Will Eli Lilly’s mRNA Cancer Vaccine Investment Hit Paydirt?

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It is not unusual for big biotech and pharmaceutical companies to sign research and development pacts with smaller companies and smaller entities. These pacts often come with big price tags on the headlines, but the raw dollar amounts being touted are often made with small up-front investments and are then based on milestones and a whole host of other goals and targets being met.

With Eli Lilly and Co. (NYSE: LLY) making a huge headline investment in a cancer vaccine, 24/7 Wall St. wanted to look under the hood to see what this deal really entails. The deal is with CureVac, a German company that claims to be the first to successfully harness messenger RNA (mRNA) for medical purposes. The company’s goal is to use mRNA as a data carrier to tell the human body to produce its own proteins to fight cancers and other diseases.

Eli Lilly will make an upfront payment of $50 million, and it will also invest €45 million as an equity investment. Where this $1.8 billion total comes from is that CureVac is eligible to receive up to $1.7 billion in milestones and tiered royalties ahead, if and when all five vaccines are successfully developed and commercialized.

The press release says that Eli Lilly will be responsible for target identification, clinical development and commercialization efforts. CureVac will be responsible for mRNA design, formulation and manufacturing of clinical supply. CureVac also retains the option to co-promote the vaccine products in Germany.

A lot of work lies between CureVac and those milestones. Eli Lilly and CureVac are divvying up the early workload, with the Big Pharma handling target identification and the biotech applying its mRNA skills to the design and formulation of candidates. When the vaccines reach the clinic, Eli Lilly will run the trials using supplies manufactured by CureVac.

CureVac’s proprietary RNActive technology will be used to deliver mRNA that ultimately directs the human immune system to target the encoded neoantigens. The release shows that these tumor-specific neoantigens instruct the patient’s own immune system to form its own response to eradicate cancer.

It actually may be years before we get to find out if the Eli Lilly and CureVac partnership here is a success or a flop. These type of cancer vaccines are promising, with a similar sort of effort by Roche’s Genentech, and a prior lead candidate failed to improve overall survival in a patient study with metastatic castrate resistant prostate cancer.

CureVac’s pipeline shows studies in various phases, from research and preclinical stages up to Phase 2 for varying forms of lung and prostate cancers, as well as early studies for rabies, RSV, HIV, influenza and other unspecified projects. Other development partners with CureVac are listed as Boehringer Ingelheim, the Bill & Melinda Gates Foundation, Sanofi Pasteur and others.

As far as whether this initial payment matters, let’s call it $100 million for research and for the investment since we do not have any formal plans for how the future payments can or will be made. Eli Lilly’s 2016 revenue was $21.2 billion, up from $19.9 billion in 2015 and $19.6 billion in 2014. The company’s total listed spending for research and development was $5.244 billion in 2016, $4.796 billion in 2015 and $4.734 billion in 2014. Its net income (including charges and items) was listed as $2.738 billion in 2016, $2.408 billion in 2015 and $2.391 billion in 2014.

Wall Street rarely rewards large biopharma companies immediately for making initial investments in target projects such as this. After all, the outcome is a complete unknown. Eli Lilly shares were down 0.5% at $85.62 late on Wednesday, in a 52-week range of $64.18 to $89.09 and with a consensus analyst target price of $91.05.