Who’s next? After Gilead snapped up Immunomedics for $21 billion in September, gaining access to Trodelvy, an antibody conjugate that could be used in triple negative breast cancer, as a result, investors want to know which name looks like the next M&A target.
Piper Sandler analyst Christopher Raymond points to oncology companies as the “easy answer,” based on how hot the space has been over the last few years.
“While even the most casual biotech observer is likely to have some level of awareness around M&A as a key theme in the space, it’s also fairly clear that oncology as a subsector has seen an outsized share of M&A activity. Reasons for this would appear to be fairly obvious as the confluence of a highly fragmented therapeutic space, massive unmet medical need, and significant innovation have contributed to significant demand on the part of buyers,” Raymond wrote.
Going off of BIO's analysis of global acquisition activity from 2009 to 2018, Raymond found that oncology continued to be the dominant therapeutic area for M&A activity in 2019, with nine completed deals valued at over $34.4 billion combined, more than doubling from 2018.
With this in mind, we wanted to take a closer look at two healthcare stocks that could be M&A targets, according to Piper Sandler. Using TipRanks’ database, we did a deep dive into the data to find out what makes both so attractive.
Syros Pharmaceuticals (SYRS)
Developing gene control-based therapies, Syros Pharmaceuticals wants to stomp out cancer for good. Ahead of the upcoming data readouts for its candidates, Piper Sandler believes now is the time to pull the trigger before it potentially gets bought up.
SYRS remains on track to release data for SY-1425, which was designed as an oral first-in-class selective retinoic acid receptor alpha (RARα) agonist for use in AML patients.
Representing Piper Sandler, 5-star analyst Edward Tenthoff points out that the encouraging data for SY-1425 makes SYRS a likely M&A target. Based on available data, SY-1425 combined with azacitidine produced a 62% CR/CRi rate in 8 out of 13 RARα-positive AML patients, compared to only 27% in 6 of 22 RARα-negative patients.
“Data continues to highlight the importance of the RARα biomarker, expressed in ~30% of all AML patients. Importantly, SY-1425 has been safe with no neutropenia often observed with HMA and azacitidine combination,” Tenthoff stated. Syros has completed enrollment, and is set to report r/r AML RARα-positive data in Q4 2020, most likely at ASH, according to the analyst.
To this end, Tenthoff rates SYRS an Overweight (i.e. Buy) along with an $18 price target. Investors could be pocketing a gain of 112%, should this target be met in the twelve months ahead. (To watch Tenthoff’s track record, click here)
Overall, with 3 Buys and 2 Holds assigned in the last three months, the word on the Street is that SYRS is a Moderate Buy. At $14.40, the average price target implies 64% upside potential from current levels. (See SYRS stock analysis on TipRanks)
TCR2 Therapeutics (TCRR)
Using its patented TRuC (TCR Fusion Construct) T cells, TCR2 Therapeutics harnesses the natural T cell receptor complex to recognize and kill cancer cells. Given its innovative cell therapy platform, Piper Sandler thinks it could get picked up by another healthcare player.
Firm analyst Tyler Van Buren tells clients “clinical success in solid tumors with cell therapy has largely been elusive,” but that changed when TCRR reported initial clinical data for TC-210, its most advanced TRuC-T cell product candidate, in mesothelin positive tumors. Calling the results encouraging, the analyst notes all five patients achieved tumor reductions (2 uPRs) after a single infusion of TC-210 TRuC-T cells at the first dose level.
“This data provides validation for the TRuC-T cell platform, which incorporates the best elements from both CAR-Ts and TCR-Ts, and could overcome the limitations of current generation products... TC-210 could have accelerated opportunities in mesothelioma and cholangiocarcinoma, with additional larger opportunities in lung and ovarian,” Van Buren commented.
Additionally, Van Buren argues this data indicates clear monotherapy activity in solid tumors. Even though the patient numbers were small, the initial 50% response rate in third line-plus mesothelioma patients is better than chemo and immuno-oncology (IO) in the second line (10-20%) and third line-plus (single-digit RR) settings. 1 out of 2 responders is eligible for confirmation, which could come soon, according to the analyst.
What’s more, initial durability appears to be solid, especially given that two patients have been on study for over six months. Van Buren added, “One ovarian cancer patient is also on study and currently has stable disease with the potential to respond. In terms of safety, TC-210 appears manageable and no on-target/off-tumor toxicities have been observed.” Ahead of the update on four of the patients reported so far (3 mesothelioma, 1 ovarian), as well as initial data on an additional seven or more patients, he thinks the therapy represents a $2.5 billion-plus opportunity by 2035.
In line with his optimistic approach, Van Buren rates TCRR an Overweight (i.e. Buy) along with a $35 price target. This figure implies a 72% upside from current levels. (To watch Van Buren’s track record, click here)
There’s not much dissent to Van Buren's thesis amongst his colleagues. TCRR's Strong Buy consensus rating is backed by 7 Buys. The average price target stands at $33.14, and implies possible upside of 60%.(See TCRR stock analysis on TipRanks)
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