Merck (MRK.N) reported today that it is buying ARQL for over a 100% premium from Friday's closing price (https://reut.rs/341eQv1). This is exciting news for any ARQL investor like us. However, more importantly, for blood cancer patients there is a new treatment option that is emerging that should provide them at least additional months of life. They are called non-covalent Btk kinase inhibitors, and include ARQ 531, the main ARQL valuation driver for the Merck acquisition, and Lilly's competing drug in development called LOXO-305. We've discussed ARQ 531 and other Btk inhibitors in a number of our prior blog posts (e.g. http://bit.ly/2LRYzTh).
As usual in these biopharma success (or failure) stories there are plenty of lessons for small and mid-cap biopharma investors. ARQL has been a darling story for biopharma investors in 2019, as the company traded for under $3 per share at the beginning of 2019 and now is getting acquired for $20 per share. Fortunately, we have been investors along this ride. However, ARQL has not always been a darling story, with an up and down history over 20 years. It has had big failures along its journey. Even as recently as December 2018 when ARQL presented its earlier data on ARQ 531 at the biopharma trial ASH '18, the stock suffered a setback, although a close look at the data showed early promise, investors expected more. This was at the end of a horrible time for biopharma stocks in the 2nd half of 2018.Timing and patience is so important in biopharma investing.
What got our attention, and many others including Merck, was ARQL's non-covalent Btk inhibitor. Ibrutinib is a multi-billion dollar Btk inhibitor drug that has been a game-changer for many blood cancer patients. However, many patient's cancer eventually becomes resistant to Ibrutinib, or the patient can no longer tolerate the drug. Both ARQ 531 and LOXO-305 appear to be filling this need, and possibly more. After its early Ash 2018 efficacy data, ARQL surprised investors at the March investor call, where they announced an update to their efficacy findings that clearly indicated the ARQ 531 was active in its target patients (http://bit.ly/2E4Xm6o). At EHA19 last summer and now at ASH19, ARQ 531's updated data continues to look more impressive showing not only that the drug is active with a manageable safety profile, but that patients' responses are durable as well: 89% of the leukemia patients harboring the target mutation showed a >50% reduction in their target tumor burden (http://bit.ly/2P29Jqn). Furthermore, some patients whose cancers shrunk when administered the drug, remain on the drug for months or even over a year (Id.). The LOXO-305 data presented at ASH19 is impressive as well, although not as mature, and trial to trial comparisons need to be done with caution.
It remains to be seen if there will be a clear best-in-class in these non-covalent Btk inhibitors. As kinase inhibitors, each of these have specific properties that make them unique, including exactly which kinases they inhibitor, since these inhibitors are not perfectly specific for their target (e.g. Btk). SNSS reported results for their non-covalent Btk inbhibitor that do not yet look nearly as positive as ARQ 531 or LOXO-305 (http://bit.ly/2Pt9CTH). We should see more data in 2020 for higher doses of that drug candidate. $APTO has a non-covalent Btk inhibitor in development as well, which we and many small-mid cap investors investors, will now follow more closely, since the lead non-covalent Btk inhibitor candidates are or will shortly be in the hands of big pharma.
It will be interesting to see how Merck and Lilly do in developing and commercializing these drug candidates going forward. There appears to be agreement that this is at least a billion dollar market. Most importantly, for blood cancer patients, there are new therapeutic options emerging that should help extend many of their lives. Finally, in our fight against cancer, we see progress in identifying not only initial kinase inhibitors, but 2nd generation inhibitors that are targeted at the specific molecular mechanisms that cancer cells use to get around our first generation inhibitors.