With the cost of clinical trials for a new drug running in the millions of dollars, bringing a drug to market in the billions, and the length of time it takes for a drug to be approved, drug companies are increasingly seeking acquisitions to extend product lines and expedite their entry into new fields.
What's more, drug companies are increasingly challenged by a cliff of their own, the "patent cliff," which threatens to deprive them of a vital source of future revenues. BioWorld Today estimates $290 billion in prescription drug sales will be subject to generic competition over the next five years.
In May 2008, Takeda Pharmaceutical (OTCPK:TKPYY) made a cash tender offer worth $8.8 billion to acquire Millenium Pharmaceuticals, giving it access to VELCADE, a leading oncology and inflammation product with blockbuster potential.
More recently though, there has been a trend to acquire companies before they complete clinical trials, resulting in sharp surges in the target company's stock.
Gilead Science (GILD) acquired Calistoga Pharmaceutics in 2011 before completion of Phase II studies as a single agent in patients with refractory indolent non-hodgkins lymphoma (iNHL), and in combination with rituximab in the treatment of elderly patients with chronic lymphocytic leukemia (CLL).
Celegene (CELG) paid $925 million in early 2012 to acquire Avila Therapeutics, giving it access to its AVL-292, BTK (Burton's Tyrosine Kinase) inhibitor technology, even before Phase I clinical trials were complete.
That's anybody's educated guess, but companies developing products in emerging areas that are beginning to gain traction are attractive prospects.
This brings to mind TG Therapeutics Inc. (TGTX) a tiny company that is developing an exciting portfolio of product candidates, including exciting new areas of cancer research. Formed as a spinout in January 2012 from a mid-size French pharmaceutical company, TG got its initial financing of $25MM to develop improved versions of two drug agents designed to disrupt aberrant B-cell activity, the cause of many cancers, particularly NHL and CLL, and autoimmune diseases.
Its TG-1101 is a third generation anti-CD20 antibody like Genentech-Roche's (OTCQX:RHHBY) Rituxan. While TG-1101 is similar to Rituxan in that it targets the same CD20 antigen, it differs in that it binds to a different site on CD20 and kills B-cells more efficiently.
It is designed to engage a patient's own immune system to kill B-cells, resulting in an Anti-body Dependent Cellular Cytotoxicity (ADCC), dramatically higher than that of Rituxan, in some experiments up to 100 times higher. Its binding and sharply higher ADCC activity gives it the potential to be effective for patients who are non-responsive to Rituxan and could become an alternative CD20 therapy for these patients.
Rituxan (worldwide sales: $7 billion) was FDA approved in 1997 and enjoyed gold-standard status for the treatment of NHL and CLL. It is effective when used alone as a monotherapy for some 50% of patients with NHL. When combined with the R-CHOP regimen of chemotherapy, it is effective for 80% of its patients, however a number do not respond at all and others develop a resistance to it during repeated treatments. While Rituxan provides a great benefit to most patients, unfortunately very few of them are cured and most patients will ultimately require additional treatments for their disease.
TG-1101 has received Orphan Drug Designation in the U.S. and EU for the treatment of CLL. Of striking significance is the fact TG is engaged in two of the same product areas as Infinity Pharmaceuticals (INFI), and according to TG is only a year behind in development.
Infinity was one of 2012's biggest winners with a gain of 296%, and for good reason, it sports a pipeline with exciting potential, including IPI-145, an inhibitor of the delta and gama isoforms of phosphoinositide-3-kinase (PI3K); Retaspimycin HCI, a heat shock protein 90 inhibitor, and IPI-940, an inhibitor of fatty acid amide hydrolase (Phase I complete).
Its IPI-145 is in Phase I dose-escalation trial for advanced hematologic malignancies and in Phase IIa signal finding study for patients with mild allergic asthma.
Infinity's Retaspimycin HCI is in Phase II with docetaxel to treat non-small cell lung cancer (NSCLC).
New data from Infinity's Phase I study of IPI-145, its oral inhibitor P13K-delta and P13K-gama, was announced on December 10 with preliminary data showing its IPI-145 was well-tolerated and demonstrated favorable pharmacokinetics following single and multiple doses in healthy adults. The news triggered a 56%, 12-day rise in its stock.
In August 2012, TG joined with Swiss-based Rhizen Pharmaceuticals S.A. to co-develop a second B-cell killing agent called TGR-1202 a P13K inhibitor that is orally bioavailable with an extended half life offering the opportunity for a once daily dosage versus twice daily for the other drugs being developed in this class.
TGR-1202 belongs in the same class of kinase inhibitors (P13K) delta as those of Gilead Sciences and Infinity.
On January 3, 2013, TG Announced the FDA's clearance of its Investigational New Drug (IND) Application for TGR-1202, triggering a 27% jump in its stock on January 4. Clearly, the only thing TG has in common with Infinity is its similar product focus on B cell-mediated cancer research (blood borne malignancies). That focus has attracted a lot of buying in both company's stocks, but especially TG's stock, which has more than doubled in the last ten days.
Investing in tiny drug development companies is highly risky. One stumble along the path to FDA approval can be disastrous. That risk must be weighed against the potential for significant gains in the event products are approved, or a company is scooped up before trials are complete.