Monoclonal Antibody Companies Command Premiums

by: Michael Becker

Monoclonal antibodies, which have been approved for immunological, anti-infective, ophthalmic, cancer and other categories, represent one of the most successful therapeutic drug classes. Ten monoclonal antibodies have been approved for cancer therapy alone, including three blockbuster products sold by the Roche Group (OTCQX:RHHBY) – Avastin® [bevacizumab], Rituxan® [rituximab], and Herceptin® [trastuzumab] that collectively represented nearly US$17 billion in revenue for 2009 [Ref 1]. Hundreds of promising new product candidates are in clinical trials and by 2016 Evaluate Pharma projects that monoclonal antibody products will represent 11 of the top 50 [22%] selling products in the world, including 6 of the top 10 selling products [Ref 2].

With few exceptions, companies with monoclonal antibody platforms have significantly outperformed the NASDAQ Biotechnology Index® (NBI) since the end of 2008 [see Table 1]. Accordingly, the purpose of this article is to offer several key factors that help explain the above average returns for monoclonal antibody companies during this +18-month period – a trend that we believe is likely to continue.

Table 1: Select public companies with monoclonal antibody platforms

Company Symbol 2008 Close 7/9/10 Close % Change
Human Genome Sciences, Inc. HGSI $2.12 $25.23 +1090%
Immunogen, Inc. IMGN $4.29 $8.99 +110%
Immunomedics, Inc. IMMU $1.70 $3.19 +88%
Micromet, Inc. MITI $4.36 $6.65 +53%
Alexion Pharmaceuticals, Inc. ALXN $36.19 $52.16 +44%
Seattle Genetics, Inc. SGEN $8.94 $12.52 +40%
Regeneron Pharmaceuticals, Inc. REGN $18.36 $23.22 +26%
NASDAQ Biotechnology Index NBI 729.54 819.64 +12%
Morphosys AG OTC:MPHSF 18.75EUR 15.40EUR -18%
XOMA Ltd. XOMA $0.62 $0.37 -40%
Genmab A/S OTCPK:GNMSF 203.00DKK 63.70DKK -69%

Higher rate of success

In order to determine the appropriate current value for a biotechnology company, an investor would normally consider projected future cash flows resulting from product sales, probability of success, and a discount rate to reflect the risks that the company faces.

With regard to probability of success, one of the greatest considerations for a biotechnology company is the fact that new drug candidates must receive approval from the Food and Drug Administration [FDA] before they can be marketed in the United States. Receiving FDA approval is dependent, in part, on the drug candidate successfully passing a series of clinical trials that are generally conducted in three sequential phases.

Successfully transitioning from the early stages that establish safety [Phase I] to later phases where efficacy is demonstrated [Phase III] will improve the approval success rate [e.g., the odds that the drug will ultimately reach the market]. Interestingly, researchers from the Tufts Center for the Study of Drug Development at Tufts University recently analyzed the average approval success rates for investigational drugs first tested in humans from 1993 to 2004 [Ref 3] and found substantial differences between large molecules [32% success rate] and small molecules [13% success rate]. Monoclonal antibodies represented the largest group [47%] of the large molecules evaluated in the study.

In view of the fact that nearly one-third of large molecule product candidates entering the clinic ultimately receive FDA approval and that they are nearly 2.5-times more likely to ultimately receive approval than small molecule compounds, companies that are developing monoclonal antibodies should be awarded higher valuations due to the higher probability of success.

Reduced concerns from biosimilars

The Patient Protection and Affordable Care Act (PPACA), which was signed into law on March 23, 2010, included a provision amending the Public Health Service Act (PHSA) to permit approval of biosimilar biological products through an abbreviated biological license application [ABLA] submitted to the FDA. Under the law, originators have a 12-year exclusivity period before a biosimilar is approved.

While many questions remain about the specifics of the ABLA process until the FDA releases its guidance, the PPACA does state that to support approval of a biosimilar, the sponsor must show that the product is “biosimilar to the reference product” based upon data derived from analytical, animal, and clinical studies. As a result, it is unlikely that monoclonal antibody products will represent the first class of biosimilars on the market due to the fact that they have very specific binding properties and are typically larger and more complicated than other biologic drugs.

Regardless, according to a recent article by Ludwig Burger for Reuters, analysts expect price discounts of only 20 to 30 percent in markets affected by biosimilar competition, which compares with an average markdown of 90 percent for generic versions of small molecule drugs. This is likely due to the fact that development, production and marketing of a biosimilar costs more than making a generic copy of conventional chemical drugs.

Lastly, for those individuals that believe manufacturing biologic drugs is easy, a review of Genzyme Corporation’s (GENZ) recent challenges offers a different perspective. See “Genzyme’s Manufacturing Disruption Highlights Investment Opportunities in Lysosomal Storage Disorders.”

Manufacturing processes have improved

In contrast to small molecule therapeutics that can be synthesized for $1 per gram and simple proteins like insulin that can be efficiently produced in bacterial hosts, monoclonal antibodies are normally produced in mammalian cells at a cost of $300-$5,000 per gram [Ref 4].

Fortunately, in parallel with the clinical and commercial success of monoclonal antibodies there have been major advances in cell line development, bioreactor construction and operation, purification strategies and analytics. For example, cell culture productivity has improved more than 100-fold in the last 15-years. With these advances, global protein output using mammalian cell culture increased from under 500 kilograms in 2000 to 3,600 kilograms in 2005 and manufacturing costs have been reduced.

In addition to the aforementioned advances, new sources of inexpensive antibody production are being explored. For example, antibodies have been expressed successfully in genetically modified plants and have been shown to retain their native functional forms.

Evolution from acute to chronic treatment

In the early 1980’s, most monoclonal antibodies were derived from mouse genes with major limitations such as inducing human anti-mouse antibody [HAMA] responses in patients, lack of effector functions and short plasma half-life [Ref 5]. Later that decade, genetic engineering techniques made chimeric and humanized versions available for study. Until this point in time, most therapeutic monoclonal antibodies had been studied as acute treatments for cancer or immunological diseases [Ref 6].

By the late 1990’s, methods to produce human monoclonal antibodies were developed, including phage display and transgenic mice. With the availability of human antibodies with reduced immunogenicity and increased efficacy, the biotechnology industry began studying monoclonal antibodies for the chronic treatment of non-life threatening diseases, which opened new market opportunities.

In this regard, KaloBios Pharmaceuticals, Inc. (private) is applying its proprietary Humaneering™ technology platform to produce antibodies that are close to human germ-line in sequence while retaining the specificity and improving the affinity of the reference antibody. KaloBios is developing an anti-GM-CSF human monoclonal [KB003] for the treatment of patients with autoimmune and chronic inflammatory conditions, such as rheumatoid arthritis and asthma. Sales of two marketed monoclonal antibodies indicated for the treatment of rheumatoid arthritis, Humira® [adalimumab] and Remicade® [infliximab], are projected to reach $15.8 billion in combined sales by 2016 according to Evaluate Pharma [Ref 2].

In January 2010, KaloBios partnered with Sanofi Pasteur, the vaccines division of sanofi-aventis Group (NYSE:SNY), to develop the company’s Humaneered™ antibody fragment KB001 for the prevention and treatment of Pseudomonas aeruginosa (Pa) infections. KaloBios received an upfront payment of $35 million and is eligible for development, regulatory and commercial milestones totaling $255 million in addition to royalties on eventual product sales.

In addition, MacroGenics, Inc. (private) entered into a global strategic alliance with Eli Lilly & Co. (NYSE:LLY) in October 2007 valued at approximately $500 million for teplizumab, a humanized anti-CD3 monoclonal antibody currently being studied in a global pivotal Phase II/III clinical trial for individuals with recent-onset type 1 diabetes.

Licensing, merger, and acquisition dynamics

The higher average approval success rates with large molecules compared with small molecules appears to be partially reflected in the economics of some recent licensing and M&A transactions.

For example, in June 2010 OncoMed Pharmaceuticals, Inc. (private) partnered with Bayer Schering Pharma AG (OTCPK:BAYRY) to discover, develop and commercialize novel anti-cancer stem cell therapies including multiple antibody, protein therapeutics and small molecules targeting the Wnt signaling pathway. For each drug candidate successfully developed through Phase III clinical trials and regulatory approval, OncoMed’s payments from Bayer could total up to $387.5 million for each biotherapeutic drug compared with $112 million for small molecule drugs. Accordingly, potential payments for large molecules are 3.5 times greater than for the small molecules.

As another example, Eli Lilly & Co. (LLY) acquired ImClone Systems, Inc. for $6.5 billion [5x sales of $1.3 billion], while Astellas Pharma, Inc. paid $4 billion for OSI Pharmaceuticals, Inc. [3.3x sales of $1.2 billion]. Both ImClone and OSI received royalties on product sales from corporate partners.

ImClone’s marketed product Erbitux® [cetuximab] is a monoclonal antibody that inhibits the epidermal growth factor receptor [EGFR] and is indicated for the treatment of certain types of colorectal cancer and as a single agent or in combination with radiation therapy for head and neck cancer. OSI’s comparable product Tarceva® [erlotinib] is a small molecule antagonist of EGFR and is indicated for the treatment of non-small cell lung cancer and pancreatic cancer. While this is not an apples-to-apples comparison, it does help support the fact that premiums are being paid for monoclonal antibodies versus small molecules.

Investors are also likely placing M&A premiums on monoclonal antibody companies due to robust activity during the past five years [see Table 2]. In fact, there has been at least one deal announced each year during this period.

Table 2: Select M&A among monoclonal antibody companies

Acquirer Target Year Value ($ mil)
Cephalon, Inc. (NASDAQ:CEPH) Ception Therapeutics, Inc. 2010 $350
Abbott (NYSE:ABT) Facet Biotech 2010 $722
Bristol-Myers Squibb (NYSE:BMY) Medarex, Inc. 2009 $2,400
Eli Lilly & Co. (LLY) ImClone Systems 2008 $6,500
AstraZeneca (NYSE:AZN) MedImmune, Inc. 2007 $15,600
Astellas Pharma Inc. (OTCPK:ALPMY) Agensys, Inc. 2007 $387
Eisai Co., Ltd. (OTCPK:ESALY) Morphotek, Inc. 2007 $325
Genentech, Inc. (Private:DNA) Tanox, Inc. 2006 $919
AstraZeneca Cambridge Antibody Tech 2006 $1,300
Novartis International AG (NYSE:NVS) NeuTec Pharma plc 2006 $569
Pfizer, Inc. (NYSE:PFE) Rinat Neuroscience Corp 2006 $500
GlaxoSmithKline plc (NYSE:GSK) Domantis Ltd 2006 $454
Amgen, Inc. (NASDAQ:AMGN) Abgenix, Inc. 2005 $2,200

Access to capital

Despite a challenging financing climate, many public monoclonal antibody developers referenced in Table 1 have been able to raise capital through public offerings. For example, ImmunoGen, Inc. (NASDAQ:IMGN) raised $77.6 million at $8.00 per share in May 2010, Micromet, Inc. (NASDAQ:MITI) raised $80.5 million at $7.00 per share in March 2010, and Seattle Genetics, Inc. (NASDAQ:SGEN) raised $136 million at $10.75 per share in August 2009. This demonstrates strong investor appetite for monoclonal antibody companies, which could bode well for future initial public offerings [IPOs] given the paucity of public options in the sector due to M&A activity over the past few years.


Biotechnology companies developing monoclonal antibodies have been outperforming the broader sector for the past 18-months, a trend that is likely to continue based on higher average approval success rates, reduced concerns from biosimilars, improvements in manufacturing and resulting impact on margins, broadening utility beyond treating cancer and inflammation, robust partnering and M&A activity, and access to capital.


  1. Roche Annual Report 2009 (
  2. Evaluate Pharma World Preview 2016 Report
  3. DiMasi, JA. Et al. Clin Pharmacol Ther. 2010 Mar;87(3):272-7. Epub 2010 Feb 3.
  4. Chen, C. Trends in Bio/Pharmaceutical Industry. 2009 5(3).
  5. Chan, A. Et al. Nat Rev Immun. 2010 May;10.
  6. Reichert JM. Curr Pharm Biotechnol. 2008 Dec;9(6):423-30.

Disclosure: No positions

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