This up-and-coming cancer treatment could be a $25 billion market opportunity — it's already a hotbed for M&A

23/05/2024

Targeted radiopharmaceuticals has caught the eye of big pharma.
The therapy delivers radiation directly into tumors by attaching a radioactive particle to a targeting molecule.
RBC Capital Markets sees a $25 billion market opportunity for the space.

Big pharma is betting billions on an up-and-coming class of cancer treatments that some on Wall Street are calling a "massive opportunity."

It's called targeted radiopharmaceuticals. The therapy essentially delivers radiation directly into tumors by attaching a radioactive particle to a targeting molecule.

RBC Capital Markets sees a $25 billion market opportunity for the space.

"We believe TRT development is still in its early stages, and next-generation technologies that enable improvements in therapeutic potency and address a wider range of cancer targets have the potential to drive value creation in the space," analyst Gregory Renza, M.D., wrote in a February note.

Four acquisitions in the space were announced in just the last several months. The latest was by Novartis, which already has two targeted radiotherapies on the market. Pluvicto treats a certain type of advanced prostate cancer, while Lutathera targets neuroendocrine tumors.

Pluvicto, which faced some now-resolved supply constraints last year, is nearing blockbuster status, bringing in $980 million in sales in 2023. By 2028, the two drugs combined are expected to generate $5 billion in revenue, Renza said.

A market leader with 'an aggressive strategy'

Earlier this month, Novartis said it entered into an agreement to acquire Mariana Oncology for $1 billion. The preclinical-stage company is focused on developing radiopharmacutical programs, also known as radioligand therapies, that treat breast, prostate and lung cancers. One candidate, known as MC-339, is being researched for small cell lung cancer.

"They're clearly the market leader in this space with an aggressive strategy, both successfully commercializing their products, expanding the market opportunities for those products, and having a pipeline behind that," said Oppenheimer analyst Jeff Jones. "Acquiring Mariana ... gives them even greater discovery capabilities."

Shares are up about 1% year to date. The average analyst rating is hold, with 8% upside to the average analyst price target, according to FactSet.

Novartis' success has lit a fire under its competitors. Piper Sandler analyst Edward Tenthoff characterizes it as "FOMO," or the fear of missing out.

"I think that's what's happening and big pharma is accumulating capabilities in this new modality," he said.

Eli Lilly, which has benefited from the excitement in the GLP-1 space with its diabetes drug Mounjaro and weight-loss treatment Zepbound, completed its $1.4 billion acquisition of radiopharmaceutical company Point Biopharma in December.

Just before the deal closed, Point Biopharma's targeted radiation drug, known as PNT2002, met its primary endpoint in a phase three trial for metastatic castration-resistant prostate cancer.

In addition, earlier this week Eli Lilly announced it will pay Aktis Oncology $60 million to use its novel miniprotein technology platform to generate anticancer radiopharmaceuticals.

Eli Lilly has an average analyst rating of overweight and 8.3% upside to the average analyst price target, per FactSet. Shares have already run up nearly 38% so far this year.

"Obviously, investors are very focused on obesity right now, I believe, but we think with their acquisition, they have opportunities certainly on the supply side, which is one of the challenges facing radiopharma companies," said investor Dan Lyons, a portfolio manager and research analyst at Janus Henderson Investors.

Bristol-Myers Squibb has also joined the fray, completing its $4.1 billion acquisition of RayzeBio in February. The company now has RazyeBio's pipeline, including its late-stage targeted radiopharma therapy, RYZ101, for gastroenteropancreatic neuroendocrine tumors. It is also in a phase one trial for small cell lung cancer.

The deal's announcement in December came shortly after Bristol-Myers Squibb said it would spend $14 billion to buyout schizophrenia drug developer Karuna Therapeutics. At the time, William Blair analyst Matt Phipps said the deals show Bristol's urgency to bring in more products since some of its older therapies are set to lose their patent protections later this decade.

Shares of the big pharma company have been on a losing streak, down more than 18% year to date. It has an average analyst rating of hold, per FactSet.

Lastly, in March, AstraZeneca announced plans to purchase clinical-stage biopharmaceutical company Fusion Pharmaceuticals for $2.4 billion. Fusion currently has a phase two clinical trial underway for a potential new treatment, called FPI-2265, for patients with metastatic castration-resistant prostate cancer.

AstraZeneca shares have an average analyst rating of overweight and nearly 6% upside to the average analyst price target, per FactSet.

"All these companies had manufacturing presence, more or less, built out or are in the process of building out and becoming operational very soon on a commercial scale," said Jefferies analyst Andrew Tsai. "They've got that locked down and I think that's, in part, what big pharma wanted."

There are also some smaller publicly-traded biopharma companies still standing, although not many.

In addition, there are several private companies in the space that have have been attracting private investors, especially of late. Innovative radiopharmaceutical drugs nabbed in $518 million in venture financing last year, a whopping 722% increase from the $63 million they received in 2017, according to GlobalData's Pharma Intelligence Center Deals Database.

Both those public and private names could be ripe for an acquisition at some point, said Janus Henderson's Lyons.

"There are several large pharma companies that don't yet have radiopharma programs that may be interested in this space," he said. "In addition, I think some of the players that already have programs will be interested in finding additional targets and pipeline programs to augment their portfolio."

'Massive opportunity'

Everyone, including big pharma, is working on either improving on existing treatments or looking to expand into attacking different cancer tumors.

Novartis, for instance, got FDA approval in April for Lutathera for pediatric patients. It also said last month that it will file for a label expansion for Pluvicto in earlier treatment of prostate cancer.

"There's a clear path and strategy by Novartis to expand the market opportunity for those two products," Jones said.

Then there are companies that are developing therapies against those same targets. Some, like Bristol's RayzeBio, are turning to using an alpha emitter like actinium instead of the beta emitter lutetium used by Pluvicto and Lutathera.

"These alpha [emitters] have a much stronger punch and are very localized, literally, to a cell length," said Piper Sandler's Tenthoff.

Radiopharmaceuticals are also being looked at to use in conjunction with other treatments, such as immunotherapy.

Depending on the outcome of current and future clinical trials, the therapy could also eventually be used to treat any cancers like ovarian, breast or brain, he said.

"Anywhere where radiation therapy is used, but not necessarily in a targeted approach, makes a lot of sense because these are radiosensitive tumors," Tenthoff said.

Companies can also turn the decades of research they've already done in the field to identify new opportunities, Jones said.

"You can really leverage all the work we've done in cancer over the last 30 to 40 years to identify targets on cancer cells that are not expressed, or much more highly expressed on cancer cells versus normal cells —and really, any of those are an opportunity for targeted radiotherapy," he said.

"I see the massive opportunity for targeted radiotherapies," he added. "We have two products today, two targets and you have essentially the entire universe of cancer research and cancer targeting."