Insights

Novartis Is Looking for Deals. Are These 3 Biotechs on Its List?

On its most recent call, Novartis (NYSE: NVS) CEO Vas Narasimhan stated, “Our focus remains, as I’ve guided in recent quarters, into the sub-$2 billion space to see if there are attractive methods. And when there are good deals out there, we’re, of course, looking to do them.”
In fact, Narasimhan has proven to be a deal maker. Here is a sampling of what Novartis has bought since he took over as CEO in February 2018.
Avexis, and what would become gene therapy Zolgensma, for $8.7 billion in April 2018.
Endocyte, and what would become prostate cancer treatment Pluvicto, for $2.1 billion in October 2018.
The Medicines Company, and what would become cholesterol-fighting drug Levqio, for $9.7 billion in November 2019.
Using the Swiss pharma CEO’s $2 billion cutoff, here are three other biotech companies that we imagine could potentially be nice tuck-in acquisitions for Novartis.
The recent highflier
Buzzy biotech Nkarta (NASDAQ: NKTX) impressed investors this month with its novel approach to oncology. After healthy volunteers donate blood, a type of immune cell called a natural killer (NK) cell is harvested from the donation. The NK cells are then edited by the company to enhance their cancer-fighting properties, multiplied many times over, and frozen for future use. This approach allows for the creation of cell banks — so-called “off-the-shelf” treatment that makes it easier to provide flexible multi-dose, multi-cycle treatment.
This may sound similar to chimeric antigen receptor T-cell (CAR-T) therapies in which the patient’s own immune cells are extracted and edited to recognize certain cancer signatures. The difference is that currently CAR-T treatment requires the patient to be their own donor, whereas the Nkarta approach can utilize NK cells from any healthy donor, potentially for multiple treatments for multiple patients. And as the bank of donor cells grows, that will likely be a huge time and cost saver over current CAR-T regimens.
Early studies are promising for this biotech, too, as evidenced by its 140% rise earlier this week after releasing its most recent data. In relapsed-refractory acute myeloid leukemia (AML) — a type of blood cancer that has recurred and stopped responding to treatment — response rates with traditional, next-line chemotherapy are low. In fact, only 12% to 18% of patients have a complete response, meaning no further evidence of detectable disease.
Fortunately, in Nkarta’s phase 1 study of its lead therapy NKX101 in relapsed-refractory AML, three out of five patients in the high-dose treatment arm who received three infusions had a complete response. And of the 21 patients treated in total, there were no CART-like toxicities seen at any dose.
Image source: Getty Images.

One has to temper expectations, knowing that this was a phase 1 trial not designed to draw conclusions on efficacy but rather to evaluate patient safety. Even so, it’s hard not to get excited over the prospects of the platform’s potential. Safety has been a big sticking point for CAR-T with life-threatening toxicity resulting in over 25% of patients requiring ICU admission as a result of the therapy.
And the Novartis CEO even acknowledged in the company’s most recent earnings call that its CAR-T treatment, Kymriah, will see “less growth over the coming quarters and years and potentially even declines,” in part because of CAR-T-related toxicities.
Nkarta’s therapy has the potential to produce better sales than the CAR-T class of therapeutics. Potentially having the leading therapy in the fledgling but promising NK-cell field and at a market cap of just $600 million, this small-cap biotech checks a lot of boxes for Novartis.
Will Novartis pick up the Dice?
The wildcard of the three, Dice Therapeutics (NASDAQ: DICE), focuses on blocking a molecule called IL-17. Inhibition of IL-17 suppresses an overactive immune system — something that’s important to do when combating a variety of autoimmune disorders, such as plaque psoriasis.
Currently, a number of monoclonal antibody therapies seek to suppress IL-17. Novartis, in fact, just posted $1.2 billion in sales in the first quarter for its own IL-17-inhibiting injectable treatment, Cosentyx.
Dice is developing a treatment too, but this would be an oral one, which patients might prefer. The potential is great given that the injectable IL-17 biologics market is projected to exceed $11 billion in sales by 2026.  While Dice does not yet have clinical trial results, phase 1 data for its IL-17 blocking pill, DC-806, is expected in mid-2022.
Historically, the IL-17 injectables have offered 77% to 90% efficacy for psoriasis. While we don’t yet know what efficacy Dice’s potential therapy might show, existing oral treatments, such as Amgen’s Otezla, have managed to generate $1.8 billion in sales last year — and that despite a 29% to 33% efficacy rate for psoriasis.
With Cosentyx as its top-selling drug in the quarter, Novartis might be wise to protect its position in the IL-17 market with a potential oral treatment as well. And it could do so without breaking the bank by purchasing Dice, which currently has a market cap of around $750 million.
An approved drug and a promising platform
Immunocore (NASDAQ: IMCR) is the other oncology-focused company and it already has regulatory wins. Its lead therapy, Kimmtrak, was approved for a rare form of metastatic melanoma earlier this year in the U.S. and E.U. The first-ever T-cell receptor (TCR) immunotherapy to receive approval, Kimmtrak works by redirecting the patient’s immune system to attack the tumor.
And while the initially approved market is relatively small at $400 million, further trials are planned to start later in 2022, aiming to provide Kimmtrak with broader labeling in the melanoma market.
Investors need to consider that a buyout of Immunocore isn’t just about Kimmtrak. They should think of the approved therapy as proof of concept for its platform. CAR-T has really only panned out in blood cancers (think leukemia, lymphoma, or multiple myeloma) as it has not had much luck in solid tumor cancers (such as liver, lung, or ovarian cancers).
Fortunately, Immunocore’s platform looks promising in that realm. And that’s a big deal as solid tumors represent about 90% of adult cancers. To sweeten the deal even more, beyond Kimmtrak, Immunocore has two other cancer-fighting TCR molecules in phase 1 trials for multiple types of solid cancers, too.
While it has not exactly been the style of Vas Narasimhan to buy a company with a product already on the market, Immunocore does fall within Novartis’ desired price range. At a market cap of $1.4 billion, if its pipeline continues to show promise in solid tumors, this biotech could be a huge bargain for its suitor.
Which to choose?
If I were Vas Narasimhan, which would I pick? Nkarta just doubled over the last week and still has been tested in relatively few patients. Dice is still in early trials, but the cost to its Cosentyx franchise could be a huge blow if DC-806 studies are positive. With Immunocore, you already have an approved drug and two other pipeline drugs, albeit at double the price of the other two candidates.
With a market cap of less than $1.5 billion, a drug already on the market, and potential blockbuster opportunities, Immunocore looks undervalued and could find itself being acquired sooner rather than later. Given that, I believe it to be the safest buy on the list for biotech investors — Novartis included.
Patrick Bafuma has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy. –

On its most recent call, Novartis (NYSE: NVS) CEO Vas Narasimhan stated, “Our focus remains, as I’ve guided in recent quarters, into the sub-$2 billion space to see if there are attractive methods. And when there are good deals out there, we’re, of course, looking to do them.”

In fact, Narasimhan has proven to be a deal maker. Here is a sampling of what Novartis has bought since he took over as CEO in February 2018.

Avexis, and what would become gene therapy Zolgensma, for $8.7 billion in April 2018.
Endocyte, and what would become prostate cancer treatment Pluvicto, for $2.1 billion in October 2018.
The Medicines Company, and what would become cholesterol-fighting drug Levqio, for $9.7 billion in November 2019.

Using the Swiss pharma CEO’s $2 billion cutoff, here are three other biotech companies that we imagine could potentially be nice tuck-in acquisitions for Novartis.

The recent highflier

Buzzy biotech Nkarta (NASDAQ: NKTX) impressed investors this month with its novel approach to oncology. After healthy volunteers donate blood, a type of immune cell called a natural killer (NK) cell is harvested from the donation. The NK cells are then edited by the company to enhance their cancer-fighting properties, multiplied many times over, and frozen for future use. This approach allows for the creation of cell banks — so-called “off-the-shelf” treatment that makes it easier to provide flexible multi-dose, multi-cycle treatment.

This may sound similar to chimeric antigen receptor T-cell (CAR-T) therapies in which the patient’s own immune cells are extracted and edited to recognize certain cancer signatures. The difference is that currently CAR-T treatment requires the patient to be their own donor, whereas the Nkarta approach can utilize NK cells from any healthy donor, potentially for multiple treatments for multiple patients. And as the bank of donor cells grows, that will likely be a huge time and cost saver over current CAR-T regimens.

Early studies are promising for this biotech, too, as evidenced by its 140% rise earlier this week after releasing its most recent data. In relapsed-refractory acute myeloid leukemia (AML) — a type of blood cancer that has recurred and stopped responding to treatment — response rates with traditional, next-line chemotherapy are low. In fact, only 12% to 18% of patients have a complete response, meaning no further evidence of detectable disease.

Fortunately, in Nkarta’s phase 1 study of its lead therapy NKX101 in relapsed-refractory AML, three out of five patients in the high-dose treatment arm who received three infusions had a complete response. And of the 21 patients treated in total, there were no CART-like toxicities seen at any dose.

Image source: Getty Images.

One has to temper expectations, knowing that this was a phase 1 trial not designed to draw conclusions on efficacy but rather to evaluate patient safety. Even so, it’s hard not to get excited over the prospects of the platform’s potential. Safety has been a big sticking point for CAR-T with life-threatening toxicity resulting in over 25% of patients requiring ICU admission as a result of the therapy.

And the Novartis CEO even acknowledged in the company’s most recent earnings call that its CAR-T treatment, Kymriah, will see “less growth over the coming quarters and years and potentially even declines,” in part because of CAR-T-related toxicities.

Nkarta’s therapy has the potential to produce better sales than the CAR-T class of therapeutics. Potentially having the leading therapy in the fledgling but promising NK-cell field and at a market cap of just $600 million, this small-cap biotech checks a lot of boxes for Novartis.

Will Novartis pick up the Dice?

The wildcard of the three, Dice Therapeutics (NASDAQ: DICE), focuses on blocking a molecule called IL-17. Inhibition of IL-17 suppresses an overactive immune system — something that’s important to do when combating a variety of autoimmune disorders, such as plaque psoriasis.

Currently, a number of monoclonal antibody therapies seek to suppress IL-17. Novartis, in fact, just posted $1.2 billion in sales in the first quarter for its own IL-17-inhibiting injectable treatment, Cosentyx.

Dice is developing a treatment too, but this would be an oral one, which patients might prefer. The potential is great given that the injectable IL-17 biologics market is projected to exceed $11 billion in sales by 2026.  While Dice does not yet have clinical trial results, phase 1 data for its IL-17 blocking pill, DC-806, is expected in mid-2022.

Historically, the IL-17 injectables have offered 77% to 90% efficacy for psoriasis. While we don’t yet know what efficacy Dice’s potential therapy might show, existing oral treatments, such as Amgen‘s Otezla, have managed to generate $1.8 billion in sales last year — and that despite a 29% to 33% efficacy rate for psoriasis.

With Cosentyx as its top-selling drug in the quarter, Novartis might be wise to protect its position in the IL-17 market with a potential oral treatment as well. And it could do so without breaking the bank by purchasing Dice, which currently has a market cap of around $750 million.

An approved drug and a promising platform

Immunocore (NASDAQ: IMCR) is the other oncology-focused company and it already has regulatory wins. Its lead therapy, Kimmtrak, was approved for a rare form of metastatic melanoma earlier this year in the U.S. and E.U. The first-ever T-cell receptor (TCR) immunotherapy to receive approval, Kimmtrak works by redirecting the patient’s immune system to attack the tumor.

And while the initially approved market is relatively small at $400 million, further trials are planned to start later in 2022, aiming to provide Kimmtrak with broader labeling in the melanoma market.

Investors need to consider that a buyout of Immunocore isn’t just about Kimmtrak. They should think of the approved therapy as proof of concept for its platform. CAR-T has really only panned out in blood cancers (think leukemia, lymphoma, or multiple myeloma) as it has not had much luck in solid tumor cancers (such as liver, lung, or ovarian cancers).

Fortunately, Immunocore’s platform looks promising in that realm. And that’s a big deal as solid tumors represent about 90% of adult cancers. To sweeten the deal even more, beyond Kimmtrak, Immunocore has two other cancer-fighting TCR molecules in phase 1 trials for multiple types of solid cancers, too.

While it has not exactly been the style of Vas Narasimhan to buy a company with a product already on the market, Immunocore does fall within Novartis’ desired price range. At a market cap of $1.4 billion, if its pipeline continues to show promise in solid tumors, this biotech could be a huge bargain for its suitor.

Which to choose?

If I were Vas Narasimhan, which would I pick? Nkarta just doubled over the last week and still has been tested in relatively few patients. Dice is still in early trials, but the cost to its Cosentyx franchise could be a huge blow if DC-806 studies are positive. With Immunocore, you already have an approved drug and two other pipeline drugs, albeit at double the price of the other two candidates.

With a market cap of less than $1.5 billion, a drug already on the market, and potential blockbuster opportunities, Immunocore looks undervalued and could find itself being acquired sooner rather than later. Given that, I believe it to be the safest buy on the list for biotech investors — Novartis included.

Patrick Bafuma has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

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