The potential of immuno-oncology could lead biopharma companies to rethink growth strategies

By Susan Dettmar, US Leader, M&A Consultative Services,Deloitte Consulting LLP.

A new era in the treatment of cancer is helping fuel a strategy shift among biopharmaceutical manufacturers that want to take advantage of a rapidly evolving market. The potential of immuno-oncology—which leverages the immune system to treat various forms of cancer—has prompted some biopharmaceutical companies to move investments from other areas of research. Immuno-oncology is expected to grow 142 percent¹—from $14 billion in 2019 to $34 billion in 2024. This growth potential could lead to more partnerships among companies.

Cancer is the world’s second largest cause of death, according to the Nobel Assembly. In October, two immunologists—American James Allison and Japan’s Tasuku Honjo—were awarded the Nobel Prize in Medicine for pioneering a way to re-program a person’s immune system to attack cancer cells. While T-cells are effective at targeting and destroying many types of invaders, cancer cells produce molecules (known as checkpoints) that act as “brakes” on the T-cells and prevent them from attacking tumor cells. Allison focused on a checkpoint known as cytotoxic T-lymphocyte 4 (CTLA-4) and discovered an antibody to block the action of the braking molecule. In a separate research, Honjo discovered another checkpoint dubbed programmed death 1 (PD-1) that also operates as a brake on the immune system. He further identified a protein known as programmed death-ligand 1 (PD-L1) that binds to PD-1. He demonstrated that blocking PD-L1 with an antibody could halt tumor growth.

In 2011, the Food and Drug Administration (FDA) approved the first checkpoint inhibitor, an anti-CTLA-4 antibody (ipilimumab) as a treatment for late-stage melanoma. While it took 15 years for Allison’s discovery to lead to a treatment, we have seen significant influx of immunotherapies for cancer treatment in just the past couple of years.

Immuno-oncology has emerged as the fifth pillar of cancer treatment

Until recently, cancer treatment has relied on four options: surgery, radiation, chemotherapy, and targeted therapy. The success of ipilimumab demonstrated that the immune system could also be weaponized against cancer. PD-1 and PD-L1 checkpoint inhibitors have emerged as the standard of care for many cancer types and are being leveraged as front-line treatment options for melanoma, lung cancer, and kidney cancer.

Researchers continue to explore new avenues of immunotherapy and more than 1,200 new immuno-oncology drugs² are being tested, with more than 2,000 others in the preclinical phase. This rapid evolution of the fifth pillar has led some biopharma companies to reallocate their research and development (R&D) investments to immuno-oncology.

More partnerships, acquisitions are likely

Over the past decade, more than 600 licensing agreements have been signed in the oncology space, with about one-third of them focused on immuno-oncology, according to Deloitte research. Moreover, as we mentioned in our last blog, biopharma companies that are exploring how to leverage genotypic and phenotypic data to establish a foothold in next-generation therapies, consider oncology as the most important therapeutic focus.

As biopharma companies expand their oncology portfolios, we see the following four key themes emerging:

1. Prioritizing asset acquisitions: Oncology treatment is rapidly migrating to combination therapies—having access to an anchor drug could be a key differentiator for biopharma companies. Asset acquisitions through licensing deals could help biopharma companies selectively pursue immuno-oncology-focused assets that could help enhance their oncology portfolios. Based on Deloitte research, the licensing fee (including milestones payments) paid for assets is largely agnostic of the clinical phase in which they are acquired. This indicates that premium expected for the de-risking of late-stage assets is often offset by the premium paid to gain early access to emerging technologies and platforms. We expect this trend will continue.
2. Differentiating portfolios: Some biopharma companies want to position themselves with early stages of treatment—rather than focusing on late-stage cancers. The design of clinical trials, along with the selection of targeted populations by leveraging biomarkers, has emerged as a critical lever in helping biopharma companies differentiate their immuno-oncology portfolios. Having a differentiated portfolio could make it easier for biopharma companies to dominate specific niches within the market.
3. Expanding into immuno-oncology assets outside of checkpoints: Biopharma companies are leveraging the growth potential of immuno-oncology to expand into other platforms beyond checkpoints, especially within adoptive cell transfer (ACT) therapy, a treatment methodology that uses a patient’s own immune cells to treat cancer. Chimeric antigen receptor T cell therapy (CAR-T therapy) is an immunotherapy approach based on ACT that uses a process where a patient’s own T-cells are genetically altered to bind to certain cancer cells and destroy them. After the cells are extracted, they are cryopreserved, transported and modified before being returned back to the patient through infusion. While CAR-T therapy is the furthest along in terms of clinical development and commercialization, it is very narrow in its targets. It is still too early to predict which technology platform will emerge as the most successful. Large biopharmaceutical companies will likely continue to place bets in multiple platforms and technologies through alliances and deals since pursuing bets across multiple platforms could help them stay at the forefront of technology if a front-runner therapy is leap-frogged by something else.
4. Navigating partnerships and acquisitions: While oncology as a therapeutic area has dominated the biopharma M&A landscape, more than one-third of biopharma acquisitions announced (by volume) since 2017 have been focused on immuno-oncology assets. Large biopharma companies have actively leveraged inorganic growth opportunities to accelerate their immuno-oncology strategies. For example, Celgene established a collaboration with BeiGene in 2017 to gain access to its PD-1 inhibitor, and it acquired Juno Therapeutics in 2018 to leverage its CAR-T platform. Similarly, Gilead acquired Kite Pharma in 2017 to establish a foothold in CAR-T therapy and followed it up with the acquisition of Cell Design Labs to further grow its footprint in ACT therapies. We anticipate this trend will continue into 2019. In addition to acquisitions, a growing number of small pharma and biotech companies are establishing multiple partnerships with larger biopharma companies to help fund their clinical research needs. In the long run, these partnerships could reduce the attractiveness of the smaller biotech companies as potential targets due to the complex web of partnerships they might have established.

Tax law could help fund more R&D

We could see more deals in oncology under the tax reform law, which allows US-based multi-national companies to repatriate profits earned overseas without paying additional US taxes. Freeing up more capital could encourage biopharma companies to make bigger investments in next-generation cancer therapies. The Deloitte Center for Health Solutions recently surveyed chief financial officers (CFOs) from large biopharma companies and medical device manufacturers. Two-thirds of respondents (66 percent) said they expected the tax-reform law would boost M&A activity.

Can immuno-oncology deliver on its promise?

Based on Deloitte research, oncology is experiencing a double-digit growth rate—faster than any other therapeutic area. The pipeline of biopharma companies is filling up with combination therapies pairing PD-1 and PD-L1 checkpoint inhibitors with other cancer treatments and novel immuno-oncology mechanisms. Despite the promising science of immuno-oncology, the mortality rate for cancer remains high (nearly 10 million cancer related deaths³ are expected in 2018). Unless these innovative treatments can be scaled to improve survival rates (by addressing a wider range of tumor types and patient profiles) their overall ability to cure cancer could remain low despite the novelty factor.

While more than 150 biopharmaceutical companies⁴ are developing immuno-oncology therapies, many of them might need to collaborate with large biopharma companies to support the launch and commercialization of their products, especially in international markets. We expect this fragmented market will eventually consolidate. However, it could be too early to predict which checkpoint combination or technology platform will emerge as the most successful.

Endnotes

1. European Pharmaceutical Review, April 19, 2016 (https://www.europeanpharmaceuticalreview.com/news/40547/immuno-oncology-globaldata/)

2. Trends in the Global Immuno-Oncology Landscape, October 19, 2018 (https://www.nature.com/articles/nrd.2018.167.epdf)

3. World Health Organization, September 12, 2018 (http://www.who.int/news-room/fact-sheets/detail/cancer)

4. Genetic Engineering & Biotechnology News, September 12, 2016 (https://www.genengnews.com/topics/drug-discovery/top-15-immuno-oncology-collaborations/)

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