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Here's Why Biotech Deals Are All the Rage Right Now

In this video from Motley Fool Live, recorded on Nov. 30, Corinne Cardina, bureau chief of healthcare and cannabis, and Fool.com contributor Brian Orelli discuss recent licensing and acquisition that large drugmakers have undertaken. Biogen (NASDAQ: BIIB) made a investment in the development of a pair of drugs from Sage Therapeutics (NASDAQ: SAGE). Eli Lily (NYSE: LLY) took a more muted approach toward its licensing deal with Precision BioSciences (NASDAQ: DTIL). And Merck (NYSE: MRK) made an outright purchase of privately held OncoImmune to gain access to its COVID-19 treatment.

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Corinne Cardina: Let's turn to some splashy deals that made recent headlines in the biotech space. Biogen actually announced that it is going to be doing a deal with Sage for some brain drugs. Its stock is up on the news. Biogen, of course, is coming on the heels of some pessimistic news about its Alzheimer's drug from the FDA Advisory Committee. The company also is struggling a little bit because its top-selling medicine, Tecfidera, which is an oral medication for MS, is actually in jeopardy. There was a court ruling this summer about its patent that cleared the way for generics to enter the market. Biogen investors have been on a wild ride, not in a fun way. Stock is down 19 percent year-to-date. Right before the FDA Advisory Committee, the stock shot up more than 40 percent only to lose all that ground once the results were disclosed. Could you tell us more about why investors are not encouraged by the FDA meeting related to its potential Alzheimer's drug which is called...

Brian Orelli: Aducanumab.

Cardina: I should practice that. I cannot get that one. Give us a little history about this Alzheimer's drug. Why does Biogen need something new?

Orelli: Yeah. This is a really convoluted story. The FDA generally doesn't like these kind of stories. It was in two clinical trials. They did an interim look and decided that the drug wasn't going to pass the clinical trial, so they stopped the clinical trials. They took a closer look, and they saw the patients that have gotten more of the drug, it appeared that it seemed to be working. So they went to the FDA, and said what do you think? The FDA said sure, go ahead and submit it for a marketing application. Then the FDA held an advisory committee meeting, the reason why [the stock price] shot up before the meeting is because the FDA releases documents two days before the advisory committee meeting. And so the FDA seemed very positive in documents, so that's why the stock shot up. Then advisory committee team and all the doctors on the panel were very -- these are all outside doctors -- were all very negative. So now investors not quite sure that the drug will get approved.

Cardina: The Sage deal, are there any red flags with the news that was just announced?

Orelli: So this is a two-drug deal: Zuranolone, which treats depression, and then SAGE-324 and you can tell they're still using the code name, it's an earlier stage -- it treats essential tremor in other neurological diseases. Zuranolone, the depression drug, has a story like aducanumab in that it's a potential turnaround product. It failed a large study in major depression disorder, but they're still testing it in other indications like postpartum depression. Biogen is hoping it will work there.

I was surprised at the valuation of the deal, so it's $875 million upfront and they also made a $650 million equity investment, which seems a little steep for Biogen to pay for a drug that failed the clinical trial and then one that's early stage.

Cardina: Awesome. Another deal that was pretty interesting is about Eli Lilly. We just talked about its antibody cocktail, but it's actually getting into gene editing with Precision Biosciences. Does this deal complement what Lilly already has, or is this a totally new space for Eli Lilly?

Orelli: I like this deal better than the Biogen one because it has a low upfront. Lilly is only paying $100 million upfront, and then they're taking a $35 million equity investment in Precision. It's for Duchenne muscular dystrophy, and then there's also two undisclosed gene targets, and then Lilly has an option for three more gene targets. So that's quite a big options and obviously there's going to be milestone payments and probably options payments if they pick up those other options. Lilly will end up paying more but only if they are convinced that the drugs will work. It's too early stage to really know if it's really a good deal, but it's relatively low risk and I like that. It definitely will help boost Eli Lilly's pipeline, and drug companies obviously always knew that sort of thing.

Cardina: Awesome. The last deal that's top of mind, Merck has said that it is going to buy OncoImmune amid the race for a COVID-19 treatment. What do you think of this? How much is Merck paying for this?

Orelli: Yeah. It's a $425 million in cash and they get that company outright. The other two were licensing deals. This is a full buy. Then the OncoImmune is a private company and the shareholders are eligible to receive undisclosed regulatory milestone payments and sales milestone payments. Merck will pay more than $425 [million] but only if the drug actually ends up working. The therapy is called CD24Fc. It knocks down the immune system. It was originally developed for graft-versus-host disease. So that's when you put in immune cells into a patient because you're trying to treat a disease, and then those immune cells start attacking the patient. It was originally designed to knock down the immune system.

But of course, COVID-19 also has a problem where the immune system becomes hyperactive and that causes a lot of damaged tissue, and that's actually what most patients or many patients are dying of. They have interim phase 3 data that showed over 60% higher probability of improvement in clinical status compared to placebo.

Yeah. I think it's probably a good deal, but I think it depends a lot on whether the drug ends up handing out. Then also in terms of COVID-19, if we get the vaccination, we get people vaccinated pretty quickly, then there's going to be a lot less people with severe COVID-19 disease.

Brian Orelli, PhD and Corinne Cardina have no position in any of the stocks mentioned. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.


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