This up-and-coming cancer treatment could be a $25 billion market opportunity

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Big pharmaceutical companies are betting billions on a new class of cancer treatments that some on Wall Street are calling a “huge opportunity.”

This method is called targeted radiopharmacology. It essentially delivers radiation directly into tumors by binding a radioactive particle to a target molecule.

RBC Capital Markets sees a market potential of 25 billion US dollars for this area.

“We believe that TRT development is still in its infancy and that next-generation technologies that enable improved therapeutic efficacy and address a broader range of cancer targets have the potential to drive value creation in this space,” analyst Gregory Renza, MD, wrote in a February note.

In the last few months alone, four takeovers have been announced in this area. The last one was by Novartis, The company already has two targeted radiotherapies on the market. Pluvicto treats a specific type of advanced prostate cancer, while Lutathera targets neuroendocrine tumors.

Pluvicto, which struggled with some supply bottlenecks in 2023 that have since been resolved, is approaching blockbuster status and will generate sales of $980 million in 2023. The two drugs combined are expected to generate sales of $5 billion by 2028, Renza said.

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Novartis’ performance in the first year

A market leader with an “aggressive strategy”

Earlier this month, Novartis announced it had signed an agreement to acquire Mariana Oncology for $1 billion. The company, which is in the preclinical stage, focuses on developing radiopharmaceutical programs, also called radioligand therapies, to treat breast, prostate and lung cancer. One candidate, known as MC-339, is being studied for the treatment of small cell lung cancer.

“They are clearly the market leader in this space with an aggressive strategy that includes both successfully commercializing their products, expanding the market opportunity for those products and developing a pipeline behind them,” said Oppenheimer analyst Jeff Jones. “The acquisition of Mariana … gives them even greater discovery opportunities.”

Shares are up about 1% year-to-date. The average analyst rating is “Hold,” with an 8% upside from the average analyst price target, according to FactSet.

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Novartis' success has caused turmoil among its competitors. Piper Sandler analyst Edward Tenthoff calls this “FOMO” – the fear of missing out.

“I think that's what's happening right now, and the big pharma companies are gathering capacity in this new modality,” he said.

Eli Lillywhich has capitalized on the excitement in the GLP-1 space with its diabetes drug Mounjaro and weight-loss drug Zepbound, completed its $1.4 billion acquisition of radiopharmaceutical company Point Biopharma in December.

Shortly before the transaction closed, Point Biopharma's targeted radiation drug PNT2002 met its primary endpoint in a Phase 3 study in metastatic castration-resistant prostate cancer.

In addition, Eli Lilly announced earlier this week that the company would pay $60 million to Aktis Oncology to use its novel mini-protein technology platform to produce radiopharmaceuticals to fight cancer.

Eli Lilly has an average analyst rating of “Overweight” and an upside of 8.3% from the average analyst price target, according to FactSet. Shares are already up nearly 38% through 2024.

“I think investors are clearly focused on the obesity issue right now, but we think they certainly have opportunities with the acquisition on the supply side, which is one of the challenges facing radiopharmaceutical companies,” said investor Dan Lyons, portfolio manager and research analyst at Janus Henderson Investors.

Bristol-Myers Squibb has also entered the fray, completing its acquisition of RayzeBio for $4.1 billion in February. The company now owns RayzeBio's pipeline, including the targeted radiopharmaceutical therapy RYZ101 for late-stage gastroenteropancreatic neuroendocrine tumors. It is also in a Phase 1 trial for small cell lung cancer.

The deal's announcement in December came shortly after Bristol-Myers Squibb said it would buy schizophrenia drug developer Karuna Therapeutics for $14 billion. At the time, William Blair analyst Matt Phipps said the deals showed Bristol's urgent need to bring more products to market as some of its older therapies lose patent protection over the course of this decade.

The pharmaceutical giant's shares have been on a losing streak, losing more than 18% since the beginning of the year. The company has an average “hold” rating, according to FactSet.

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

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AstraZeneca’s performance after one year

According to FactSet, AstraZeneca shares have an average overweight rating and are almost 6 percent above analysts' average price target.

“All of these companies had more or less built up or are in the process of building out manufacturing sites and will be operational on a commercial scale very soon,” said Jefferies analyst Andrew Tsai. “They have that under control, and I think that's partly what the big pharma companies wanted.”

There are also some smaller listed biopharmaceutical companies, but not many.

In addition, there are several private companies in the space that have attracted private investors, especially recently. Innovative radiopharmaceuticals received $518 million in venture capital last year, a whopping 722% increase from the $63 million they received in 2017, according to GlobalData's Pharma Intelligence Center Deals Database.

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

“There are several large pharmaceutical companies that do not 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 expand their portfolio.”

“Huge opportunity”

Everyone, including the big pharmaceutical companies, is either working on improving existing treatment methods or trying to expand their activities to combat various cancer tumors.

Novartis, for example, received FDA approval for Lutathera to treat children in April. Last month, the company also announced that it would seek an expanded label for Pluvicto for the early treatment of prostate cancer.

“Novartis has a clear path and strategy to expand the market opportunities for these two products,” Jones said.

Then there are companies developing therapies against these very targets. Some, like Bristol-based RayzeBio, use an alpha emitter such as actinium rather than the beta emitter lutetium used by Pluvicto and Lutathera.

“This Alpha [emitters] have a much stronger impact and are very localized, literally to the length of a cell,” said Tenthoff of Piper Sandler.

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Bristol-Myers Squibb's performance after one year

It is also being examined whether radiopharmaceuticals can be used in combination with other treatments, such as immunotherapy.

Depending on the outcome of current and future clinical trials, the therapy could ultimately be used to treat all types of cancer, including ovarian, breast or brain cancer, he said.

“Wherever radiotherapy is used, but not necessarily in a targeted approach, it is very useful because we are dealing with radiosensitive tumors,” says Tenthoff.

Companies can also leverage the decades of research they have already conducted in this area to identify new opportunities, Jones says.

“You can really leverage all the work we've done in cancer over the last 30 to 40 years to identify target molecules on cancer cells that are not expressed or are expressed much more highly than on normal cells. And each of these targets offers the opportunity for targeted radiation therapy,” he said.

“I see enormous opportunities for targeted radiotherapy,” he added. “Today we have two products, two targets and thus practically the entire universe of cancer research and cancer control.”