Business and Finance

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

Merck’s cancer immunotherapy Keytruda is a surprise drug that has remodeled not simply the survival odds of hundreds of sufferers but in addition the pharmaceutical firm’s fortunes. However, with the drug poised to lose patent safety in 2028, recently-appointed chief government Rob Davis should discover new remedies to plug an eventual decline in gross sales when rivals launch cheaper variations.

Last 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 stated the deal would assist to diversify Merck’s portfolio and that he was scouring for different targets to assist the corporate take care of the looming patent cliff.

“I’m confident we have the firepower, the capability, the focus and urgency to do that,” Davis advised the Financial Times. “This is the first step on a journey to continue to build out our pipeline so that we have the ability to grow sustainably well into the next decade . . . We won’t be limited by the balance 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 large to safe the appropriate goal.

Although 2028 may sound like a good distance off, it’s a comparatively quick time in “pharma years” on condition that it takes on common a decade and $2.6bn of funding to take a brand new drug from preliminary discovery to {the marketplace}. Just one in eight medication that enters medical trials is finally accepted, in accordance with trade estimates.

Merck, a $213bn firm with a portfolio spanning human and animal well being, isn’t alone in dealing with a patent cliff. Pfizer, AbbVie and Bristol-Myers Squibb all have blockbuster medication on account of lose exclusivity quickly and have lately sealed multibillion-dollar deals.

However, Merck’s shares have lagged most of its friends over the previous 18 months on account of considerations about its reliance on Keytruda and a failure to launch any Covid-19 vaccines or remedies. On the Covid entrance, the corporate seems ultimately 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 nearly 9 per cent to $81.60.

The Covid drug, molnupiravir, lowered the danger of hospitalisation or dying by roughly 50 per cent in comparison with placebo within the trial. If authorised it could be the primary oral tablet given to sufferers quickly after analysis and SVB Leerink, an funding financial institution, forecasts it may web $12bn in cumulative gross sales by the tip of 2025.

But that isn’t sufficient to exchange Keytruda, which has remodeled Merck, bringing in just below a 3rd of the corporate’s whole income of $48bn final yr. SVB Leerink predicts that the proportion will solely develop as the corporate lurches in direction of patent expiration, with the cancer medication accounting for greater than half of gross sales by 2028, when it’s going to face the specter of competitors from cheaper alternate options.

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

“You have one of the best drugs in history and Merck appears to have an embarrassment of riches. But [Keytruda] has become so big investors worry really early — in this case seven years from now — how the company will fill the revenue gap,” stated Daina Graybosch, analyst at SVB Leerink.

Some of the investor panic surrounding the patent cliff is overdone given the efforts Merck has made to mix Keytruda with different medication to deal with an extended listing of cancers, a course of that may lengthen a drugs’s longevity. “There is a perception out there that Keytruda revenue will just fall off post 2028 but that isn’t going to happen,” Graybosch stated.

Merck has filed 129 patents linked to Keytruda, which may lengthen the interval of exclusivity to 2036 and past, in accordance with analysis by the Initiative for Medicines, Access & Knowledge, a non-profit group that campaigns for cheaper medication. Keytruda will value 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

Nevertheless, Merck’s failure to start diversifying its portfolio away from Keytruda extra shortly has unnerved buyers. Last month Morgan Stanley downgraded Merck to equal weight from chubby, and lowered its worth goal on the corporate from $90 to $85.

“Investors want to see that you have a couple of assets that are going to grow through the patent cliff,” stated Matthew Harrison, an analyst at Morgan Stanley, who welcomed Davis’s renewed focus on “business development”.

Acceleron is creating 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 center to the lungs. Because it’s in late-stage medical trials, the corporate has comparatively excessive confidence it will probably launch the drug in 2024-25 and generate income forward of Keytruda’s lack of exclusivity.

“This is a 2025 product — so they [Merck] can give investors some confidence about the growth rate of the business. It’s a step in the right direction but it doesn’t solve the whole problem,” Harrison stated.

Like all massive pharma corporations, Merck’s enterprise growth staff maintains an extended listing of potential targets, starting from smaller biotechs with thrilling however unproven medication to bigger corporations with medicines already on the market 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 cancer, is one doable goal, in accordance with folks briefed on the matter. Strand Therapeutics, a developer of mRNA therapeutics for cancer immunotherapy, and Arcturus Therapeutics, which is utilizing mNRA to fight cystic fibrosis, are additionally potential targets, the folks stated.

But inserting bets on early stage corporations is a high-stakes recreation and a few buyers need to see Merck put money into later stage corporations such as Acceleron, which may generate income extra shortly. The US biotech big Biogen, which received US approval for its Alzheimer’s drug Aduhelm in June, may additionally turn into a possible goal for Merck regardless of its market capitalisation of $41bn, in accordance with folks near Merck.

But others imagine Davis is unlikely to pursue the kind of megamerger that would trigger integration issues or invite scrutiny from international regulators, who introduced in March a review into whether or not large pharma deals are decreasing competitors out there for prescribed drugs.

“Merck is the responsible dad of large pharma and they will do things the right way,” Graybosch stated. “They don’t do things to make a big splash and in terms of doing deals like Acceleron they won’t overpay . . . That is the culture at Merck and I don’t see the new leadership changing that.”

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