Last week, Seattle Genetics (SGEN +0.00%) announced an agreement to license Immunomedics' (IMMU +0.00%) IMMU-132, a cancer drug that's already completed midstage phase 2 trials.
The deal could be a big win for Seattle Genetics, but it doesn't have the full support of all of Immunomedics investors. After the closing market bell on Friday, venBio Select Advisors, LLC -- the beneficial owner of 9.9% of Immunomedics shares -- said Immunomedics' board of directors is "giving away its crown jewel."
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What's at stake?
If the deal closes, Seattle Genetics will take over development of IMMU-132, an anti-TROP-2 antibody that can target multiple tumor types. Breast cancer, lung cancer, and colorectal cancers all overexpress the TROP-2 protein and therefore could conceivably be treated by IMMU-132.
In phase 2 trials of IMMU-132 in triple negative breast cancer, there was a 29% overall objective response rate in heavily pretreated patients. Historically, the duration of response in fifth-line triple negative breast cancer patients is measured in months, but IMMU-132 delivered a 10-month duration of response and a median overall survival rate of over 18 months.
About 15% of breast cancer patients are triple negative, and patients with this type of breast cancer have a poor prognosis. According to the National Cancer Institute, 246,660 new cases of breast cancer are diagnosed annually, causing 40,450 deaths every year.
There's a big need for new treatments, and that has Seattle Genetics thinking IMMU-132 could qualify for an accelerated FDA approval. If so, then IMMU-132 will become Seattle Genetics' second commercial-stage drug. Management didn't offer up a timeline for filing a new drug application with the FDA; however, it did say it's going to evaluate its options and update investors on a future conference call. Last fall, Immunomedics told investors it hoped to file for FDA accelerated approval in the middle of 2017.
Digging into the details
Seattle Genetics will pay Immunomedics $250 million in cash up front, plus an additional $50 million payment related to ex-U.S., Canada, and EU rights. If it wins an FDA green light, Immunomedics has an option to co-market IMMU-132 in America. Otherwise, Seattle Genetics will pay Immunomedics a tiered double-digit royalty that's based on sales.
Seattle Genetics also agreed to pay Immunomedics up to $1.7 billion in regulatory and sales milestone payments on IMMU-132, and Seattle Genetics agreed to let Immunomedics continue negotiating with other companies on rights to IMMU-132 until Feb. 19. If a competing offer is made, Seattle Genetics can match it. If Immunomedics selects a competing offer, then it will pay Seattle Genetics a breakup fee.
Separately, Seattle Genetics acquired 3 million shares of Immunomedics at $4.90 per share that aren't tied to the closing of this deal. Seattle Genetics also secured three-year warrants that allow it to acquire an additional 8,655,804 shares at $4.90 each.
Uncertainty remains
Seattle Genetics already markets the lymphoma drug Adcetris, which is FDA approved for treating Hodgkin lymphoma patients whose disease has progressed after autologous stem-cell transplant or after two prior chemotherapy treatments, if ineligible for transplant. Adcetris is also used to treat patients with systemic anaplastic large-cell lymphoma whose disease has progressed after one prior chemotherapy treatment. A trial evaluating Adcetris as a front-line Hodgkin lymphoma therapy is anticipated to read out data this year.
With $265.8 million in sales last year, Adcetris is no slouch, but IMMU-132 has the potential to haul in far more in revenue than that. Immunomedics commissioned an independent analysis of IMMU-132's market potential last year, and that study estimates that IMMU-132 could generate annual sales of $3 billion in 2025, if it gets approved for use in triple negative breast cancer, urothelial cancer, and lung cancer.
That's a big opportunity, but there's no guarantee that IMMU-132 will get an early OK from the FDA, and if it doesn't, then Seattle Genetics will have to conduct a confirmatory phase 3 study. While midstage trial results were solid, investors should remember that, historically, 30% to 40% of drugs that advance into phase 3 trials fail.
Of course, for Seattle Genetics to benefit from IMMU-132 at all, this deal has to close, and based on venBio's comments, that might not be a given. Immunomedics is engaged in a proxy fight with venBio, and in its statement on Friday, venBio's Behzad Aghazadeh said, "Immunomedics' announcement of a deal with Seattle Genetics is a blatant and shameful maneuver by the current board and management to manipulate the outcome of the upcoming annual meeting and entrench themselves at the expense of stockholders' best interests, and venBio is exploring all options to hold them accountable."
