Ash Delivers Early For Selexys

| About: Novartis AG (NVS)

One of the big surprises of this month’s Ash abstract release was that Selexys, a little-known private biotech focused on sickle cell disease, had secured a slot at the meeting’s coveted plenary session. Today the company has been rewarded with a buyout by its partner Novartis (NYSE:NVS).

On the face of it, this could spell bad news for Selexys’ rivals bluebird Bio (NASDAQ:BLUE) and Global Blood Therapeutics (NASDAQ:GBT), whose fortunes have diverged going into Ash. It might also signal waning interest in those competitors’ aims to hit the underlying cause of cell sickling in favor of Selexys’ symptomatic approach.

On the other hand, Novartis has long been wedded to Selexys, and having acquired an option to buy the group as long ago as 2012, today’s takeout might be nothing more than an inevitable outcome. But this will only slightly diminish the element of surprise. Since announcing the start of its Sustain clinical trial in 2013, Selexys had operated in a virtual news blackout.

Sustained benefit

It is the readout of Sustain, a robustly designed Phase II trial, that triggered Novartis’s move. The Ash plenary abstract details the effect of Selexys’ SelG1 in reducing median annual rate of pain crises versus placebo (p=0.010), Sustain’s primary endpoint, as well as in some secondary measures.

SelG1 is an antibody against P-selectin, an adhesion molecule expressed on activated vascular endothelial cells and platelets. P-selectin is thought to initiate leukocyte rolling on the blood vessel wall, which the study investigators say kicks off events leading to acute episodes known as sickle cell-related pain crises.

However, as Roth analysts have pointed out, P-selectin is a downstream factor in sickle cell disease, and other groups are developing treatments for the condition’s root cause. Bluebird’s Lentiglobin is a gene therapy, while Global Blood’s GBT440 is a small molecule that inhibits haemoglobin polymerisation – thought to be the primary driver of sickle cell disease.

Both Lentiglobin and GBT440 disappointed at Ash 2015, suggesting that they were not quite ready for prime time (ASH – bluebird and GBT hammered on sickle cell disappointments, December 7, 2015). Since then, Global Blood’s stock has plummeted, and as of its October 2015 IPO, it stands off 62%.

It is a different story for Bluebird, which since the Ash 2016 abstracts were published on November 3 has climbed 34%. Still, investor expectations rest on a new manufacturing process and Lentiglobin's potential in beta-thalassaemia. For Global Blood, the hope is that the underwhelming GBT440 abstract is a placeholder for more exciting data.

Valuation

It would, of course, be premature to say that in buying Selexys Novartis has written off the Lentiglobin and GBT440 approaches. For one thing, valuations have to be considered, and at present, bluebird and Global Blood are worth $2.3bn and $555m respectively.

At the very most, Selexys will cost the Swiss firm $665m, though this sum comprises milestones as well as up-front payments. The structure of a typical biotech deal suggests that up-front cash makes up only a small part of this biodollar amount, and of course, Novartis smartly locked in the buyout terms all the way back in 2012.

Even if it has taken four years to convince Novartis, this again shows the logic of licensing and option deals as a prelude to a full-blown acquisition.

Study

Design

Trial ID

Ash abstract

Sustain

Double-blind, two SelG1 doses vs. placebo, 198 sickle cell pts, measuring rate of sickle cell-related pain crises

NCT01895361

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