Why This Seattle Biotech Could be an M&A Target


With the recent tax reform bill cutting corporate tax rates and providing an even lower amnesty rate for off-shored funds, most investors are expecting a boom in mergers and acquisitions. Oliver Reiche, writing for Seeking Alpha, takes a look at a Seattle-based biotech company, Immune Design, and why he thinks it’s a leading takeover target for 2018.

Immune Design is a clinical-stage immunotherapy company. It focuses on oncology, although the company notes its approaches have broad potential across multiple areas. Its lead product candidates are CMB305 and G100. CMB305 is in Phase II clinical trials and is targeting soft tissue sarcoma and other NY-ESO-1 tumors. G100 is also in Phase II, and leverages endogenous and neo-antigens follicular non-Hodgkin’s lymphoma.

The company also has LA51, in preclinical development for various cancers, and has a pipeline of vaccines for RSV, peanut allergy and HSV-2.

On Dec. 10, 2017, the company reported data from its Phase II trial of G100 plus low-dose radiation with or without Keytruda, Merck's anti-PD-1 therapy, in follicular non-Hodgkin’s lymphoma. The G100 monotherapy and Keytruda combination showed a 39 percent objective response (ORR) rate with a 57 percent ORR in patients who expressed a potential predictive biomarker. The data was presented at the American Society of Hematology Annual meeting.

“We have been developing two immuno-oncology platforms in parallel: an intratumoral immunization approach with G100 as the lead therapeutic candidate, and novel cancer vaccines from the Dendritic cell-targeting RNA vector platform, ZVex,” said Carlos Paya, president and chief executive officer of Immune Design, in a statement. “We believe these data presented at ASH confirm that G100 is an active and safe agent that results in systemic tumor responses, which are further enhanced in combination with Keytruda. In light of the fact that some inhibitors of the anti-PD-1 class are viewed to have limited activity in this type of hematological malignancy, these positive data support further investigation of the potential synergy of G100 with ananti-PD-1/L1 agents and the use of TLR4 expression as a potential predictive biomarker.”

Reiche writes, “Driven by a very bullish market environment in 2014, the company sold shares into a bubble and its share price began to crash, especially in the weeks after its lock-up periods ended. During the bearish market phase, the company conducted its first post-IPO offering in April 2015, followed by a second post-IPO offering in September 2016, all of them mainly being used to fund clinical development of its Antigen Specific and Antigen Agnostic approaches, including among other things GMB305, G100 and its working capital. Because of this, its share price plummeted by more than 84 percent from an all-time high at $36.19 in December 2014 to the lowest at $5.50 in December 2016.”

The company’s financial earnings reports suggest it has less than two years of cash, which partially explains a third post-IPO offering of 19.5 million shares in October 2017. The net proceeds of about $90 million are planned to fund a Phase III for CMB305 in synovial sarcoma, continued development of CA21, working capital and general corporate activities.

Reiche writes, “To me this product pipeline and its entire timeline are looking very solid, especially with the most recent cash situation and, for instance, its latest data update from its randomized Phase II trial of its investigational intratumoral TLR4 agonist G100. Assuming, however, that the operating expenses will increase in the next quarters and the company will keep on having operating loss, management might initiate another offering in the second half of 2019, if all of its cash will be burnt again.”

He argues that Immune Design is an attractive takeover target because of the corporate tax breaks and the company’s solid pipeline. “Big pharma companies could start buying out smaller but listed biotech companies in the U.S. with a strong product pipeline, a solid management, an adequate cash position and a positive working capital instead of paying higher dividends or performing share buyback programs. That’s why I believe that Immune Design could be an attractive target for big pharma companies in 2018 with its low market capitalization of $180.2 million based on the last price ($3.75) from Wednesday, January 17, 2018.”

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