Earlier in the summer, Revolution Medicines made a huge splash in the Media by announcing groundbreaking results against Pancreatic Cancer. But with other emerging competitors in the field hot on their heels, is the most famous name in the space really the best investment?
By Tejas Shankar and Dale Hershman
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Despite decades of research, cancer remains one of the world’s leading causes of death, supporting continuous demand for effective treatments and drugs. Two companies addressing the issue and taking a novel approach to drug development are Immuneering(IMRX) and Revolution Medicine(RMVD). Both of these companies are at different stages in the drug development process for Pancreatic Ductal Adenocarcinoma (PDAC). Although these two companies operate within the same space, their valuation, strategies, and investment profiles are vastly different, leading to an interesting comparison of these two enterprises.
Pancreatic Ductal Adenocarcinoma is the most prevalent and aggressive form of Pancreatic Cancer that accounts for 90% of all pancreatic tumors. With a 5-year relative survival rate of just 13%, it is no easy cancer to fend off. This has been one of the most feared diagnoses in the whole world of oncology. Thus, there is a reason why breakthroughs in this space are heavily celebrated, as just a couple of extra months of life represent a big improvement on the current patient prognosis. Revolution Medicine recently came out with its new cancer pill and had strong phase 3 results, which saw the risk of death when compared to chemotherapy drop 60%.
Patients lived an average of 13 months, or more than double the expected life spans of pancreatic cancer patients on more traditional treatments. These results demonstrate both the promise and the peril of the medicine; a doubling of survival time is great, but most patients would still hope to live more than 13 months. Revolution has clearly taken a big step forward, but we are still a long way from curing pancreatic cancer. That fact leaves openings for emerging competitors in the space.
With this being said, Revolution Medicine is on an excellent trajectory, but the problem investors have isn’t the drug itself. It is the valuation. At a $38B market cap, most of the growth and optimism have already been priced in. Some analysts estimate that the total addressable market, or TAM, for pancreatic cancer could be $9.5 billion by the year 2035. This means that, if Revolution achieved a complete monopoly on the market, with no emerging competitors, the company today would be valued at 3.5 times sales in 10 years. Remember, this is for a drug that helped patients live an average of 13 months. Those are improved numbers, but not enough to guarantee a monopoly for Revolution. The cautious investor would have to wonder how much more juice there could possibly be left to squeeze at this exuberant share price.
Immuneering: The Contender
Conversely, Immuneering is a much smaller, earlier-stage company with a market capitalization of roughly $300M. The company is in a different phase of its life, and the path to bringing its Phase 2 drug to market is much longer, with clinical uncertainty still lingering.
As established earlier, Revolution Medicine & Immuneering are in the same space but are in different stages in their growth. On the other hand, Revolution Medicine may follow a similar trajectory to Summit Therapeutics. Summit held global rights to a bispecific antibody and led to a stretch of a couple of months where their stock price grew 7x. Revolution Medicine, on the other hand, saw its stock price grow from $79 to $182 in the past 6 months on news of phase 3 pancreatic cancer data. The key similarity to Summit’s story is the fact that this once overlooked company with a differentiated approach in a certain market saw a large-scale release of trial data at a medical conference, leading to its pop in the stock price. The difference that RMVD has is that they have a much broader pipeline that the company is able to fall back on. RMVD may be further along the path to building an oncology franchise than Summit Therapeutics ever was.
Immuneering, with its small size, has a real possibility of being acquired by a larger pharmaceutical company over the next 2-5 years. Summit Therapeutics, it turns out, really got too big to be acquired. Most major pharmaceutical companies can afford to pay one to two billion to acquire a startup without blinking an eye. However, once Summit became valued at above $20 billion, investors were really trapped. Summit got too big to be acquired, but the pipeline is probably too narrow to make it as a stand alone company. Revolution may also have passed the valuation threshold where it would be hard for investors to double or triple their money by selling the company; at this point Revolution must continue to develop their broader oncology pipeline. Transforming into a diversified cancer giant is really the only option left to increase the share price.
Life could actually be easier for Immuneering. The business proposition is pretty straightforward: Big Pharma mainly needs Immuneering’s intangible assets to compete in pancreatic cancer. Immuneering has the formula, Intellectual Property(IP), regulatory approvals, and proven phase 2 results that could be pivotal for many big-name Pharmaceutical companies. At a market cap of around $300M, which could rise drastically if Phase 3 results are promising, it remains very probable that an M&A occurs with Immuneering and a larger company. Remember, the total addressable market for Pancreatic Cancer is set to reach $9.5 billion. If a nascent Immuneering drug captures just 20% of that market, then they could be doing $1.8 billion in sales per year. A standard valuation for a biotech company is 7 times revenue, in this case, $12 Billion. So, if we think that Immuneering has a realistic chance of eventually capturing 20% of the total Pancreatic Cancer market, then it would make eminent sense for a Big Pharma company to pay $1 or $2 billion to assimilate all of that intellectual property. But today, the market only values Immuneering at $300 million. The mathematical case for investors to triple or even quadruple their money is obvious.
Trigger Points
So what would be some catalysts that would unlock value for Immuneering shareholders? Is an acquisition imminent? There are really two factors here. The first is the clinical progress of Immuneering’s pipeline, but the other, oddly, is the progress of Revolution’s rival portfolio.
First, Immuneering finds itself in an exciting situation, with expectations building. After delivering some powerful phase 2 results, the company has just filed for a phase 3 trial for an immunotherapy based agent that would compete directly with Revolution. Although phase two results were excellent, rivaling or even surpassing the results that Revolution achieved, any acquirer would still face substantial risk here. Any seasoned biotech investor will tell you that promising phase 2 results don’t always translate into a phase 3 triumph. So it’s very likely that Big Pharma is waiting for a “derisking” event to occur, before swooping in and buying out the whole company. Why risk $1,000,000,000 if you don’t have to? In this case, the “derisking event,” would be successful and definitive results of a phase 3 trial. Because Immuneering is just now starting it’s phase 3 trial, we will probably have to wait at least two years for full results.
Another big factor for Immuneering shareholders, oddly, is how well Revolution’s new agent does. Right now, as we write this, Revolutions Medicine has 0 approved products for sale and available to patients. That’s right, they sport a $30,000,000,000 stock market value, but their new product has realized $0 in revenue. They made a huge splash earlier this summer with their bombshell announcement of phase 3 success, but that product still hasn’t quite hit the market.
History is filled with examples of highly anticipated new drugs that, for one reason or another, never really met commercial expectations. Investors have every reason to believe this stuff will sell like hotcakes, but one never knows until the revenue actually rolls in. Our medical system is bizarre, complex, and filled with unexpected pitfalls. Despite the awesome clinical results, the product still needs formal FDA approval, needs to get on insurance plans, including Medicare, and actual distribution logistics still need to be worked out. A surprising number of would-be blockbusters have wound up getting lost in this labyrinth, failing to realize their true commercial potential.
So, the connection between Revolution’s success and profit for Immuneering shareholders, is this: when Revolution has actually successfully launched their novel product, and real money is flowing in, that is when true Pancreas mania begins. When Big Pharma beancounters see that Revolution is raking in the actual cash from their new agent, only then will the desperate hunt for similar assets begin in earnest. Think of what happened with GLP-1 weight loss drugs. Between the announcement of successful clinical trials, and actual cash receipts taking off in a hockey stick pattern, several years passed. It was only after Novo started piling up mountains of cash that everyone and their brother wanted to jump in the game. Its likely that Immuneering could benefit from that kind of surge. So far, they have the good clinical data, but they simply lack the media hype that Revolution has captured. But with a low price relative to the potential revenue the company could bring in, Immuneering is likely to be “discovered” by Big Pharma M&A executives in the not too distant future.
Wayne Gretzky, the hockey legend, once gave the following tip for success:
“Don’t skate to where the puck is: skate to where the puck is going.”
Today, Revolution Medicines represents “where the puck is.” Investors who eschew the hype and high price of Revolution are the type who are more interested in skating to where the puck is going. Putting your faith, and your dollars, into an untested upstart is not for the faint of heart. But if you want to score outsized gains, you have to take your shot….
