Why precision-guided chemotherapy has driven a dealmaking boom
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Investors’ interest in anti-obesity drugs sometimes seems all-consuming. Yet weight-loss treatments are not the only source of excitement in the world of pharmaceutical research.
A class of molecules known as antibody-drug conjugates (ADCs) is generating buzz. These use antibodies to deliver chemicals directly to tumours, making them the guided missiles of the cancer world. Invented decades ago, they have recently improved so much that developers such AstraZeneca talk about them replacing conventional chemotherapy. When the UK company and its Japanese partner Daiichi Sankyo revealed impressive breast cancer trial results for their ADC Enhertu in 2022, oncologists broke into a standing ovation.
Daiichi Sankyo is expected to be the ADC leader in 2028 with nearly $10bn of sales, according to Evaluate. It trades on a price/earnings multiple of 50 times, the kind of hefty multiple normally associated with obesity stocks. Novo Nordisk is on a 37 times multiple and Eli Lilly on 59 times. Some estimates of the long-term market potential invite parallels with obesity drugs. Morgan Stanley reckons the ADC market could eventually be worth more than $140bn.
That bullish estimate is based on a one-for-one switch from conventional chemotherapy, which accounts for more than 37 per cent of US cancer prescriptions. Healthcare funders might resist this on cost grounds; most chemotherapies have lost their patent protection and are relatively inexpensive. In April, access to Enhertu in England was blocked on value-for-money grounds although it got a green light in Scotland.
Investors should also worry that the market is getting overcrowded. Roche, Johnson & Johnson and Denmark’s Genmab have all inked deals this year, following nearly $100bn of ADC-focused M&A and partnership transactions last year. This included a Merck agreement with Daiichi Sankyo worth up to $22bn, Pfizer’s $43bn acquisition of lossmaking Seagen and AbbVie’s $10.1bn acquisition of ImmunoGen. The latter represented a 95 per cent premium to the undisturbed price.
The ImmunoGen deal came four decades after the company started working on the first generation of ADCs. Some of the current hopes for ADCs — which includes using them to treat bacterial infections and autoimmune diseases — could fail or take a long time to come to fruition.
The money pouring into ADCs is a reminder of just how important oncology is to the pharmaceutical sector, even as obesity steals the limelight. It is the industry’s biggest source of sales, with projected 2028 revenues of $440bn, says data provider IQVIA. Drugs that precisely target cancerous cells look set to play a crucial role in treating the disease, unleashing another wave of oncology growth.
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