1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
George Ronan
George Ronan
Articles (42) 

Why Emmaus Might Have Just Made Itself Attractive to Big Pharma

How the company's latest development makes it a potential takeover target

If you would have mentioned the name Emmaus Life Sciences to an investor, even one familiar with the biotechnology space, a couple of months ago, chances are the said investor would not have had any idea who you were talking about. In fact, the same probably applies today.

In a couple of months, however, there is a good chance everyone in the biotechnology sector will know the company inside and out.

With a just announced Food and Drug Administration approval, Emmaus became the first company in more than 20 years to bring a new drug to market for the treatment of patients with sickle cell disease (SCD). I believe this approval sets the company up for a near-term takeover or partnership deal with a big pharma company.

Here is a look at the drug in question and the science that underpins it, alongside a consideration of which of the biggest names in the sector might be interested in adding this asset to its portfolio.

So as mentioned, the drug is targeting SCD and is called Endari.

For those not familiar with the condition, SCD is a severe hereditary form of anemia in which a mutated form of hemoglobin distorts the red blood cells into a crescent shape (or a sickle shape, as inferred by the name of the disease) at low oxygen levels. This distorted shape results in the clogging of red blood cells at various points along the circulatory system, which can not only be incredibly painful for sufferers, but can also result in long-term complications.

Endari is a pharmaceutical formulation of an already available nutritional supplement called L-glutamate. This compound is already widely used by individuals with short bowel diseas, and as a general supplement type product, but the formulation that is currently available over the counter is hit and miss in terms of potency and is constructed at only a fraction of the dose necessary to have any impact in the disease. With Endari, therefore, Emmaus has transformed a patchy over-the-counter asset into a highly potent pharmaceutical-grade compound, and therein lies the justification for bringing what many will regard as an already available drug to market in this form.

The mechanism of action (MOA) of the asset is rooted in the fact L-glutamate serves as a precursor to an enzyme called NAD, which is thought to be important for the functioning of the oxygen-carrying hemoglobin molecule. An increased L-glutamate presence in the blood stream should translate to an increased concentration of NAD, which in turn should help to alleviate the sickling of the red blood cells and, by proxy, the symptoms that characterize the condition.

Data collected from a phase III study, which underpinned the company's application for approval in the U.S., reinforced this hypothesis strongly.

But that is not all.

The bringing of this asset through the rigorous development pathway required by the FDA in the U.S. also means it becomes eligible (in most cases) for reimbursement through traditional health care plans. The currently available formulation, which, as mentioned, is only available at low dosages, would cost tens of thousands of dollars to acquire at concentrations required to induce efficacy. While Emmaus is likely going to charge double-digit thousands of dollars for an annual course of Endari, and recent reports suggest said annual cost will come in at between $11,000 and $18,000, patients are able to have this cost covered by their insurance providers (or at least the majority of it) – something that, up until now, has not been an option.

So why does all this make Emmaus attractive as a takeover target?

A number of companies are pushing their own SCD drugs toward approval in the U.S. right now, including Pfizer (NYSE:PFE) and GlycoMimetics' (NASDAQ:GLYC) rivipansel, Novartis' (NYSE:NVS) crizanlizumab and Global Blood Therapeutics' (NASDAQ:GBT) GBT440. Chances are these drugs are going to command higher price points than Emmaus' Endari when (and if) they pick up a regulatory green light from the FDA.

Emmaus, therefore, not only has a first mover advantage (first mover in two decades) in this market, but also has a treatment option based on a reformulation of a currently available compound, which means the development of the drug (in all likelihood) was far cheaper than that of some of its still-in-development competitors. This means the company has less sales to make to reimburse development costs, meaning Endari should be able to undercut any of the newer assets long term.

The ability to offer a cheap and effective drug to a dramatically underserved population in the health care space is an attractive incentive for any biotechnology company, especially for one looking to outdo its peers.

So who might be interested?

This type of drug would fit nicely into the portfolios of companies like Bristol-Myers Squibb Co. (NYSE:BMY) or AstraZeneca PLC (NYSE:AZN)'s MedImmune, or might make for a neat diversification product for a company looking to expand into alternative areas of health care.

It is worth noting that – so far – Emmaus has suggested it is going to go it alone with the commercialization of this product. History tells us, however, this is standard parlance for a private entity of this sort and that it far from negates the potential for takeover.

Disclosure: I have no positions in any of the stocks mentioned in the article and do not intend to open any positions near term.


Rating: 5.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


GuruFocus has detected 5 Warning Signs with Bristol-Myers Squibb Company $BMY.
More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by George Ronan


User Generated Screeners


pbarker46Begin here 1
MisterTIndustry Selection
bietzcanclism
maurits_halimEPS Growth >20% (UK)
DBrizan2017sep19 Qcom Gild beater
alberto.lopezblancoPI / PTB
Jeremieroyspinoffs + insiders
sm0yerconsistant growth
patelmhwalter schloss balance sheet b
valueppAsset Management Company
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK