Why Amgen Needs an Acquisition to Keep Up with Immuno-Oncology Competitors

July 10, 2017
By Mark Terry, BioSpace.com Breaking News Staff

At least one analyst thinks that Thousand Oaks, Calif.-based Amgen is picking the wrong strategy in the immuno-oncology market. Amgen appears to be going all-in on its own programs without buying its own PD-1 inhibitor. Barron’s takes a look at the potential problem.

There are typically two components to immuno-oncology therapies. PD-1 or PD-L1 are proteins called checkpoint proteins. Many cancers cells have large amounts of PD-L1 on their surfaces, which essentially turns off T-cells, allowing them to hide from the body’s immune system. So a checkpoint inhibitor, a PD-1 or PD-L1 inhibitor, turns that capability off, preventing cancer cells from hiding.

The other component of immuno-oncology is generally some form of stimulus of the T-cells. That often involves engineering or otherwise directing T-cells toward cancer cells and stimulating them to attack. In combination, they act somewhat like simultaneously taking the foot off the brake while hitting the gas pedal.

Amgen is focusing on the stimulus part of the equation. Other companies competing in the space are often investing in both parts of the equation, acquiring or developing checkpoint inhibitors while also developing or buying therapeutics that stimulate the immune system.

For example, on July 5, Celgene inked a deal with China’s BeiGene (BGNE) for its PD-1 inhibitor BGB-A317. That deal included $263 million upfront as a licensing fee, $150 million for an equity stake in BeiGene, and $980 million in potential milestone payments. That’s a total of $1.4 billion.

Aaron Gal, an analyst with Bernstein, wrote in a note to investors, “The decision by Celgene (and others) appears to reflect, in our view, expectation that differentiation between the PD(L)1 will be modest and success will be primarily determined by the agents combined with the PD(L)1. Thus, for companies who have decided to invest heavily in the I/O space like Celgene, Regeneron Pharmaceuticals (and others), it makes more sense to own both components of a combination rather than give much of the value away to the PD(L)1 owner.”

Amgen, however, appears to be going the exact opposite direction, eschewing checkpoints inhibitors. Other companies besides Celgene and Regeneron that are getting in on both ends of the equation include Bristol-Myers Squibb and Merck .

Gal writes, “Amgen adopted an alternative view, which is that it can compete effectively by accessing PD(L)1 through partnerships, combining them with its own agents. The question is, can it be done in a world where most of the other companies own both a PD(L)1 and the combination asset? Our take is that it will be increasingly more difficult.”

Gal continues, “Unless Amgen’s assets are truly unique, the owners of the various PD(L)1 will prioritize assets they own/license tightly, disadvantaging Amgen’s programs. Our take is that Amgen is increasingly likely to buy or tightly partner with a PD(L)1 or accept becoming a more marginal player in the I/O field.”

Of course, it’s possible that Amgen is looking for a deal. Back in February, the company’s chief executive officer, Bob Bradway, noted that with $40 billion in cash, Amgen has plenty of flexibility when considering mergers and acquisitions. Amgen had previously had a $10 billion deal cap, but indicated that had been lifted.

“But we feel like we’re in a place now where we can look externally for large and small opportunities to help grow the business,” Bradway said in a quarterly meeting with analysts in February. “So I think the message is, we’re confident in the outlook for our company. We’re confident in the importance of innovation. And we’ve got a balance sheet that supports our ability to look at transactions large and small.”

So far Amgen hasn’t done much with its cash, but maybe it’s keeping an eye out for a checkpoint inhibitor of its very own.