Merck To Pay $300M Upfront To Co-Develop Eisai's Cancer Drug

Merck & Co., Inc. (NYSE:MRK) announced an oncology collaboration with Japan’s Eisai Co., Ltd to jointly develop and commercialize the latter’s tyrosine kinase inhibitor, Lenvima, both as a monotherapy as well as in combination with Merck’s anti-PD-1 therapy, Keytruda, for several types of cancer. For the deal, Merck will pay Eisai an upfront amount of $300 million.

Lenvima, developed by Eisai, is presently approved for the treatment of thyroid cancer as a monotherapy and second-line treatment of renal cell carcinoma (RCC) — a type of kidney cancer — in combination with Novartis’ (NYSE:NVS) Afinitor (everolimus). Meanwhile, Lenvima monotherapy is under review in the United States, EU and Japan for hepatocellular carcinoma, a type of liver cancer. Also, late-stage studies are already ongoing to evaluate Lenvima in separate combination studies with Keytruda and Afinitor for RCC. Meanwhile, the Keytruda/Lenvima combination enjoys Breakthrough Therapy Designation from FDA in RCC.

Merck and Eisai plan to jointly develop Lenvima across six cancer types and 11 potential indications. The companies will share global development and marketing costs, as well as gross profits from Lenvima equally. However, Eisai will book Lenvima worldwide product sales both as a monotherapy and in combination.

Other than the upfront payment, Merck will also pay up to $650 million for certain option rights through 2020, as well as $450 million as reimbursements for R&D costs. Other than these, Eisai will be entitled to regulatory/sales milestone payments of up to $4.36 billion.

So far this year, Merck’s shares have underperformed the industry. Merck’s shares have declined 3.2% in the period compared with a 1.9% decrease for the industry.

Keytruda is the second-largest product in the Merck portfolio. It is marketed for many types of cancer and treatment settings including lung cancer, melanoma, head and neck cancer, classical Hodgkin’s lymphoma, gastric cancer, bladder cancer and microsatellite instability-high (MSI-H) or mismatch repair deficient cancer.

The treatment fetched sales of $3.8 billion in 2017, up almost 172% year over year. This upside is driven by the global launch of new indications, further boosting demand. Keytruda sales are gaining, particularly from a strong momentum in the indication of first-line lung cancer, as it is the only anti-PD-1 approved in the first-line setting both as a monotherapy as well as a combination therapy with Eli Lilly’s (NYSE:LLY) cancer drug Alimta (pemetrexed) and carboplatin (pem/carbo).

The Keytruda development program also significantly advanced in 2017 with several regulatory approvals in the United States, Europe and Japan. The new approvals expanded the patient population, driving up sales last year. The positive momentum is expected to continue in 2018 as well.

Meanwhile, Keytruda is being studied for more than 30 types of cancer, exceeding 700 studies, including in excess of 400 combination studies. Merck is collaborating with several companies including Amgen, Inc. (NASDAQ:AMGN) , Incyte, Glaxo and Pfizer (NYSE:PFE) separately for the evaluation of Keytruda in combination with other regimens.

We expect Merck to present data from several key Keytruda studies this year, including a combination study with Incyte’s epacadostat in first-line metastatic melanoma. Also, Keytruda could get an approval for the relapsed or refractory primary mediastinal large B-cell lymphoma indication this year with FDA action expected in April.

Merck carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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