Immunotherapy vaccines have been among the most promising therapies in the treatment of various cancers. Currently, there are several late-stage candidates that are seeing strong clinical results, and could possibly change the standard of how cancer is treated. In the last year alone we've seen several acquisitions in the space, approvals, and also advancements into late-stage studies. As a result, with so much promise in the field, and several big name study results in the near future, I think we could see more intensity in acquisitions over the next year. I expect large pharmaceuticals to expand its presence in the immunotherapy arena; and for companies that don't have a presence, they will try to build one. To this end, I am looking at three companies that could potentially be acquired in the next year within the immunotherapy space due to promising pipelines and low market capitalizations.
Developing the first cancer vaccine to enjoy a regulatory approval, Dendreon (DNDN) broke through barriers with its now-famous prostate cancer vaccine, Provenge. Initially providing shareholders with phenomenal upside, the company has lost nearly 90% of its value since July 2011. The failure to execute its marketing plan, logistical nightmares, and slower adoption has plagued this past powerhouse in the space. The company has seen fairly strong growth, with 28% sales growth during its recent quarter, despite closing its most important facility in New Jersey. The company's costs have plagued its progress, and are still excessive due to the manufacturing and logical requirements involved. It is believed that the company needs to report sales of $150 million per quarter to achieve profitability or $100 million per quarterly to reach positive operating cash flow.
With competition from Johnson & Johnson's (JNJ) Zytiga and Medivation's (MDVN) Xtandi, Dendreon's chances of reaching peak sales continue to diminish, while the board's willingness to shop the company must be at an all-time high. Dendreon makes an enticing acquisition target for two reasons: First, it still has one of the best vaccines in the treatment of cancer and, second, the company's valuation with a market capitalization of $605 million is appealing with revenue of about $440 over the last 12 months. Ergo, Dendreon could most likely be purchased for a 100% premium, which would only be a price/sales of 3.0.
Large pharma has a history of trying to compete with pipelines and buying companies to stay ahead of future curves in the treatment of various diseases. Therefore, with several acquisitions in immunotherapy over the last several years, it makes sense that large pharma may snatch up Dendreon, with such an attractive valuation. I think it would make sense for a company such as Bristol-Myers Squibb (BMY) to increase its presence in immunotherapy, with both Provenge and Yervoy as part of the combined pipelines. There is also the possibility of additional indications for Provenge, which could mean that an acquirer would be able to acquire Dendreon for just 1.0x future sales. This would be a great acquisition compared to some of the premiums paid in biotechnology. Overall, I think it makes sense; Dendreon's costs have been negatively affected because it is using state-of-the-art facilities for just one drug. But a larger company, such as Bristol-Myers, could easily integrate Provenge with a better network and equal facilities to lower the costs. Just two years ago, Dendreon reached a peak valuation of more than $8 billion, and could now be acquired for less than $1.5 billion.
My second choice, and my favorite (no surprise), is Galena Biopharma (GALE). I have often discussed how large pharma prefers to pay premiums versus investing in value. Thus, I don't think this acquisition would occur until later in 2013. Galena is currently trading with a valuation of near $150 million, after a 380% YTD gain; consequently, GALE's value would have to rise before large pharma would show any interest. This may sound crazy, but think about it: When's the last time large pharma bought a biotechnology company for $300 million or even $500 million? For some reason large pharma likes to pay 5-10x peak sales either after an FDA approval or while in late-stage trials. But, if Galena can continue to prove that its vaccine, NeuVax, can and will treat a large unmet medical need in breast cancer patients with low to intermediate levels of HER2, then I think it gets snatched up fairly quickly.
So which company might purchase Galena Biopharma? I think the best choice would be Roche Holding (RHHBY.PK). Roche's drug, Herceptin, is a near $6 billion per year blockbuster, targeting just 25% to one-third of all breast cancer patients who present high levels of HER2. NeuVax targets those who don't qualify-the ones who have low-intermediate levels of HER2. Galena's Phase 2 study of 187 patients demonstrated a 50% reduction in the rate of recurrence, and its booster program has added to its efficacy. However, the company also has a trial planned to test NeuVax in combination with Herceptin.
In a previously reported pilot Phase 2 study of 62 patients, 32 were given trastuzumab (Herceptin) alone and had a 12.5% recurrence rate. But for those patients who receive NeuVax following treatment with trastuzumab, zero recurred following 24 months. The company is now planning a 300 patient randomized Phase 2 trial to test the combination of Herceptin and NeuVax. If effective it makes sense that Roche would acquire Galena, as it will want to control this space-and NeuVax, arguably, has greater market potential if proven to be effective.
If interim results from its Phase 2 trial, are strong for Galena in December of this year, then I anticipate interest from large pharma. The company has already received a lot of attention from analysts, with its recent "buy" rating and a $6.00 price target from Maxim Group. Naturally, it is starting to attract the eyes of Wall Street. But like I said, the Phase 2 trial of Herceptin+NeuVax will be the determining factor in attracting Roche; and if successful, then Galena will most likely be a billion-dollar company, garnering the interest of large pharma.
My final acquisition possibility is Celldex Therapeutics (CLDX), a company with two late-stage products and big revenue potential. The company has two products: Rindopepimut, a Phase 3 immunotherapy for the treatment of glioblastoma in patients who express EGFRvIII, and CDX-011, a candidate being tested on patients who are GPNMB-positive with advanced breast cancer. The company has shown encouraging results from both products, and now investors await overall survival data from its breast cancer drug. An acquisition of Celldex would give large pharma two late-stage candidates with large market potential. Some have estimated that its glioblastoma drug could return sales north of $1 billion, as could the company's late-stage breast cancer product. Not to mention, Celldex is another company gaining a lot of interest from analysts. Jefferies recently reiterated its "buy" rating and raised its price target to $7.00.
With Celldex having two late-stage candidates, each with billion-dollar potential, what company might bid to acquire this $360 million company? This one is a little harder to me, because there are several companies that might show an interest, but no clear winner. There was some benefit in immune response when combining Rindopepimut with Roche-Genentech's Avastin. So it seems fair to infer that, perhaps, Genentech may wish to acquire Celldex. Celldex is also a licensee of Seattle Genetetics' (SGEN) platform for CDX-001; accordingly, Seattle Genetics may want to bid. Furthermore, because of the similarities between CDX-001 and ImmunoGen's (IMGN) T-DM1, perhaps another large pharma company, such as Amgen (AMGN) or Eli Lilly (LLY), may show interest to compete with Genentech (who partnered with ImmunoGen) and GlaxoSmithKline's (GSK) Tykerb. Overall, there appears to be a lot of options for Celldex, not to mention current partners, and I think these options will be explored after overall survival data is announced for CDX-011, which may be its most attractive product.