The biotech sector is going through some rough times as we head into the final quarter of the year, with pricing issues weighing on sentiment and political reform looming once attention shifts from the election to day to day policy.
With these shifts under way, consolidation looks inevitable, and there's a good chance we will some some of the smaller names in development stage biotech picked up by bigger entities in the space.
Here is a company that looks well positioned as a buyout target, and another that looks like it would make a good suitor for the company in question.
MabVax Therapeutics Holdings, Inc.(NASDAQ:MBVX)
The company is MabVax. MabVax is a San Diego based biotech with a primary focus on pancreatic cancer. The company's lead asset is an antibody called HuMab-5B1, and it derives from a collaboration agreement that the company has in place with the Memorial Sloan Kettering Cancer Center (MSKCC), one of the leading cancer research entities in the world.
MSKCC takes samples from patients that it treats for various types of cancer, and MabVax analyses these samples using its proprietary analysis technology. Through this analysis, it identifies antibodies that have the potential as anti-cancer agents, and then targets the specific cancers for which the identified antibodies hold the most promise.
The science behind the concept is relatively simple. The human immune system uses antibodies to recognize cancerous cells, and tags these cells as pathogenic and – in turn – for disposal. In most cancers, however, cancerous cells can mask themselves from the immune system. MabVax is identifying antibodies that cancerous cells express in abundance, reducing the chances of the immune system not recognizing them, and by proxy, eliciting an immune response to the cancer cells once the antibodies (slightly modified ex-vivo) are introduced to the patient as part of the treatment.
The first antibody the company is carrying forward from its pre clinical investigative phase to the clinic is the above mentioned HuMab-5B1. Pancreatic cancer cells express high levels of this antibody (and just as importantly, healthy cells very rarely express it) and this makes a natural first target indication for the treatment. MabVax has formulated it into a drug called MVT-5873.
During the first quarter of this year, the company kicked off a phase I trial to evaluate the safety, tolerability, and pharmacokinetics of the drug as both a single agent, and in combination with the current standard of care (SOC) chemotherapy regimen in metastatic pancreatic cancer patients. The trial is in two parts. The first is a traditional dose escalation study, designed to determine the optimum dose to carry forward into an efficacy-focused phase II. The second is similar, but the administration will combine MVT-5873 with SOC, again with the goal of establishing an optimal dose for the next phase.
MabVax is also investigating the usefulness of the antibody in question, HuMab-5B1, as an imaging agent. By combining it with a radiolabel, the company is hoping it can develop an effective tool with which physicians can locate pancreatic cancer cells to a high degree of accuracy. By way of a quick explanation of this mechanism of action, the combined antibody and agent is introduced systemically, and because the pancreatic cancer cells express HuMab-5B1, the agent rushes to the cells in question. The physician then activates the radiolabel, and uses an imaging tool to see where the agent has collected (with the assumption being it will localize around the cancerous cells).
MSKCC is currently enrolling in a study investigating the efficacy of this combination as an imaging agent (under the moniker MVT-2163) and, as a bonus, is passing the patients that underwent the imaging treatment to MabVax for MVT-5873 treatment.
So, who might be interested in the company?
The real value of a company like MabVax lies not so much in its lead candidate (although MVT-5873 has demonstrated a promising degree of efficacy to date, and its imaging potential is large) but in it's discovery platform. Many will refer to HuMab-5B1 as what's called an Antibody Drug Conjugate (ADC). While this isn’t 100% accurate, at least not yet, the development process and the technology with which MabVax identified the candidate has the potential to turn it into an ADC.
ADCs have generated a lot of attention (and in turn, research dollars) over the last decade or so, and a number of big names have developed programs targeting the generation and development of this type of asset. A major problem with this sort of program is identification, as a large sample of data is necessary to cross reference potential clinical benefit with various types of cancer. MabVax's partnership with MSKCC makes this process far quicker and potentially lucrative, based on the samples that the latter provides the former.
The assumption would be that any company that picks up MabVax would also pick up its relationship with MSKCC, and this holds considerable value for any potential suitor.
So, we're looking for a big name with an oncology focus that has expressed an interest in, and preferably already allocated a large amount of capital towards, ADCs. The most likely potential suitor, when considered against these criteria, is Genentech, which operates as a subsidiary of Roche Holding (SIX:ROG) (ADR)(OTCMKTS:RHHBY).
A look at Genentech's current pipeline reveals five ADC candidates in various stages of development in oncology indications, targeting breast cancer, lymphoma, lung cancer ovarian cancer and – just as is MabVax – pancreatic cancer.
At last count, June 30, Roche had $6.5 billion cash on hand. To fund the development of a fresh ADC candidate by way of Genentech, it would probably have to allocate more capital to the process (that is, to get a candidate into the clinic at the same stage as MVT-5873 is currently) than MabVax's current market capitalization. Tack a premium onto this capitalization as part of an offer, and Genentech is still looking at only having to pay between $30 million and $50 million for the company.
With a phase I asset under investigation, the same asset targeting a potentially lucrative imaging approval and a relationship with an entity like MSKCC, that could facilitate the identification of candidates quicker and easier going forward, this looks like a great deal for a company like Roche.