GSK Makes I-O Move With Merck KGaA Deal Worth Up To €3.7bn
Executive Summary
Already working with Pfizer on the immunotherapy Bavencio, Merck KGaA has bagged another big pharma player in GSK to progress what has been heralded by analysts as the German group's oncology game changer, M7824, which combines two powerful and synergistic anticancer mechanisms into one molecule.
GlaxoSmithKline PLC's return to the oncology space has been confirmed by the UK major making a hefty €300m upfront payment to get access to Merck KGAA's bifunctional immunotherapy M7824 (bintrafusp alfa).
M7824 has been designed to simultaneously target two immuno-suppressive pathways - transforming growth factor-β (TGF-β) trap and an anti-programmed cell death ligand-1 (PD-L1). The aim of the bifunctional antibody is to increase efficacy "above and beyond that achieved with individual therapies or combinations," Merck said, adding that M7824 "has the potential to offer new ways to fight difficult-to-treat cancers beyond the established PD-1/PD-L1 class."
The drug has been tested in over 700 patients in 10 different tumor types and eight "high priority clinical development" studies for M7824 are ongoing or expected to commence in 2019, Merck noted, including trials in non-small cell lung cancer (NSCLC) and biliary tract cancers. These include a Phase II study to investigate M7824 compared with Merck & Co. Inc.'s market-leading checkpoint inhibitor Keytruda (pembrolizumab) as a first-line treatment in patients with PD-L1-expressing advanced NSCLC.
In addition to the €300m upfront sum, Merck is eligible for potential development payments of up to €500m and future approval and commercial milestones of up to €2.9bn. The total potential deal value is up to €3.7bn and all profits and costs from the collaboration will be shared equally on a global basis.
For GSK, the Merck alliance is a further step in the company’s priority to strengthen its cancer drug pipeline and follows the company’s recent acquisition of Tesaro and its PARP inhibitor Zejula (niraparib) for $5.1bn. Commenting on the pact, president of R&D Hal Barron noted that despite recent medical advances, "many patients with difficult-to-treat cancers don’t currently benefit from immuno-oncology therapies, leaving them with limited treatment options." (Also see "GSK Embraces PARP Promise With Tesaro Buy" - Scrip, 3 Dec, 2018.)
He added that M7824 "brings together two different biological functions in a single molecule and we have observed encouraging clinical results in treating certain cancer patients, particularly those people with NSCLC. I’m excited by the potential impact this first-in-class immunotherapy could have." (Also see "R&D Heads At GSK & AZ Say Key To Success Lies In Smart Risk Taking" - Scrip, 15 Nov, 2018.)
On a conference call, Belén Garijo, CEO of healthcare at Merck, said that securing an alliance for M7824 involved a "highly competitive process" but GSK "clearly emerged as the ideal partner." This is due to its strong commitment to oncology, and the M7824 project in particular, a proven track record in collaborative R&D and the strong industry talent it has recruited, she said, claiming that M7824 "has the potential to bring new answers to patients living with cancer. Together with GSK we aim to drive a paradigm shift in the treatment of cancer as the leader in this novel class of immunotherapies.”
Merck CEO Stefan Oschmann was also enthusiastic about having GSK on board, especially as the latter has "re-established" itself in oncology. He added that the alliance will also benefit from GSK's global commercial footprint.
Oschmann went on to say that the deal reflects Merck’s strategic approach of progressing promising clinical stage assets as efficiently and rapidly as possible then seeking out external collaborations, such as the pact it has with Pfizer Inc. on the immunotherapy Bavencio (avelumab). He added that "we have a bit of a luxury problem in that we have a very, very rich pipeline."
Underappreciated Asset
Analysts were impressed, with Wimal Kapadia at Bernstein claiming that the deal is "an important event which helps crystallize the value of an underappreciated asset by bringing on board a credible partner." In an investor note at the end of last year, he noted that M7824 is "an interesting drug, designed on solid science," with the data to date continuing to impress "but we appreciate it is small numbers."
While the focus is on first-line NSCLC and biliary tract cancers for now, Kapadia argued that opportunities in gastric and human papillomavirus-associated cancers for M7824 "are real, where we could see early filing." This is Merck's game changer, he wrote in a Nov. 16 note last year and mentioned peak sales in the region of €3.6bn.
He went on to acknowledge that "sceptics will suggest this is just a bullish analyst increasing peak sales of an early-stage asset. However, we are comfortable doing so and believe our estimates are cautious." Kapadia concluded by stating that "ultimately, it is hard to argue against the data, even if early, and we ask what value would be ascribed to a small biotech with the same asset? Merck remains catalyst rich and the risk/reward positive."
At Deutsche Bank, analyst Richard Parkes said that GSK had made a "bold move for an intriguing but still risky oncology asset." He acknowledged that initial data for M7824 have indicated "intriguing levels of response" in second-line lung cancer, gastric cancer, biliary tract and HPV-associated cancers "that seem to be higher than would be expected with a PD-1/PD-L1 inhibitor alone." In isolation, however, Parkes wrote in an investor note that the patient numbers in these individual trials had been small, "making it difficult to draw firm conclusions."
He went on to say that "we warn the industry has been guilty of over-interpreting similar data from single arm trials in the past." For him, the most meaningful study is the head-to-head with Keytruda in first-line NSCLC and the outcome of the trial, due by the end of 2021, "should give a definitive answer as to whether the drug's dual mechanism adds to PD-1 inhibition alone in this setting and could be registration enabling. However, at this stage the outcome of the trial still looks extremely high risk to us."