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Business and Markets

Pay Your Money and Hold Your Breath

In another example of the white-knuckle here-we-go nature of the drug business, Bristol-Myers Squibb announced this morning that they’re doing a huge deal with Nektar Therapeutics for their immune stimulant drug candidate, NKTR-214. Well, actually, they’re not getting the drug, because the development deal is non-exclusive. And they’re not buying Nektar outright, although there had been plenty of rumors about them doing just that. Instead, they’re paying a billion up front and buying $850 million of Nektar stock (at about a 36% premium) for the chance to try out NKTR-214 along with their existing immunotherapy drugs, Yervoy and Opdivo (nivolumab). There are nearly two billion dollars in milestone payments that could trigger if things work out, and the revenues for the drug will still go mostly to Nektar.

That, as the article linked says, is a steep price (quite possibly the steepest in the history of the industry for a deal like this) and a big gamble. NKTR-124 is an agonist of the CD122 protein (IL2RB), which stimulates proliferation of T-cells and NK cells. That makes it a perfectly rational thing to add to existing treatments, but this isn’t always a rational business (or at least it isn’t until we have lots of expensive hindsight). Nektar got a lot of attention back in the summer when they presented data on the combination of their compound along with Opdivo. The results did look impressive, but they were also on a literal handful of patients. Then in November, more data came out in slightly larger trials, which also looked very promising. Bristol-Myers Squibb is planning to expand that to perhaps twenty indications, in what looks to be a very large and expensive clinical effort.

But you know, Takeda had already signed a rather similar deal with Nektar back in May, before things got so expensive. To stop Nektar from turning around and signing another one with Merck (BMY’s bitter rival in the immuno-oncology field) this agreement has a lockout provision, but those don’t last forever. The hope is that the combination will allow the immunotherapy to work even in patients who are not expressing the PD-L1 protein, which would significantly expand the market (and make prescribing these antibodies a significantly easier decision). One of the significant points about the November data was a response seen in 3 out of 4 non-small-cell lung cancer patients (stage IV) who did not express PD-L1.

So this could be very good news – or it could be that in longer, larger trials the benefits aren’t so clear. NKTR-214 is new enough that we really don’t have outcomes data yet – seeing responses in patients like this is a good thing, and you’d hope that that translates to overall survival, but there’s really only one way to find out, and that’s to run the trials and see how people survive. Bristol-Myers Squibb is paying a lot of money just to get to trying that part out. It looks like that’s the price to try to differentiate yourself from an incredibly competitive and increasingly crowded field. There’s a lot of breath being held in this area these days. . .

9 comments on “Pay Your Money and Hold Your Breath”

  1. Anon says:

    In the words of Lord Voldemort, “when will they learn?” BMS is ready to get duped again after paying exorbitant amount for DuPont-Merck and other reckless venture! Soon they are going to realize they took poison portion, rather than Nektar. Hope this do not turn into a “tar” baby!

    1. Emjeff says:

      Are you nuts? BMS did not get hosed by buying DuPont, DuPont did. BMS got apixaban from DuPont, a Factor X inhibitor currently flying off pharmacy shelves everywhere. DuPont was too stupid to see what they had – a group of very talented discovery and med chem folks, who, with a little support, did some good work (efavirenz, and apixaban) and could have done a lot more.

      1. Derek Lowe says:

        That was always my impression, too – DuPont had some really good people, but (as a friend put it), management there always wanted to run a drug company in the worst way, so that’s exactly what they did.

  2. Calvin says:

    Leaving aside the most important issue (ie does the thing actually work), this is quite a neat deal structure. The cash goes in to Nektar but BMS offset that because they have a substantial equity position so they see an upside there. There are then the additional tax offsetting games that get played now because BMS have kept their equity position sufficiently low. And then if this thing works, as a shareholder they get the upside on the revenue flowing into Nektar. So in terms of deal structure this is actually pretty clever. Nektar get a boatload of cash at various points (if things pan out) and BMS don’t have to commit quite so much cash to get a significant control. I guess the expensive mistake that was Inhibitex made an outright acquisition less palatable. Celgene have played this game too quite successfully (less so recently). I imagine the valuation spreadsheet was rather complex though. I bet though, this was far cheaper than buying them outright.
    Still doesn’t change the fact that this thing looks a bit expensive if it’s a dud.

  3. anon the II says:

    So just what is NKTR-214? Oh, it’s IL2 with some (six on average) labile PEG’s on it. And how are they attached? I’m in the chemistry section of the supplemental materials and I’m not seeing it.

    “The 20 kDa releasable PEG reagent was conjugated to IL-2 using succinamidyl chemistry using a 30-minute reaction time and quenched by reducing pH to 4.0.” and “the conjugated PEG linker is released from IL-2 via a base-catalyzed beta elimination reactions” doesn’t tell me much.

    Anybody know how this works?

    1. Chrispy says:

      The level of chemical characterization demanded by the clinical journals is really appalling. This annoyed me so much this morning that I dug up Nektar’s patent (9861705), which was obtuse as well. We really need to start demanding full sequences and structures in our medical publications if we are to make progress. The most I can tell is that it looks like they were using carbamate linkages. If anyone has more info I’d be interested, too!

  4. Cytokine-o-phile says:

    The question is if this will be a Flexus IDO1 dud or the next PD-1 like molecule. At least this deal had clinical data, Flexus was bought for >$1b prior to GLP tox.

    This is a gamble, but if the early results hold up, BMS will make quite a windfall on this deal.

  5. Scott says:

    $850mil in shares ought to be close to a buy-out (that’s what, 10 million shares or so?). I’d be surprised if any one shareholder has more than that.

    And I can note from other companies that you probably don’t want any one shareholder to have a controlling interest. Particularly when that single largest shareholder is the CEO.

  6. oliver says:

    Hi Derek
    Let me get on a little tangent here.. did you just a while ago have a post about yuuuuge cuts of employees at BMS, if memory serves well?
    Those purported upto 2 billions could have kept a few folks in the company?

    Just saying

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