The Future Looks Golden for Medarex

The last twenty years has seen significant progress in monoclonal antibodies. The obstacles to converting these complex molecules into safe and effective therapy have led to the failure of many initial attempts in clinical trials. Production of monoclonals at high levels and low cost was overcome early. Most of the hurdles experienced resulted from the non-human content of the early monoclonal product candidates. The reactions included immune challenges to the foreign identity of these compounds with the consequences of site injection inflammation and itchiness, fast clearance from circulation, and neutralization upon repeated exposure to the monoclonal antibody product.

The solution to this problem came down to increasing the human composition of the antibody. Since these products are indistinguishable from natural human antibodies, not only do they limit the allergic reactions and product neutralization of previous non-human and mixed versions, but are also have extended circulation life and a thousand fold increase in target affinity. The FDA has approved 19 monoclonal antibodies to date and that is expected to rise significantly over the next few years. These have not been without incidence as we have seen problems with side effects with a number of products; namely Rituxan [DNA/BIIB] and Tysabri [BIIB] especially the latter. However, the future is golden (as has been said) for this therapeutic area and one of the companies worth watching in 2007 is Medarex (MEDX).

In 2005 monoclonal antibody drug sales were $14 billion and in 2006 are estimated to be approximately $18 billion, projected to grow to over $30 billion in 5 years. There are 350 antibody based clinical trials underway of which 16% are fully humanized antibodies. A large proportion of these are antibodies that have been derived from Medarex’s technology. Medarex has partnered its products with over 50 companies. It has a co-promotion deal for Ipilimumab with Bristol-Myers Squibb (BMY) for Malignant Melanoma which is presently in a number of Phase III trials. A Biological License Application [BLA] is expected in 2007 for a second line treatment as a monotherapy. Ipilimumab is also being tested for Renal, Breast, Pancreatic and Prostrate Cancer in Phase II trials and a Phase III trial for Prostrate Cancer is expected to begin in 2007. MEDX has entered into a number of licensing relationships with third parties through which it expects to receive future milestones and royalties based on progress through the development and regulatory process and beyond.

The most advanced programs are with J & J (JNJ) where two BLAs are due to be filed in 2007/2008 for anti-inflammatory diseases (one as a replacement for Remicade). The company also owns a significant stake (17%) in Genmab A/S, listed on the Nordic Exchange, which is valued at just under $450 million, and relates to three Phase III programs in Lymphomas and Head and Neck cancer. Data from a number of these programs is expected in 2007. It also owns 19% of IDM Pharma (IDMI) and has a 60% stake in a private company, Celldex. Its summary MEDX has an economic interest in 7 Phase III products, 6 Phase II products and 22 Phase I products. A number of which will produce stock catalyst events in 2007. It has $340 million in cash, of which approximately $200 is debt fee, and a $445 million equity ownership in Genmab. It current valuation is $1.68 billion.

The economic value of its partnerships and licensing arrangements are clearly worth the difference, that is $900 million. The total milestones due are worth almost $500 million by themselves without the discounted royalty stream. The current valuation is therefore easily supportable. However, management appears disorganized; they are without a permanent CEO at present and have, on a number of occasions, been delinquent with SEC filings. A number of filings were made recently, one being the 2005 10K!! One of the most interesting possibilities is a buy out of the company by a large pharmaceutical company. It would be a rich pipeline for any pharmaceutical company needing to enrich its own pipeline. Bristol Myers springs to mind especially after the rumors of a deal between Sanofi-Aventis (SFA) and BMY did not materialize; any such deal, if history repeats itself, could be worth much more than current stock valuations. 2007 will be a very interesting year for MEDX.

MEDX 1-yr chart

Disclosure: Author has no position in any of the above-mentioned securities.