On July 8th local time, 21st Century Business Herald reporter Han Liming (NYSE: LLY) announced that it will acquire all outstanding shares of Morphic (totaling approximately $3.2 billion) for $57 per share in cash, in order to obtain empirical therapies for treating inflammatory bowel disease (IBD) and other chronic diseases, and expand its immunological pipeline. The transaction is expected to be completed in the third quarter of 2024.
In the first half of this year, MNC (multinational pharmaceutical company), standing on the edge of the patent cliff, continued to search for high-quality assets in the market to fill the sales gap. According to preliminary statistics from 21st Century Business Herald, there were 34 mergers and acquisitions in the global pharmaceutical market, with a total amount exceeding 61.9 billion US dollars. In the current wave of mergers and acquisitions, following the multiple acquisition agreements announced by Lilly in the second half of last year, according to public information, the above transaction is the first acquisition agreement disclosed by Lilly this year.
IBD has always been known as "green cancer" and is a non-specific chronic intestinal inflammation of unknown etiology, including the two main types of ulcerative colitis (UC) and Crohn's disease (CD). Common symptoms include severe abdominal pain, diarrhea, malnutrition, etc.
According to a research report by Huachuang Securities, IBD affects approximately 6-8 million people worldwide, with limited treatment options and still room for improvement. Currently, only 10% -15% of patients have improved their condition, and in severe cases, patients may have their colon removed. In response to unmet clinical needs, many MNCs have also bet on this track through mergers and acquisitions, racing to develop innovative therapies.
"Taking Lilly as an example, it has made multiple acquisitions of Biotech since last year, seizing the special opportunities of the market's cold winter period, underestimating the value and diluting risks through multiple targets, which is also a common operation of MNC in recent years." A securities analyst told 21st Century Business Herald, "Although eggs are placed in different baskets, how to form industry synergy after mergers and acquisitions, and ultimately achieve effective conversion of results and positive growth of profits, is still a key issue."
Competing in the IBD Billion Dollar Market
As the target of Lilly's acquisition, Morphic is mainly researching the drug MORF-057, which is an oral small molecule alpha 4 β 7 integrin inhibitor used to treat moderate to severe ulcerative colitis. The molecule is currently undergoing two phase 2 studies for the treatment of ulcerative colitis and one phase 2 study for the treatment of Crohn's disease.
According to Morphic's official website, in the Phase 2a clinical study of EMERALD-1, MORF-057 showed a significant decrease of 6.4 points (p=0.002) in the Roberts Pathology Index (RHI) score of UC patients compared to baseline at week 12, and a clinical remission rate of 26% measured by the modified Mayo Clinic Score (mMCS). The EMERALD-2 Global Phase 2b, launched in November 2022, is expected to release its results in the first half of 2025.
Public information shows that the recurrence rate of IBD is extremely high, with 80% of patients experiencing chronic recurrence, and 20% to 30% of patients having to undergo surgical treatment to remove part of their intestines after multiple relapses; And the course of the disease will continue to worsen, with the vast majority of patients initially presenting with simple transmural inflammation. However, within 10 years after diagnosis, over 70% of patients will experience complications such as stenosis or perforation.
The population of IBD patients is huge and still has a huge unmet clinical demand, and there is an urgent need to develop effective treatment methods to address this global health issue. Since last year, many MNCs have entered this field through massive acquisitions or authorized collaborations.
In April 2023, MSD invested $10.8 billion to acquire Prometheus Biosciences, acquiring its research and development pipeline for treating UC, CD, and other autoimmune diseases; In October of the same year, Roche announced the acquisition of Telavant for a down payment of $7.1 billion and a recent milestone payment of $150 million, in order to acquire the research and development, production, and commercialization rights of TL1A antibody RVT-3101 in the United States and Japan. Roche stated in a press release that it will launch Phase 3 clinical trials of the product as soon as possible.
In the same month, Sanofi reached a collaborative agreement with Teva for the joint development of TL1A monoclonal antibody TEV-574, which is currently in phase 2b clinical trials, for a total amount exceeding $1.5 billion. In 2024, Mingji Biotechnology announced in June that it would grant global rights to the preclinical TL1A antibody FG-M701 to Abbey, with a potential cooperation amount of over 1.7 billion US dollars.
TL1A, a star target associated with various intestinal inflammations and fibrosis diseases, is associated with heavyweight trading every time it appears. Southwest Securities released a research report in July last year showing that there are a total of 5 TL1A target drugs in clinical stage worldwide, including 2 in Phase II clinical trials and 3 in Phase I clinical trials. There is one TL1A target drug in clinical stage in China, and one Phase II clinical drug.
According to Evaluate Pharma's prediction, the global market size of self administered drugs will reach $140 billion in 2028, with the IBD drug market size reaching $28 billion, accounting for 20% of the market share.
According to the financial report data disclosed by MNC, among the approved drugs for IBD indications, Takeda Entyvio achieved sales of 80.9 billion yen (approximately 4.977 billion US dollars) in the fiscal year 2023 (April 2023 March 2024), a year-on-year increase of 13.97%; Humira's sales revenue in 2023 was 14.404 billion US dollars; During the same period, Johnson&Johnson Stelara's annual sales revenue reached 10.858 billion US dollars.
Last October, the US FDA approved Omvoh produced by Eli Lilly for the treatment of moderate to severe UC in adults. This is also the first interleukin-23 (IL-23) p19 antagonist that can bind to the p19 subunit of IL-23, thereby blocking IL-23 mediated inflammatory response.
Significantly expand the number of pipelines
According to a research report by Shenwan Hongyuan, in the United States, a large number of patents for small molecule drugs and biological products will expire and lose their market monopoly rights. Among them, the expiration of small molecule drug monopoly rights will reach its first peak in 2024, while biological products are mainly concentrated from 2026 to 2028. It is not difficult to see from MNC's competition in the IBD market that seeking a second growth curve and the next profit point has become the top priority for MNC.
"The product pipeline is the lifeline for the development of pharmaceutical companies. Currently, many Biotech valuations are still at the bottom. MNC, which has sufficient cash flow, has sufficient motivation to acquire cheaper Biotech in the market or obtain product lines with long-term value through BD, which can also alleviate the impact of patent expiration in the short term." In the view of the securities analysts mentioned above, acquisitions between pharmaceutical companies also focus more on their core treatment related product lines.
Focusing on Lilly, although the acquisition of Morphic is Lilly's first acquisition this year, in the second half of last year, Lilly significantly accelerated its acquisition and expansion path, significantly expanding its pipeline quantity in different disease fields.
Last June, Lilly spent approximately $2.4 billion to acquire Dice Therapeutics, in order to acquire the target company's proprietary DELSCAPE technology platform and develop innovative oral small molecule drugs that can affect protein-protein interactions (PPI). Its oral IL-17 inhibitors are used to treat immunological chronic diseases such as psoriasis. In the same month, Lilly again invested 300 million dollars to acquire Sigilon, which is committed to developing functional healing therapies for a wide range of acute and chronic diseases, including the encapsulated cell therapy for type 1 diabetes developed in cooperation with Lilly.
In July 2023, Lilly acquired Vasanis Bio, a new cardiovascular metabolic disease drug company, for over 1.9 billion US dollars, securing its potential first in class activin type 2 receptor (ActRII) targeted monoclonal antibody biomagrumab as its flagship project; In August, Lilly completed the acquisition of Emerging Therapeutics, a development company for Nectin-4 ADC, with a transaction amount of approximately $470 million.
In October of the same year, Eli Lilly once again announced the acquisition of cancer biotechnology company Point Biopharma for $1.4 billion in cash to acquire a prostate specific membrane antigen (PSMA) targeted radioligand therapy and a radioligand therapy targeting somatostatin receptors (SSTR); In the same month, Lilly once again reached an acquisition agreement with Mablink Bioscience, acquiring the latter's ADC products and technology platform under research.
Compared to Pfizer's massive acquisition of ADC biotechnology company Seagen for $43 billion last year, only Dice Therapeutics had a merger amount exceeding $2 billion among the publicly traded acquisition targets, with overall transactions mostly maintained at around $500 million to $2 billion.
Dr. Dan Skovronsky, Chief Scientific and Medical Officer of Lilly, once explained in a media interview, "Large scale transactions are not a particularly effective way to increase shareholder value. Sometimes, companies choose to engage in large scale transactions when their product pipeline is relatively weak. Lilly is not trying to fill specific revenue gaps or change the company's appearance."
"The transactions completed by Lilly are closely aligned with Lilly's areas of interest, strengths, and expertise. Lilly is particularly focused on targets that have not been explored internally, or targets that are more advanced than its existing therapies, or targets determined by Lilly through different treatment methods. When Lilly has enough confidence in a target, the company is willing to try from multiple directions, some of which may come from transactions with other companies." Dr. Dan Skovronsky added.
According to the 2023 financial report data disclosed by Lilly, key varieties Trulicity, Mounjaro, Verzenio, Taltz and Jardiance contributed 63.48% of Lilly's sales, mainly focusing on diabetes drugs. Through the aforementioned acquisition, in addition to further consolidating its metabolism and self immunity fields, Lilly is also willing to invest heavily in the next generation of cutting-edge therapies in the field of cancer. It remains to be observed when these transactions can contribute revenue to Lilly.