggest breakthrough could be yet to come. GT Biopharma additional therapies as well and they are all in different phases of trials. For instance, the company recently completed the analysis of pharmacokinetic data from its Phase 1 clinical trial for GTP-004. This therapy is its promising treatment for the symptoms of myasthenia gravis. Based on these and additional data from the Phase 1 clinical trial expects to potentially accelerate the start of its Phase 2 trial in myasthenia gravis patients to the third quarter of 2018.
More information on GT Biopharma’s treatment pipeline can be found here
Conclusion
Small biotech companies are more flexible, and many can handle R&D much faster. By investing in a broad portfolio of young and emerging companies, a big drug firms can leverage outside scientific talent and cast a wider net in order to gain access to breakthrough discoveries in areas of the company's strategic interest.
"Big Pharma appreciates innovation and respects how it happens. That's why the industry is interested in doing great deals with young companies that can move fast to solve big scientific problems," said Abbie Celniker, Ph.D., partner at Third Rock Ventures. "Sharing risk among a small team of technologists and scientists is a very different culture than being in a large pharmaceutical company that must meet requirements of stock goals."
Right now, the race is on for big pharma to get their hands on some of the best and brightest in the small cap space. With companies like Pfizer, Sanofi, and Johnson & Johnson hot on the trail, investors would be smart in identifying some of these younger companies before they get bought out like we saw with Juno and Kite.
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NOT AN OFFERING / DISCLAIMER
This document is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed and is to be used for informational purposes only. Please read all associated disclosures and disclaimers in full before investing. Neither BiotechStocks.com nor any party affiliated with us is a registered investment adviser or broker-dealer with any agency or in any jurisdiction whatsoever. BiotechStocks.com is owned by MIDAM VENTURES LLC., a Florida Corporation that has been compensated $1,800,000.00 by a GT Biopharma Inc. for a period beginning August 1, 2017 and ending April 30, 2018 to publicly disseminate information about (GTBP). We own zero shares. Full Disclaimer Here
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