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Merck buys rights to Endocyte cancer drug

by Ben Fidler | Published April 17, 2012 at 10:51 AM

Just how much are drugs with companion diagnostics worth? In Merck & Co.'s case, as much as $1 billion.

The pharmaceutical giant on Monday, April 16 struck a deal with Endocyte Inc. to acquire the rights to develop and commercialize the company's investigational cancer compound, vintafolide - a treatment being developed side-by-side with a diagnostic agent, etarfolatide, that identifies patients with the genetic or biological traits which would increase their chances of benefiting from the drug.

Merck, of Whitehouse Station, N.J., will pay as much as $1 billion total for the rights to vintafolide, as well as two similar programs in Phase I development. West Lafayette, Ind.-based Endocyte, which will keep the rights to etarfolatide, will receive $120 million up front - close to the entire company's roughly $130 million market cap prior to the announcement. It will also be eligible for as much as $880 million in milestone payments, depending on whether vintafolide hits certain regulatory and commercial targets on six different cancer indications. Should vintafolide, an injectible treatment, win regulatory approval, Endocyte will also split profits with Merck on U.S. sales and reap double digit royalties on international sales.

Endocyte's stock more than doubled following the announcement, jumping from $3.80 per share close on Friday to $7.62 per share on Monday. It traded even higher - at $8.05 per share - during pre-market trading on Tuesday.

The boost was much needed for Endocyte. After planning to ask for between $13 and $15 per share at its IPO, the drugmaker went public in February 2011 at $6 per share. And though Endocyte bucked a trend among biotech companies by initially trading up - it climbed as high as $14.65 per share in July - its stock plummeted more than 65%, from $10.29 per share to $3.57 per share on Dec. 12 when it reported inconclusive results in a Phase IIb study. At the time Endocyte blamed a small sample size for the figures, refocused the study and is now evaluating the drug in Phase III trials for platinum-resistant ovarian cancer and Phase II trials for non-small cell lung cancer.

Vintafolide is being tested in part along with etarfolatide. Endocyte will be responsible for most of the funding involved in the ovarian cancer trials for vintafolide, while Merck will take care of the rest of the development tasks and have all decision rights on the compound.

Leerink Swann analyst Howard Liang praised the deal from Endocyte's perspective, highlighting, in a research note, the "very healthy" $120 million up front payment and the validation Merck's partnership gives to Endocyte's program. He raised hs share target on the company to $9 from $4.

For Merck, vintafolide represents a building block in amassing oncology drugs that use a companion diagnostic, which significantly increases the chances that patients will respond to treatment. Peter S. Kim, Merck's executive vice president of Merck's research laboratories division, said that Merck hopes to evaluate its potential for "multiple other cancer types."

Like many of the world's other Big Pharma titans, Merck is filling up its pipeline to replace the lost revenue coming from patent expirations. Its top-selling drug, asthma treatment Singulair ($5.5 billion in sales in 2011), goes off patent in August. Vintafolide would add to its fairly lean oncology profile. Merck markets tumor fighting drug Temodar; Zolinza, a treatment for T-cell lymphoma; Emend, for chemotherapy-induced and post-operative nausea; and Intron A, which is marketed for chronic hepatitis B and C but is also used as an adjuvant therapy for malignant melanoma.

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