Improbable Merrimack deal has a familiar sting

The presence of Merrimack’s MM-398 in third place in EP Vantage’s ranking of the sellside’s most valuable unpartnered biotech assets might have raised eyebrows, but just two days later the project has been snagged by Baxter in an ex-US deal worth $100m up front.

This is not bad going for an asset targeting pancreatic cancer, a notoriously intractable indication in which it had shown a modest benefit. Still, continuing what is fast becoming a trend, the up-front fee is not clean, and will have to go towards funding a fair chunk of MM-398’s development.

This is precisely what AbbVie has done in recent tie-ups with Infinity Pharmaceuticals, Ablynx and Galapagos. One advantage, at least in the case of the last two of these, is that this effectively enables the big pharma partner to use off-shore cash for R&D without needing to pay tax for repatriating it to the US.

For a US business like Merrimack, however, the more important effect of this kind of deal structure is that it allows the junior party to pitch it as being highly lucrative. The markets usually respond, and indeed Merrimack stock was up 25% in the pre-market today, before opening up 11%.

The sting in the tail lies in the $98.8m of R&D funding to which Merrimack has now had to commit. This will pay for MM-398 studies in gemcitabine-naive pancreatic cancer, while subsequent spending will be split equally with Baxter.

Additional terms include $100m in R&D-based milestones, $520m of regulatory milestones and a percentage royalty escalating from the “sub teens” to the “low twenties”. Merrimack said future milestones would support additional development of the project, though it is not clear whether they will fund all necessary development or whether the company will have to go back to shareholders.

And there is another similarity between the Merrimack deal and Infinity’s. On Monday Merrimack amended a separate tie-up with PharmaEngine – a former MM-398 US licensee that still held rights over the asset – making the Baxter alliance, signed a day later, more advantageous.

The amendment cut Merrimack’s milestone and royalty obligation to PharmaEngine in return for a one-off $7m. Similarly, Infinity cut its obligation to Takeda just before doing the AbbVie deal, and Puma Biotechnology renegotiated its neratinib licence with Pfizer just before revealing highly positive study data in July.

Split prelude

For Baxter, the Merrimack deal serves as a prelude to the planned spin-out of its biopharma and vaccines businesses next year. The group does not have a major presence in oncology, being more famous for its haemophilia franchise.

Still, Baxter is taking no cautious stance to building the business. In addition to Merrimack it has partnered with CTI Biopharma on pacritinib, a middling JAK inhibitor that had already been handed back by one licensee; under a separate tie-up with Onconova, Baxter has Europe rights to the myelodysplastic syndromes/pancreatic cancer project rigosertib.

While Baxter plans to begin MM-398’s European regulatory process in 2015, and in the US Merrimack says it will file this year, the companies are unlikely to have an easy time of it.

In the phase III Napoli-1 trial in second-line pancreatic cancer MM-398, a liposomal formulation of irinotecan, achieved an overall survival benefit of just 1.9 months over 5-FU plus leucovorin; this was statistically significant, but many analysts thought it was clinically insufficient.

Merrimack does raise the important point that second-line patients have no real alternative, so in such a difficult setting even a marginal improvement could be enough. EvaluatePharma puts the NPV of MM-398 at $1.97bn, but the risk is illustrated by consensus 2020 sales forecasts being derived from a range between $391m and $1.4bn (Still unpartnered, but now worth a lot more, September 22, 2014).

In any case the company should be used to adversity; it had a torrid time getting its float away in 2012, and its stock has been on a rollercoaster ride from which it has only recently started to break out.

It says the next task will be to find a partner for its anti-Her3 monoclonal antibody MM-121, a project in phase II breast cancer trials. MM-121 earlier disappointed in ovarian and lung cancers, and Sanofi handed back ex-US rights in June.

That said, credit has to go where it is due, and having found a licensee for one troublesome asset the markets will now look for Merrimack to repeat the trick with another.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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