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ImmunityBio (IBRX) & Merck (MRK) frenemies in the making?

On July 28th 2022 ImmunityBio announced the US FDA acceptance of the Biologics License Application for N-803 in BCG-Unresponsive Non-Muscle-Invasive Bladder Cancer Carcinoma In Situ. This will be ImmunityBio's first drug that is commercialized. During the last months I saw the company hire a direct sales team for the US market, but have not found any information on their go-to-market for Europe or Asia. This made me curious and I started to research which companies could potentially be interesting for ImmunityBio to partner on marketing Anktiva in the EU and in Asia. My conclusion will surprise most readers, as the company I deem to have the highest probability of collaborating with ImmunityBio is also one of their biggest competitors -> Merck (MRK).


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The clinical-stage biotechnology company ImmunityBio, which is developing next-generation therapies and vaccines that bolster the natural immune system to defeat cancers and infectious diseases, has been covered in two of my articles so far. My first article from April 2021 offered a deep dive into the company, its founder Dr Patrick Soon-Shiong and my investment case for the stock. The second article gave an update and highlighted the disconnect between market price and intrinsic value (the disconnect has even increased since Oct 2021). In those articles I did not go into much detail about ImmunityBio's go-to-market strategy. On July 28th 2022 ImmunityBio announced the US FDA Acceptance of the Biologics License Application for N-803 in BCG-Unresponsive Non-Muscle-Invasive Bladder Cancer Carcinoma In Situ. This is a major milestone as "according to a 2021 report on clinical development success rates from 2011 through 2020, once a drug is accepted for a biologics license application review by the FDA, it has roughly a 90% chance of ultimate approval. The same report gave a 57.8% success rate for drugs to get from completion of Phase 3 clinical trials to acceptance of the drug application for review. That’s the step that ImmunityBio just cleared."


I think it is a good time to analyze what the go-to-market strategy (in terms of geographic regions) for ImmunityBio's cancer therapies could look like.


US Market


Judging from LinkedIn data and the type of job descriptions ImmunityBio posted during the last months, it is safe to assume that they are building a direct sales team for the US market. I have worked in B2B sales organizations as a strategic account executive for more than 10 years and have extensive experience with sales organisation structures. When a company enters the commercialization phase, first a C-level/VP level sales executive is hired, after that he/she hires sales leadership and they then hire the sales reps.


Eric Hieronymus joined the company in November 2021 as Vice President of Sales. From 2004 to 2008 Eric has worked for one of Dr. Patrick Soon-Shiong's companies, namely Abraxis BioScience.


Source: LinkedIn


In May 2022 he posted on LinkedIn "I’m excited to announce that I’m hiring our field sales leadership team!". At ImmunityBio this role is called "Area Business Director". Four of these openings are now filled. Jenn Stanton and Spencer Pyles both started in June 2022. Holly Patrick and Michael Scott started in July 2022. The directors are most likely hiring the sales reps for their specific teams as we speak.

Source: LinkedIn


All this hiring activity points to a company that is very confident in having something to sell in the coming months, especially since Anktiva (N-803) is not approved yet and ImmunityBio doesn't have other drugs that are approved. The FDA acceptance represents the first regulatory filing for N-803 and has a target PDUFA date of May 23rd 2023. You might wonder, why the company is already hiring a full sales team now. When building up a sales organization it is important to consider certain lead times until the team can be productive (i.e. sell). End of August 2022 until May 23rd 2023 is roughly a 9 months time period. Hiring and on boarding of sales reps takes time. Considering also that the sales reps have to get to know the oncologists in their territory and build up a pipeline of opportunities, clarifies that in these terms May 2023 is right around the corner. In addition, May 23rd 2023 is just a target date the FDA set, as N-803 was granted Breakthrough Therapy and Fast Track designation, there has likely been much collaboration between the company and the FDA before BLA submission & filing. FDA could approve faster, meaning the sales team has to be ready to be productive asap.


This is in line with a statement from Richard Adcock, ImmunityBio’s chief executive, who said in the announcement. “ImmunityBio is prepared to move rapidly to manufacturing and marketing should the agency approve our therapeutic for this indication.”


As clear as the go-to-market strategy is for the US market, there is no public information available on ImmunityBio's plans for the European and Asian market. However, there are no job descriptions for direct sales outside of the US. That is why I am speculating in this article about a possible partnership strategy for Europe and Asia.


Disclaimer: Remember that the following are just my thoughts and opinions. I don't have concrete information that any partnership will be closed.


There are of course many companies that could be potential partners for ImmunityBio. I will cover the ones where I see a certain probability. Note that I will not deep dive into every company listed below.

Potential partners per region


Europe


Fresenius SE & Co. KGaA


Fresenius is a global healthcare group offering high-quality products and services for dialysis, hospitals, and outpatient treatment. The Fresenius Group includes four independently operated business segments, each one active in a major growth area of healthcare. On July 7, 2008 closed a deal to sell one of his companies (APP Pharmaceuticals) to Fresenius. At that time APP was a leading hospital-based injectable pharmaceutical company, focusing on oncology, anti-infective, anesthetic/analgesic and critical care markets. The Company develops, produces and markets a comprehensive portfolio of over 100 hospital-based injectable products and operates three manufacturing facilities producing a comprehensive range of dosage formulations, including lyophilization. Dr. Patrick Soon-Shiong often referenced the work they have done at APP, when talking about his vision for the manufacturing capacity of ImmunityBio. The former APP business seems to be integrated into the business unit of Fresenius called Fresenius Kabi. Fresenius Kabi’s product portfolio comprises a comprehensive range of I.V. generic drugs, infusion therapies and clinical nutrition products as well as the devices for administering these products. In the field of biosimilars, Fresenius Kabi focuses on autoimmune diseases and oncology. The business group activities are supported by an integrated manufacturing, regulatory, sales, marketing and distribution set up. Their current pipeline shows multiple candidates in oncology.

Source: Fresenius Kabi


Apart from the connection Dr. Soon-Shiong has to the company, there are multiple other factors that could point to Fresenius becoming a potential partner for ImmunityBio.


  1. On Oct 1st, 2022 it was announced that current Fresenius Kabi CEO Michael Sen would be promoted to CEO of the whole Fresenius Group. As part of the announcement Wolfgang Kirsch, chairman of the supervisory board of Fresenius, described Sen as being well versed in the design and implementation of transformation and change processes. He also praised Sen's strategic skills, which Sen had demonstrated in the first year and a half as head of Fresenius Kabi with the development and successful implementation of 'Vision 2026'.

  2. Fresenius is in the middle of a major transformation process and their vision 2026 is spearheaded by Mr Sen. Appointing him to lead the whole group shows where Fresenius sees growth potential Vision 2026 was announced in 2021 by Fresenius Kabi as the framework to transform Fresenius Kabi for the next decade and defined a sustainable growth path. Focus was set on three growth vectors: broadening their biopharmaceutical offering; further introducing clinical nutrition products; expanding in MedTech. On 5/4/22 for example Fresenius Kabi announced completion of the acquisition of Ivenix, Inc., creating an industry-leading infusion therapies offering in the U.S.

  3. The Fresenius Group as a whole could also be a great fit for a partnership because its product portfolio comprises a comprehensive range of I.V. generic drugs, infusion therapies and clinical nutrition products as well as the devices for administering these products. In a recent interview Karim Chamie, associate professor of urology at UCLA and an investigator of ImmunityBio’s bladder cancer clinical trial, Chamie mentioned that ImmunityBio’s drug is only the third treatment to be developed for non-muscle-invasive bladder cancer carcinomas that don’t respond to a tuberculosis drug that is often applied to bladder cancer. One of the two other treatments is a chemotherapy medicine in the bladder, and the other is an immunotherapy injected into the patient’s veins. “This drug puts a unique medicine directly into the bladder via a catheter,” which has a higher success rate than the other two drugs, Chamie said."



Bristol Myers Squibb


Bristol-Myers Squibb Company (BMS) is an American multinational pharmaceutical company (with a big European presence) and one of the world's largest pharmaceutical companies. BMS manufactures prescription pharmaceuticals and biologics in several therapeutic areas, including cancer, HIV/AIDS, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis, and psychiatric disorders. In November 2019 BMS announced that it had completed its acquisition of Celgene Corporation. Celgene was an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation. Celgene is the entity that acquired Dr. Patrick Soon-Shiong's other company Abraxis BioScience in 2010 in order to accelerate Celgene's strategy to become a global leader in oncology. The plan was to leverage Celgene's clinical, regulatory and commercial capabilities to provide metastatic breast cancer patients with an innovative treatment in ABRAXANE. They were also researching the potential of ABRAXANE to treat additional solid tumor malignancies such as non-small cell lung and pancreatic cancer.


While I didn't research what happened in the following years, what is certain is that one of BMS blockbuster drugs Opdivo (2020 sales: $6.99 billion) will lose key patent protection in 2028. Opdivo was the first PD-1 inhibitor approved anywhere and only broke into the lucrative market for newly diagnosed metastatic non-small lung cancer last year.

To keep generating revenue with the asset, combination therapies and growth driven by some new indications could make sense. In order to leapfrog the long time needed for research & development, BMS could either acquire smaller biotechs or partner with ImmunityBio who is expecting approval of n-803 for bladder cancer in May 2023, but also has a rich pipeline of indications where n-803 is used as well, including pancreatic cancer (meeting with FDA planned to decide on approval pathway) and a Non-Small Cell Lung Cancer Checkpoint + Concurrent Chemo trial in phase 3.


While BMS recently announced the $4.1B acquisition of Turning Point Therapeutics, a clinical-stage precision oncology company, their pipeline is still in ph 1/2 and depending on the speed of ImmunityBio, it could make sense for BMS to negotiate some form of partnership with IBRX.


Companies without known Dr. Soon-Shiong connections that could be potential partners include Bayer, Roche and Novartis.


Cancer is one of the toughest indications to develop treatments for. I regularly read headlines like this one from Novartis "canakinumab fails another phase 3 study in lung cancer". Novartis medicine canakinumab did not meet the main goal of disease-free survival in a phase 3 trial in patients with a type of lung cancer. This clearly highlights how rare the success is that IBRX has had with its trials over the years and that big pharma is struggling to progress their oncology pipeline from the development through the approval stage. Companies like Novartis would greatly benefit from a partnership with ImmunityBio.


Asia


I am not as familiar with the Asian market as I am with the EU/US market. That is why I highlighted two of the bigger companies below that are known to be active in oncology research. There are of course many more companies across Asia that could potentially negotiate a partnership with ImmunityBio. Vietnam's biggest private company (Vin Group) for example has a biotech subsidiary (VinBioCare) that is building up local mRNA vaccine manufacturing capacity in Vietnam currently based on a technology transfer agreement with one of my other holdings Arcturus Therapeutics.


Eisai


Eisai is a leading global research and development-based pharmaceutical company headquartered in Japan, with approximately 10,000 employees worldwide. Their development focus is on innovative products in therapeutic areas with high unmet medical needs, including Oncology and Neurology. I see two factors that could make them an interesting entity for ImmunityBio to partner with.


  1. Similar to ImmunityBio Eisai puts a lot of effort into developing vaccines for neglected tropical diseases (NTD). Based on the human health care (hhc) philosophy, Eisai has positioned the elimination of NTDs as an important area of focus and aims to achieve social good in the form of reducing health disparities.

  2. Eisai and Merck entered into a strategic collaboration in 2018 for the worldwide co-development and co-commercialization of LENVIMA, an anti-cancer medication for the treatment of certain kinds of thyroid cancer and for other cancers. Under the agreement, the companies will jointly develop, manufacture and commercialize LENVIMA, both as monotherapy and in combination with KEYTRUDA. LENVIMA Plus KEYTRUDA is currently approved in Japan for two types of cancer. A big part of Eisai's oncology pipeline is focused on combination therapies with Keytruda. As it is unclear how an approval of Anktiva will impact Keytruda, could it make sense for Eisai to de-risk their assets by forming a collaboration agreement with ImmunityBio?


Source: https://www.eisai.com/ir/library/presentations/pdf/e4523_220805.pdf


Takeda Oncology


Takeda raised my interest because their approach to cancer research is very familiar to ImmunityBio's. Takeda describes their approach like this:


"Our pipeline focuses on novel strategies that leverage the power of the immune system, with a focus on innate immunity. By deepening our understanding of this area of the immune system and building on decades of progress in immuno-oncology research, we are striving to unlock the potential of new classes of immunotherapies.


The innate immune system serves as the body’s first defense mechanism against disease. It has the power to orchestrate a broad arsenal of cell types and mechanisms that may help to overcome the attempts of cancer cells to evade immune recognition.


In collaboration with a network of world-class partners, we are exploring opportunities to harness untapped mechanisms of the innate immune system with significant therapeutic potential."


In addition, Takeda shares ImmunityBio's philosophy of developing vaccines for NTD. As an example, Takeda’s QDENGA was recently approved in Indonesia.



As you can see from the above discussion, there are many legitimate reasons why ImmunityBio would partner with any of the above mentioned companies (or those not mentioned). One company I have not covered so far is Merck & Co. Merck's KEYTRUDA is one of the best selling drugs of all time and is a blockbuster drug for the company. The revenue for this drug was $17.2 billion in 2021. KEYTRUDA is currently the standard of care treatment for bladder cancer. First level thinkers would come to the fast conclusion that Merck would never partner with ImmunityBio. While studying ImmunityBio's latest 10-Q and some other relevant information, I was reminded of a concept which is seen in the IT/Software industry quite often, the frenemy.


Want to be my frenemy?


Based on my earlier comments, you already know that I have worked in B2B sales organizations for more than 10 years. I spent this time working in the cloud computing/software industry. Frenemies are quite common in that industry. Amazon Web Services (AWS) and Salesforce for example announced a partnership not too long ago that AWS says is the most comprehensive of all its joint initiatives. However, Salesforce is a multicloud player as evidenced by their product Hyperforce, which will enable its software to work with any cloud provider. "The partnership with AWS has a key goal: undermining Microsoft, a fierce and growing competitor to both Salesforce and AWS."

Even though partnerships among competitors are nothing new in the IT industry, the new development that was brought on by the cloud transition are the new integration capabilities between different enterprise software packages. These developments offer numerous advantages for end customers. Similarly, patients benefit from combination therapies, because "when drugs with different effects are combined, each drug can be used at its optimal dose, without intolerable side effects."


In some instances frenemies are also the biggest customers of each other (or at least one side is). Google's biggest competitor in mobile is of course Apple. However, "in 2020 the New York Times reported that Apple receives an estimated $8-12 billion per year in exchange for making Google the default search on its devices. This is believed to be the single biggest payment Google makes to anyone, and could account for up to a fifth of Apple's annual profits".


Why would ImmunityBio want to partner with Merck?


When studying ImmunityBio's reporting and documents, it becomes quite clear that collaborations are a key pillar of their strategy. I finally realized this when reading the below statement in their latest 10-Q, where they even named KEYTRUDA on page 42.


"We believe that our innovative approach to orchestrate and combine therapies for optimal immune system response will become a therapeutic foundation across multiple clinical indications. Additionally, we believe that data from multiple clinical trials indicates N-803 has broad potential to enhance the activity of therapeutic mAbs, including checkpoint inhibitors (e.g., Keytruda), across a wide range of tumor types. N-803 is currently being studied in 21 clinical trials (both ImmunityBio and investigator-sponsored) across 13 indications."


In my opinion, similar to the cloud companies that work on integrations with enterprise software packages (even those of competitors), to offer key benefits for the end customers, this points towards a potential collaboration with Merck and checkpoint inhibitors of other companies. Moreover, ImmunityBio's LungMAP trial is also a combination therapy with KEYTRUDA:

QUILT 2.023 – A Study of N-803 in Combination with Current Standard of Care vs. Standard of Care as First-Line Treatment for Patients with Stage 3 or 4 Non-Small Cell Lung Cancer (NSCLC): This is a Phase 3, open-label, 3-cohort, randomized study to compare the safety and effectiveness of N-803 (Anktiva) in combination with the current standard of care (experimental arms) versus standard of care alone (control arms), as first-line treatment for subjects with stage 3 or 4 advanced or metastatic NSCLC.


While I love the fact that Dr. Patrick Soon-Shiong has major skin in the game and owns roughly ~80% of IBRX's shares, the fact that a public company executive chairman owns this high of a percentage is quite uncommon and is seen as unfavorable by Wall Street. Having followed the IBRX stock since early 2021, I have to admit that Dr. Patrick Soon-Shiong's high ownership keeps the free float too tight, thus hinders trading activity, keeps liquidity low and kept strategic long term investors from buying a bigger stake in the company. Management likely knows all this, but wanted to wait until Anktiva is closer to commercialization, to reduce the insider ownership to a healthier level. Dr. Patrick Soon-Shiong could now sell down his stake, but still remain majority owner. This would allow strategic investment by a partner like Merck without Dr. Patrick Soon-Shiong loosing control of the company (which is important to him).


Last but not least, to make Anktiva's launch a success, ImmunityBio is somewhat dependent on Merck. The first immunotherapy, which Anktiva is now in the approval process for, represents a potential new option for bladder cancer patients who fail to respond to BCG. Merck is the only US producer of Bacille Calmette-Guérin (BCG). "Bacillus Calmette-Guérin (BCG) is a standard treatment option for non-muscle invasive bladder cancer. Last year, Merck & Co., the only maker and supplier of BCG to the United States, informed the AUA they were experiencing a global shortage of BCG due the growing use and need for this product around the world. While Merck has raised their production of BCG, they expect this shortage to continue". Either ImmunityBio finds a way to produce BCG in one of their many manufacturing facilities (I don't know if that is possible or if there are patents involved) or they have to find some solutions together with Merck.


What's in it for Merck?


While KEYTRUDA is a blockbuster, it's growth has been declining over the years from a 55% YoY growth rate to 20%.

  • KEYTRUDA 2019 Worldwide Sales Grew 55% to $11.1 Billion

  • KEYTRUDA' 2020 worldwide sales grew 30% to $14.4 billion

  • KEYTRUDA 2021 Sales Grew 20% to $17.2 Billion

While mean reversion is not uncommon in such situations and on an absolute level the sales are still very high, as a public traded company Merck has to show an increase in it's KPIs to keep shareholders happy. In addition, Merck’s patent exclusivity on KEYTRUDA expires in 2028 (which is tomorrow in pharma terms), plus the new CEO Rob Davis only took over from former chief executive Kenneth Frazier in July 2021. Being the new CEO at one of the biggest pharma companies in the world is already challenging, but taking over at a time where the company's only blockbuster drug's patent expiration is right around the corner, while the current pipeline doesn't offer similar blockbuster potential, is a major challenge. Davis will likely be under pressure to act fast, show he is the right person for the job and think about innovative approaches. A marketing deal with ImmunityBio would certainly be one innovative solution.


First, a sales agreement with ImmunityBio could be set up in multiple stages, starting with a strategic investment and a sales partnership for Anktiva in the EU market first, only for those patients who failed to respond to BCG. Later stages could include a widening of the collaboration & scope. That would happen at a time that is closer to when Merck’s patent exclusivity on KEYTRUDA expires in 2028.


Second, similarly to ImmunityBio Merck has made efforts to combine KEYTRUDA with other drugs to treat a long list of cancers, a process that can extend a medicine’s longevity. Merck has filed 129 patents linked to KEYTRUDA, which could extend the period of exclusivity to 2036 and beyond, according to research by the Initiative for Medicines”. This shows that Merck will likely have been scouting the market for the best drugs to combine KEYTRUDA with and Anktiva's trial results have been described as game changing by leading oncologists. It is in Merck's interest to collaborate with ImmunityBio.






Conclusion


In closing, while Fresenius and BMS might be obvious candidates for a partnership with ImmunityBio, based on the above analysis, I would place a higher probability on a partnership being closed with Merck. As laid out above, both businesses would greatly benefit from a collaboration, as would patients and shareholders.

I did not cover Pfizer as part of this article on purpose, because I doubt their partnership with BionTech will let them strike any deal with ImmunityBio. In addition, I doubt Dr. Patrick Soon-Shiong would like to work with Pfizer/BionTech, as he was very critical of their treatment of Africa during the height of the pandemic.



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Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research, before taking investment decisions. I am long IBRX. No payment or other incentives were received in exchange to write this article.


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