Merck on deals hunt as patent cliff looms for top cancer drug

Merck’s most cancers immunotherapy Keytruda is a marvel drug that has remodeled not simply the survival odds of 1000’s of sufferers but additionally the pharmaceutical firm’s fortunes. Nevertheless, with the drug poised to lose patent safety in 2028, recently-appointed chief govt Rob Davis should discover new therapies to plug an eventual decline in gross sales when rivals launch cheaper variations.

Final week buyers noticed the primary glimpse of Davis’s technique when Merck agreed to pay $11.5bn for Acceleron Pharma, a biotech firm that develops protein-based therapies to deal with a uncommon blood strain dysfunction and a few cancers. Davis mentioned the deal would assist to diversify Merck’s portfolio and that he was scouring for different targets to assist the corporate cope with the looming patent cliff.

“I’m assured now we have the firepower, the aptitude, the main focus and urgency to do this,” Davis advised the Monetary Occasions. “This is step one on a journey to proceed to construct out our pipeline in order that now we have the power to develop sustainably nicely into the subsequent decade . . . We received’t be restricted by the steadiness sheet.”

Davis, who changed veteran Merck CEO Kenneth Frazier in July, advised buyers final week that he would settle for a one-notch credit standing downgrade if he wanted to spend massive to safe the fitting goal.

Though 2028 may sound like a good distance off, it’s a comparatively brief time in “pharma years” provided that it takes on common a decade and $2.6bn of funding to take a brand new drug from preliminary discovery to {the marketplace}. Only one in eight medication that enters medical trials is finally authorized, in keeping with business estimates.

Merck, a $213bn firm with a portfolio spanning human and animal well being, just isn’t alone in going through a patent cliff. Pfizer, AbbVie and Bristol-Myers Squibb all have blockbuster medication because of lose exclusivity quickly and have not too long ago sealed multibillion-dollar offers.

Nevertheless, Merck’s shares have lagged most of its friends over the previous 18 months because of issues about its reliance on Keytruda and a failure to launch any Covid-19 vaccines or therapies. On the Covid entrance, the corporate seems eventually to be on the cusp of success after the publication on Thursday final week of optimistic knowledge from a medical trial of an antiviral pill, which prompted its shares to leap virtually 9 per cent to $81.60.

The Covid drug, molnupiravir, diminished the chance of hospitalisation or demise by roughly 50 per cent in comparison with placebo within the trial. If authorised it could be the primary oral capsule given to sufferers quickly after prognosis and SVB Leerink, an funding financial institution, forecasts it might web $12bn in cumulative gross sales by the top of 2025.

However that’s not sufficient to interchange Keytruda, which has remodeled Merck, bringing in slightly below a 3rd of the corporate’s complete income of $48bn final 12 months. SVB Leerink predicts that the proportion will solely develop as the corporate lurches in the direction of patent expiration, with the most cancers medication accounting for greater than half of gross sales by 2028, when it is going to face the specter of competitors from cheaper options.

PlantForm, a Canadian biotech firm, and Sydney-based NeuClone Prescribed drugs are already working with companions in Brazil and India to launch “biosimilars” which can be virtually similar to Keytruda.

“You have got probably the greatest medication in historical past and Merck seems to have a humiliation of riches. However [Keytruda] has grow to be so massive buyers fear actually early — on this case seven years from now — how the corporate will fill the income hole,” mentioned Daina Graybosch, analyst at SVB Leerink.

Among the investor panic surrounding the patent cliff is overdone given the efforts Merck has made to mix Keytruda with different medication to deal with a protracted checklist of cancers, a course of that may lengthen a drugs’s longevity. “There’s a notion on the market that Keytruda income will simply fall off put up 2028 however that isn’t going to occur,” Graybosch mentioned.

Merck has filed 129 patents linked to Keytruda, which might lengthen the interval of exclusivity to 2036 and past, in keeping with analysis by the Initiative for Medicines, Entry & Data, a non-profit group that campaigns for cheaper medication. Keytruda will price the American healthcare system about $137bn throughout that eight-year interval, I-MAK claims.

Column chart of $bn showing Merck’s reliance on cancer drug Keytruda

Nonetheless, Merck’s failure to start diversifying its portfolio away from Keytruda extra rapidly has unnerved buyers. Final month Morgan Stanley downgraded Merck to equal weight from obese, and diminished its worth goal on the corporate from $90 to $85.

“Traders need to see that you’ve got a few belongings which can be going to develop via the patent cliff,” mentioned Matthew Harrison, an analyst at Morgan Stanley, who welcomed Davis’s renewed give attention to “enterprise growth”.

Acceleron is growing sotatercept, a possible blockbuster drug to deal with pulmonary arterial hypertension, a illness brought on by excessive strain within the blood vessels main from the guts to the lungs. As a result of it’s in late-stage medical trials, the corporate has comparatively excessive confidence it may possibly launch the drug in 2024-25 and generate income forward of Keytruda’s lack of exclusivity.

“This can be a 2025 product — in order that they [Merck] can provide buyers some confidence concerning the progress price of the enterprise. It’s a step in the fitting course however it doesn’t resolve the entire drawback,” Harrison mentioned.

Like all giant pharma corporations, Merck’s enterprise growth staff maintains a protracted checklist of potential targets, starting from smaller biotechs with thrilling however unproven medication to bigger corporations with medicines already in the marketplace or which have proven promise in human trials.

Mirati Therapeutics, a clinical-stage biotech firm with a market worth of $8bn that’s targeted on therapies for lung most cancers, is one potential goal, in keeping with folks briefed on the matter. Strand Therapeutics, a developer of mRNA therapeutics for most cancers immunotherapy, and Arcturus Therapeutics, which is utilizing mNRA to fight cystic fibrosis, are additionally potential targets, the folks mentioned.

However inserting bets on early stage corporations is a high-stakes recreation and a few buyers need to see Merck spend money on later stage corporations corresponding to Acceleron, which might generate income extra rapidly. The US biotech large Biogen, which received US approval for its Alzheimer’s drug Aduhelm in June, might additionally grow to be a possible goal for Merck regardless of its market capitalisation of $41bn, in keeping with folks near Merck.

However others consider Davis is unlikely to pursue the kind of megamerger that might trigger integration issues or invite scrutiny from international regulators, who introduced in March a review into whether or not massive pharma offers are lowering competitors available in the market for prescribed drugs.

“Merck is the accountable dad of enormous pharma and they’re going to do issues the fitting manner,” Graybosch mentioned. “They don’t do issues to make a giant splash and when it comes to doing offers like Acceleron they received’t overpay . . . That’s the tradition at Merck and I don’t see the brand new management altering that.” material/a9688ef3-42ad-4600-ac19-6b22783922c3 | Merck on offers hunt as patent cliff looms for high most cancers drug


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