5 Potential Biotech M&A Targets To Watch In 2019

by: Christopher Venutolo

2019 started off with two large biopharma acquisitions.

An uptick in M&A activity could be set to continue throughout 2019.

The Medicines Company, Progenics Pharmaceuticals, REGENXBIO Inc., Clovis Oncology, and Krystal Biotech Inc. are all companies that I believe have M&A potential.

Merger Monday is alive and well in the healthcare sector with two big acquisitions thus far in 2019 with Bristol-Myers (NYSE:BMY) agreeing to buy Celgene Corp. (NASDAQ:CELG) in a deal valued at $74 billion and Eli Lilly & Company (NYSE:LLY) agreeing to acquire Loxo Oncology Inc. (NASDAQ:LOXO) for roughly $8 billion. Only time will tell if these two acquisitions open the floodgates for a big year of M&A in the healthcare sector. In this article, I will discuss 5 companies that I own and believe are possible takeout targets for 2019.

The Medicines Company (MDCO)

The Medicines Company is aiming to dramatically lower cholesterol with a simple shot administered twice a year. The company's drug, inclisiran, reduced cholesterol by 50% in a phase II trial, Orion-1, with twice annual dosing. The company's goal is to have patients think about getting inclisiran in the same way you might think about getting a flu shot. Inclisiran is licensed from Alnylam (ALNY) and uses their RNAi (RNA interference) platform technology to lower LDL (bad cholesterol) by blocking the synthesis of PCSK9, a protein produced by the liver that plays a role in degradation of the LDL receptor. PCSK9 is the same target as Amgen's (NASDAQ:AMGN) Repatha and Sanofi (NASDAQ:SNY)/Regeneron's (NASDAQ:REGN) Praluent, the only difference being these therapies use a monoclonal antibody(mAb) approach to block PCSK9. Although sales of PCSK9 inhibitors were initially slow, sales have gradually picked up. As of January 2018, Repatha boasts greater than 60% of PCSK9 inhibitor prescriptions with sales of $120 million in the third quarter and sales outside of the U.S. growing 78% year-over-year. At the same time, Amgen has lowered the price of Repatha from initially $14,000 to $5,850 on all devices to reduce out-of-pocket costs for Medicare patients. So why do I believe that inclisiran can compete with and even surpass Repatha and Praluent? The answer is mentioned above: dosing. With twice annual dosing, inclisiran has the potential to tackle poor patient compliance.

Source: The Medicines Company Investor Presentation 2018

The Medicines Company is running multiple phase III trials to show the safety and lipid lowering potential of inclisiran with trial data set to read out in 2H 2019.

Source: The Medicines Company Investor Presentation 2018

In addition to the pivotal phase III studies, an extension phase II trial of ORION-1, known as ORION-3, is also set to read out in 2H 2019. The importance of this particular trial cannot be understated since it directly compares inclisiran head-to-head against Repatha.

Source: The Medicines Company Investor Presentation 2018

While I expect lipid lowering and safety to be comparable between Repatha and inclisiran, I believe the most important takeaway from this trial will be results from the Treatment Satisfaction Questionnaire for Medication (TSQM) as well as participant-reported adherence for self-injectable Repatha. The Medicines Company will be hoping results show a strong patient preference toward taking inclisiran and compliance issues surrounding twice monthly injections of Repatha.

Until recently, The Medicines Company only had enough cash to get them through the third quarter of 2019, however last month the company announced that it raised an estimated $144.9 million with a private offering of convertible senior notes due in 2024. Net proceeds should be more than enough to comfortably get the company through its phase III trial readouts and regulatory filing. Activist investor Alex Denner of Sarissa Capital Mangement LP, who currently sits as chairman of the board, recently purchased $20 million of the convertible notes offered and around $16 million of the company's stock in December, 2018. The company's new CEO Mark Timney and director Christopher Cox, who has been named a "Top 50 Global M&A Lawyer" by M&A Atlas, were also insiders buying in December.

Source: Nasdaq.com

There are certainly risks to investing in The Medicines Company. The company has wagered its entire future on the fate of one drug. Any safety or efficacy concerns in the Orion trials would spell disaster for The Medicines Company. However, I believe FDA approval of Alnylam's patisiran (Onpattro), which uses the same RNA interference mechanism as inclisiran, has helped to de-risk safety concerns. Furthermore, on Jan 7th, 2019 the Independent Data Monitoring Committee (IDMC) completed its 5th review of un-blinded safety and efficacy data of the Orion phase III trials and recommended continuation with no trial modifications.

The Medicines company believes there is a population of 12.7 million patients in America alone who could benefit from inclisiran. With such a large market opportunity and a drug with "vaccine-like" properties to battle compliance issues, there should be many bidders for The Medicines Company if the data looks good in 2H 2019.

Progenics Pharmaceuticals (PGNX)

Before getting into a description of the company, I think it is important to highlight two major deals in this space over the last two years. On October 30, 2017, Novartis (NYSE:NVS) announced it would be acquiring Advanced Accelerator Applications (NASDAQ:AAAP) for $3.9 billion. With this acquisition, Novartis gained Lutathera (lutetium Lu 177 dotatate) to treat patients with gastroenteropancreatic neuroendocrine tumors (GEP-NETs). In addition, Novartis gained a pipeline of both diagnostic and therapeutic radioligand therapies, better known as a "theragnostics".

Source: Adacap.com

The AAAP acquisition didn't satisfy Novartis' appetite for long, and in October 2018, Novartis announced that it would be adding to its radioligand portfolio by acquiring Endocyte (NASDAQ:ECYT) for $2.1 billion. This acquisition added 177Lu-PSMA-617, a potential first-in-class radioligand therapy for metastatic castration-resistant prostate cancer, to Novartis' portfolio.

Source: Endocyte.com

Now we get to Progenics Pharmaceuticals. Like Advanced Accelerator Applications and Endocyte, Progenics is a company that is focused on the development of radiopharmaceuticals to detect and treat cancers.

Source: Jefferies London Healthcare Conference

Progenics, like AAAP prior to being acquired, has an approved product, Azedra, that targets neuroendocrine tumors. Azedra (iobenguane I 131) was approved by the FDA in July 2018 for the treatment of adults and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma. The company has stated that the size of the U.S. market for Azedra is relatively small with approximately 400-800 patients that would use Azedra in any given year. Although some patients might receive up to three or more doses, the majority of patients will receive two doses with each dose priced at $150,000. If we assume 600 patients and two doses per patient, we arrive at predicted annual sales of $180 million for Azedra. Progenics has previously mentioned the potential to expand indications for Azedra. Neuroblastoma is one such indication, which according to the American Cancer Society is the most common cancer in infants less than 1-year-old and accounts for about 6% of all cancers in children. The American Cancer Society estimates there are about 800 new cases of neuroblastoma each year in the United States with two-thirds of these cases metastasizing. As well as expanding the label, there is also the opportunity to expand Azedra geographically beyond the United States. Since Azedra's approval in July of last year, the company has been relatively quiet on details surrounding Azedra's launch. Investors are hoping for an update on the launch during the upcoming earnings call.

Aside from Azedra, Progenics has a pipeline of "theragnostic" products dedicated to treating prostate cancer by targeting prostate-specific membrane antigen (PSMA) on the surface of prostate cancer cells. PyL is Progenics' PSMA-targeted small molecule PET/CT that is currently in a phase III trial assessing positive predictive value (how likely that you have a disease given a positive test) as the primary endpoint in patients with suspected recurrent prostate cancer. PyL was able to detect metastatic lesions up to 2mm small in its phase II trial, and PyL hopes to provide early localization of metastatic lesions to allow for prompt treatment. Earlier this month, the company announced a partnership in Europe with Curium who will meet with European regulators in 1H 2019 to assess a regulatory path forward for PyL.

In addition to PyL, Progenics has 1095, a PSMA-targeted small molecule attached with radioactive Iodine 131, that emits beta radiation. The drug is internalized by prostate cancer cells that express PSMA and are consequently destroyed by the radioactive iodine 131. 1095 will enter a phase II trial in early 2019.

Source: Jefferies London Healthcare Conference

Progenics has one final PSMA-targeted program, this time using an antibody to direct alpha emitting radiation (Ra-223) to the site of prostate cancer. This PSMA-Targeted Thorium Conjugate is partnered with Bayer and is currently in a phase I trial. Progenics pipeline also contains an artificial intelligence digital technology to focus on interpretation of PET/SPECT/CT scans to guide in the diagnosis and subsequent treatment of prostate cancer.

Finally, the company has a drug for opioid-induced constipation, Relistor, that was licensed to Bausch Health (BHC) for which the company receives royalties and milestone payments. Relistor has seen impressive growth with Q3 2018 royalty revenue of $5.2 million up 100% YOY from Q3 2017 revenue of $2.6 million. Progenics is also entitled to milestone payments of up to $200 million depending on sales of Relistor. As of 09/30/18, the company has $148.9 million in cash and a net loss of $24.4 million and $53 million for Q3 2018 and the nine months ending September 30, 2018, respectively.

Progenics has the ingredients for a good acquisition target. It has an approved product, Azedra, that is in need of an experienced large pharmaceutical company that can drive the launch and expand geographically. Furthermore, a big pharmaceutical company could help accelerate any trials to explore additional indications for Azedra. In addition, Progenics has a healthy pipeline in a space that has been hot lately for M&A. There is the potential for Novartis to make yet another acquisition to bolster their radioligand portfolio or perhaps another company looking to enter the radiopharmaceuticals space. Finally, from a financial standpoint, the company is relatively healthy with a strong cash position and rapidly increasing royalty and milestone payments to come in 2019.


Last year Novartis made a massive bet on gene therapy by acquiring Avexis Inc. for $8.7 billion and gaining AVXS-101, now known as Zolgensma, for the treatment of spinal muscular atrophy type 1. Novartis has since filed for regulatory approval of Zolgensma and decisions are expected 1H 2019 in US, EU, and Japan. Since Zolgensma is a one-time curative therapy, the price tag is set to be anywhere from $1.6million to $5.4 million. The CEO of Novartis, Vas Narasimhan, discussed a "core innovative medicines model" in an interview at the annual J.P. Morgan Healthcare Conference earlier this month, and stated that this was the reason for the company's decision to spin off Alcon, its eye care devices company.

Source: Jefferies London Healthcare Conference

Part of the commitment to its innovative medicines platform is the building of an adeno-associated virus (AAV) pipeline.

Source: Novartis R&D and Investor Update

At the company's R&D day, Novartis stated that it would look to build its AAV pipeline both internally and externally through acquisitions, especially in the neurological and ophthalmological space. With many companies now in the gene therapy space, there are many candidates that could bolster Novartis' AAV pipeline. In my opinion, REGENXBIO would be the best fit for Novartis. REGENXBIO not only has therapeutic AAV candidates focused on ophthalmological, metabolic, and neurodegenerative diseases, but it also owns the intellectual property for the adeno-associated virus platform (NAV Technology Platform). This NAV Technology Platform is the one that Novartis licensed for its Zolgensma treatment as well as the rest of its pipeline it acquired from Avexis Inc.

Source: Regenxbio.com

Thanks to this licensing agreement with Novartis, REGENXBIO received a payment of $100 million last year from Novartis. The $100 million consisted of $60 million in annual fees and a commercial milestone fee of $40 million. Under the license agreement, REGENXBIO is eligible to receive a potential milestone payment of $80 million and royalties on sales of Zolgesma and any other products for the treatment of spinal muscular atrophy using REGENXBIO's NAV Technology Platform. If Novartis was to acquire REGENXBIO, it could negate these royalties and importantly gain rights to the NAV Technology Platform, in addition to strengthening its AAV pipeline.

Source: Regenxbio.com

As highlighted above, REGENXBIO has a potential blockbuster in their pipeline with RGX-314, a one-time subretinal treatment for wet age-related macular degeneration, a disease that leads to degeneration of the central part of the retina leading to a loss in central vision. With a prevalence of around 600,000 individuals in the U.S. and an estimated 2 million combined patients in the U.S., Europe, and Japan, there is a large market opportunity for RGX-314. Current mainstay of treatment is with an intravitreal VEGF inhibitor such as bevacizumab, ranibizumab or aflibercept, but the dosing of these therapies can be burdensome with dosing as frequent as monthly injections. RGX-314 is designed to deliver a gene encoding a monoclonal antibody fragment so that the body is able to naturally produce VEGF inhibitor to consistently suppress VEGF. Phase I RGX-314 data has so far been encouraging with 50% of subjects treated in cohort 3 (highest dose) continuing to remain free of anti-VEGF injections at nine months after treatment with good clinical durability measured by best corrected visual acuity (BCVA) and central retinal thickness (CRT). The FDA has cleared REGENXBIO to expand this trial to enroll a total of 42 subjects with two higher dose cohorts (cohort 4 and cohort 5). Interim data from this trial should be announced by the end of 2019, and the company plans to initiate a large randomized controlled phase IIb study in late 2019.

Financially the company is strong with around $470 million in cash, cash equivalents and marketable securities as of December 31, 2018. Not taking into account any milestone or royalty payments from Novartis, the company expects to end 2019 with around $330 million in cash, cash equivalents, and marketable securities.

To conclude, REGENXBIO would be an excellent fit for Novartis. It would allow Novartis to gain control of the NAV Technology Platform and thereby avoid any milestone or licensing fee payments for future success of Zolgensma. Furthermore, Novartis would gain numerous partners that have licensed REGENXBIO's NAV Technology, which include Abeona, Ultragenyx, Shire, Bayer, Audentes, Biogen, Prevail Therapeutics, Voyager, Genzyme, Esteve, Lysogene, Sarepta, and Rocket Pharma, all of whom would be responsible for future payments to Novartis should their treatments be approved. Finally, Novartis can beef up its pipeline and gain RGX-314 for a significant market opportunity in wet age-related macular degeneration.

Clovis Oncology (CLVS)

For those familiar with the biotechnology space, this pick will certainly be the least surprising on the list. Clovis Oncology makes Rubraca (rucaparib) approved for the maintenance treatment of patients with recurrent ovarian cancer who are in complete or partial response to platinum-based chemotherapy. Rubraca is a part of a group of drugs known as PARP inhibitors that target a specific type of DNA-repair mechanism that allows cancer cells to fight off damage sustained by chemoradiation treatment. In the ovarian cancer space, there are three FDA approved PARP inhibitors that have been fighting it out for market share as well as expanded label indications. These include Clovis' Rubraca, AstraZeneca's (NYSE:AZN) Lynparza (olaparib), and Tesaro's (NASDAQ:TSRO) Zejula (niraparib). Until recently, this was a fight between two smaller biotech companies (Tesaro and Clovis) trying to compete against big pharma (AstraZeneca). That all changed in December 2018, when GlaxoSmithKline (NYSE:GSK) announced that it would be acquiring Tesaro for $5.1 billion. In addition, there is now a fourth PARP inhibitor on the scene with Pfizer's (NYSE:PFE) Talzenna (talazoparib) gaining approval in 2018 to treat locally advanced or metastatic HER2-negative breast cancer in women with an inherited BRCA1 or BRCA2 mutation. So as it stands, Clovis has to take on AstraZeneca, GlaxoSmithKline, and Pfizer.

Although Rubraca sales have been gradually increasing with product revenues expected to be around $95 million for the full year 2018, up from $55.5 million in 2017, the company has a high cash burn and reported a net loss of $269 million for the nine months end September 2018. The company estimates that it has around $520 million in cash, cash equivalents, and marketable securities as of December 31, 2018. Given this, there are real concerns that Clovis simply will not have the resources to compete against the large pharmaceutical companies mentioned, which has prompted some large shareholders to call for a sale of the company. In a Q&A session at the 37th Annual J.P. Morgan Healthcare Conference last week, the CEO of Clovis Oncology was quizzed about potential M&A, to which he stated the following:

Everybody knows where to find me. Every company in this industry is for sale. We just are. It's all a question of if someone shows up… I am not an empire builder. I don't have a dream of dying with my boots on at 107 years old with a Clovis hat on. So, the reality is we're open to it. It just has to happen organically".

With Clovis willing to sell, are there any potential acquirers? When reading through the Schedule 14D-9 filed by Tesaro with the Securities and Exchange Commission after receiving its takeover bid, it is apparent that GSK was the only company interested in acquiring the company outright. All other parties were interested in co-development/co-promotion collaborations. To some investors, this translates to a lack of buyers for Clovis. The counterargument being that the GSK acquisition could lead to new or renewed interest in a potential Clovis acquisition. It is important to point out that Clovis is not identical to Tesaro. Clovis is going after prostate cancer and bladder cancer with its TRITON2/TRITON3 and ATLAS trials, respectively. Based on the results of the TRITON2 trial, Clovis hopes to file for regulatory approval for treatment of men with castrate-resistant prostate cancer with BRCA mutations who have failed previous lines of therapy by the end of 2019. Clovis is also partnered with Bristol-Myers Squibb and is testing Rubraca with Bristol-Myers' PD-1 inhibitor, Opdivo, in multiple indications including advanced ovarian cancer, triple negative breast cancer, and metastatic castration-resistant prostate cancer. It must also be noted that Clovis owns an oral tyrosine kinase inhibitor, Lucitanib, which it plans to use in combination with Rubraca or a PD-1 inhibitor for ovarian, lung, prostate, and bladder cancer, with trials set to start to start in Q1 2019.

In summary, Clovis faces some tough competition with the likes of AstraZeneca, GSK, and Pfizer in the PARP inhibitor space. Clovis is not an identical company to Tesaro so an acquisition should not be ruled out on the basis of the details of the Tesaro 14D-9 regulatory filing. In addition, the acquisition of Tesaro may lead to new or renewed interest in Clovis by a large pharmaceutical company looking to enter the PARP inhibitor space. What's certain is Clovis will have to consider its options with respect to raising capital outside of equity financing or convertible notes given its cash burn.

Krystal Biotech, Inc. (KRYS)

Finally, we come to Krystal Biotech. While many gene therapy companies have been focusing on using AAV and Lentivirus vectors to treat rare diseases, Krystal Biotech decided to go after dermatological diseases by using the herpes simplex virus 1 (HSV-1). By taking advantage of HSV-1's natural affinity for skin and modifying the virus to be non-replicating and non-integrating, the company has created the Skin Targeted Delivery Platform (STAR-D) to deliver specific effectors to treat clinical and non-clinical skin conditions. In the short-term, the company is going after rare monogenic skin conditions using a topical gel formulation to replace specific missing genes. Beyond monogenic diseases, the company is looking to partner with larger pharmaceutical companies to go after facial cosmetics and chronic skin diseases.

Source: KB Corporate Presentation 2019

Krystal's lead product is KB 103 for the treatment of dystrophic epidermolysis bullosa (DEB), a rare skin disease caused by a mutation in the COL7A1 gene leading to a deficit in production of the COL7 protein, that is essential for anchoring the epidermis to the underlying dermis. Patients with DEB suffer from tears and blisters to the skin with minimal contact and are at risk of developing squamous cell carcinoma. Treatment right now is palliative and other experimental treatments are time-consuming and involve surgical grafting. Krystal announced results from a phase I trial of two patients with DEB in October 2018, which showed promising results with COL7 anchoring fibrils detected by immunofluorescence and immunoelectron microscopy in the patients' skin. In addition, both patients had improved time to complete wound closure and sustained wound closure versus placebo. Krystal rapidly enrolled four more patients (2 adult and 2 pediatric) for its phase II trial. Results are due in the 1H 2019 and if the results are promising then the company should rapidly enroll and have results for a phase III trial by the end of 2019.

Source: KB Corporate Presentation 2019

In addition to the KB-103 trials, 2019 promises multiple other catalysts for the company:

Source: KB Corporate Presentation 2019

If Krystal can deliver promising results for its KB-103 program then it should attract some attention from potential acquirers. The CEO, Krish Krishnan, has already stated at an investor conference that there has been interest in using the STAR-D platform for the cosmetic facial injectable market. Krish Krishnan is no stranger to making deals having been instrumental in the sale of New River Pharmaceuticals to Shire for $2.6 billion dollars in 2007, netting investors over 1000% return from the IPO price in less than a three-year period. New River Pharmaceuticals and Shire originally had a licensing deal for Vyvanse, but given the structuring of the deal, Shire had little choice but to acquire New River Pharmaceuticals when the blockbuster potential of Vyvanse became apparent.

Financially the company is strong with cash, cash equivalents, and marketable securities of $115 million as of October 31, 2018, and only a net loss of $2.8 million for 3Q 2018.

Investing in Krystal does have significant risks. The company so far has only produced data for two patients so data on safety and efficacy is clearly lacking. Furthermore, there is the question of affordability with respect to its cosmetic treatments. So far, the company has stated that DEB patents spend $200k-$400k annually on palliative treatments. While that might justify a high price tag for KB-103 for DEB, cosmetic patients treated with facial injectables will be paying out-of-pocket.

In summary, Krystal Biotech has an exciting, novel platform capable of going after multiple indications, some of which are multiple billion dollar markets. The company so far has shown good results by meeting all primary and secondary endpoints in its phase I trial of KB-103. It must be noted that there is already an FDA approved product, Imlygic, that uses the HSV-1 vector for the treatment of melanoma, suggesting the FDA is already comfortable with approving a therapy using the HSV-1 vector. If the company can deliver good results from its clinical trials this year then it may be a potential acquisition target.


2019 could be a big year for biotech M&A. Large-cap biotech companies and big pharma flushed with cash are constantly looking to bolster their pipelines, especially those with slowing top-line growth. The biotech sector certainly has no shortage of great companies with innovative pipelines that are potential targets for M&A. Companies that I personally own and believe have a combination of good science and M&A potential include The Medicines Company, Progenics Pharmaceuticals, REGENXBIO, Clovis Oncology, and Krystal Biotech Inc.

Disclosure: I am/we are long MDCO, PGNX, RGNX, CLVS, KRYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.