"You can't completely blame Pfizer's executives, yet Roche's $7 billion acquisition of a bowel-disease treatment that Pfizer owned until last year isn't a great look.
In a deal that now feels like a biotech version of "Moneyball," Roivant announced it was selling an asset that only 11 months ago it got for free from Pfizer. (The Wall Street Journal had reported the talks back in July.) Big pharma companies focused on the drug industry equivalent of free agent signings will often overlook one of their own hot prospects.
Pfizer licensed the monoclonal antibody to Roivant last December with the idea that the biotech would shoulder the heavy costs of developing the drug, which targets a protein linked to inflammation called TL1A, while Pfizer would hold on to a 25% equity stake. The speed at which the drug went from Pfizer to Roivant and then to Roche stunned even Wall Street veterans long accustomed to seeing pharma pass on promising compounds. Pfizer certainly didn't anticipate one of its big pharma rivals swooping so quickly.
Barclays analyst Carter Gould had an awkward exchange with Pfizer management during its second quarter earnings call after the Journal reported the Roche talks: "You out-licensed your TL1A late last year. Your partner then turns around and sells it for quite substantially more . . . Were Pfizer shareholders well served by this course of events?"
In response, Pfizer Chief Business Innovation Officer Aamir Malik said that the deal was part of a research-and-development prioritization decision and that since Pfizer was keeping full rights to the drug outside Japan and the U.S. plus the 25% stake, the collaboration with Roivant would still give Pfizer upside without incremental R&D costs.
But in the end there were barely any additional costs for Roivant. As analyst Yaron Werber at TD Cowen notes, Roivant incurred $15 million in expenses and is getting more than $5 billion in cash.
Under the terms of the deal, the Swiss pharmaceutical giant will pay $7.1 billion up front for Telavant Holdings and make a near-term milestone payment of $150 million. Roivant gets to take the cash and use it for new investments.
In fairness to Pfizer, the treatment still isn't approved by the Food and Drug Administration and it remains to be seen what its true potential could be. But as soon as Pfizer let go of the therapy, TL1A-targeting drugs suddenly became the next hot thing.
Pfizer announced its deal with Roivant on Dec. 1, 2022. On Dec. 7, shares of Prometheus Biosciences, a rival biotech developing a similar drug, soared after studies testing its drug in ulcerative colitis and Crohn's disease were positive. Then in January, Roivant reported positive results from a midstage study in ulcerative colitis. By April, Merck agreed to pay an eye-popping $10.8 billion to buy Prometheus.
The high price tags reflect pharma's interest in drugs that work in autoimmune diseases as some of the biggest blockbusters in that category, AbbVie's Humira and Johnson & Johnson's Stelara, lose patent protection. The thing about such drugs is they often work for multiple indications, creating blockbuster potential for big pharma. In an interview with the Journal, Roche's pharma chief, Teresa Graham, said the drug's mechanism of action means it could have potential in dermatology, rheumatology and gynecology.
"This is a $15 billion market just in the U.S. and that's just in [inflammatory bowel disease]. This molecule clearly has megablockbuster potential," said Graham.
In making the decision to license its drug, Pfizer may have been suffering from immediacy bias. Pfizer in 2021 spent $6.7 billion to acquire Arena Pharmaceuticals, which gave it an oral pill for ulcerative colitis that would hit the market first. That drug was approved earlier this month and will be a more immediate moneymaker for Pfizer. David Risinger, an analyst at Leerink Partners, projects 2030 sales of $2.2 billion.
Pfizer is getting about $1.4 billion from this deal and would benefit from the drug's commercialization. But seeing a potential blockbuster slip away at a time when it is struggling to replenish diminishing Covid-19 revenue is a bitter pill for investors to swallow." [1]
In Lithuania, nothing is being done in biotechnology, only the biotechnological achievements once stolen from the Russians by Janulaitis are being exploited. So what about the frogs in the spring?
1. Pfizer Misses Out on a Biotech Home Run. Wainer, David. Wall Street Journal, Eastern edition; New York, N.Y.. 25 Oct 2023: B.14.
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