Monoclonal antibodies could boost your portfolio.
Holders of antibody supplier Abcam (LSE: ABC) would have seen stellar share price gains in recent years. Abcam has benefited from the strong growth of research and development in antibody therapy. So I decided to take a closer look at the industry.
Monoclonal antibody drug sales
Monoclonal antibodies (mAb) are the fastest growing segment within biotech/pharma research. Industry forecasts see global antibody sales rising from $40bn in 2009 to $58bn in 2014.
In 2010, consensus forecasts have mAbs as making up four of the top ten selling blockbusters, and this is set to increase to five by 2014. Furthermore, four of the top six will be mAbs.
Consensus sales forecasts for world top 10 drugs in 2014 are listed below. Those based on monoclonal antibodies are marked with a *.
|Avastin (cancer) *||Roche||8.9|
|Humira (arthritis) *||Abbott||8.5|
|Enbrel (arthritis) ||Pfizer/Amgen||8.0|
|Crestor (cholesterol) ||AstraZeneca||7.7|
|Remicade (arthritis) *||Merck/J&J||7.6|
|Rituxan (cancer) *||Roche||7.4|
|Lantus (diabetes) ||Sanofi-Aventis||7.1|
|Herceptin (cancer) *||Roche||6.4|
|NovoLog (diabetes)||Novo Nordisk||5.7|
So what are mAbs and why are they so attractive?
Well, they are proteins that bind to target cells in a highly specified manner. This binding then guides the patient's immune system towards attacking the target cells. They are attractive as they are likely to be well tolerated by the body. They should also have few side effects, because antibodies are part of the body's natural defence system.
mAbs are usually made by immunising a mouse. The resulting antibodies produced in the mouse's spleen are then fused with human cells and then grown in the lab. mAbs can then be extracted.
However, there are complications. Many mouse mAbs cannot interact with the human immune system and the mouse proteins can cause allergic reactions for some people. Therefore, the industry evolution is towards engineering the mouse protein sequences out of the antibodies, or alternatively creating antibodies (from mice) with 100% human proteins.
I briefly mention some of the science, in order to provide some background on different ways to play a sector which has been M&A crazy over the last few years.
A spot of M&A madness?
Most large pharmaceutical firms are faced with patent expiries, increasing costs, stronger regulation, increased approval times and downward pressure on pricing. The reaction has been to buy into drug pipelines and technologies in high growth areas like mAbs.
In 2007, AstraZeneca (LSE: AZN) bought mAb-developer MedImmune for $15bn and merged it with Cambridge Antibody Technology, which it had bought in 2006 for £0.7bn. CAT provides the screening platform for antibody discovery and then MedImmune develops them. Similarly, Amgen bought antibody discoverer Abgenix for $2.2bn.
However, the buying of antibody discoverers didn't stop there. Bristol Myers Squibb bought Medarex for $2.4bn in 2009 and, in a recent deal, Abbot Labs bought mAbs developer Facet Biotech for $450m.
As the drug list above indicates, Roche is the industry leader. This is mainly due to Roche buying out the remaining 44% (that it didn't own) of Genentech for $46.8bn in 2009.
I think this trend will continue.
Biotech investing is not for the faint hearted, so it is best to spread risk via multiple holdings.
Micromet is German, but has a NASDAQ listing. It has a novel antibody technology which double binds the target cell and T cells, which are powerful disease killers. It is 'punty' and for the word 'novel' read unproven, but the upside could be considerable if it demonstrates clinical success.
Morphosys is a Munich based 'fully human' antibody discoverer which, in common with Cambridge Antibody Technology, has a screening platform (HuCal) that doesn't require animal immunization. It licenses out its HuCal technology in partnered programs whilst also running its own proprietary development. Another division delivers antibodies to the research and diagnostics industry. It is profitable and has plenty of upside with its own programs. A potential acquirer could be Novartis, who signed a bid deal with the company in 2007.
Galapagos is a fast-growing Belgian company specialised in the discovery and early development of small molecule and antibody therapies with novel modes-of-action. Its business model is to generate revenue and cash flow via servicing larger alliance partners with target discovery and pre-clinical candidates. In addition, it has a partnered and proprietary programme.
In the UK, GlaxoSmithKline (LSE: GSK) is seen as a potential acquirer of Denmark's Genmab. Abcam is an obvious play and is due to report full-year results this week, while AstraZeneca, despite a recent setback with motavizumab, is well positioned via the purchases mentioned above.
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