AstraZeneca inks $8.4B pact with Merck as crucial MYSTIC study fails and shares plunge

AstraZeneca’s crucial combination trial of durvalumab (Imfinzi) and tremelimumab has failed the primary endpoint on progression-free survival as a first-line therapy for non-small cell lung cancer. The shock waves from that news immediately ripped through its share price, erasing billions in market value and spurring some fevered speculation about the pharma giant’s future. And within hours analysts started to raise the prospect that the fallout just might be bad enough to inspire a new megamerger takeover attempt.

The news marks a major setback for AstraZeneca $AZN. Analysts have been waiting months for the results, seeing it as a critical test of CEO Pascal Soriot’s plan to turn things around at the pharma giant after five years at the helm. A success here could have vaulted AstraZeneca into the front ranks of a furious assault on a multibillion-dollar market; failure was deemed a disaster. The combo study of the PD-L1 and CTLA-4 checkpoint drugs is considered the most important trial that the pharma giant has been pursuing, and its biggest stock catalyst of the year.

Sean Bohen, AstraZeneca

AstraZeneca’s shares cratered on the news, plunging 15% and wiping out more than $12 billion in market cap. Merck shares $MRK, meanwhile, surged 4% in pre-market trading as the prospect of a direct threat to its lead position on lung cancer receded. And once again Bristol-Myers Squibb was damaged, dropping 6% as investors considered the consequences of failure for a PD-(L)1 and CTLA-4 similar to its own matchup for Opdivo and Yervoy in the CM-227 trial.

AstraZeneca sought to take the sting out of the trial failure by simultaneously announcing a major new development and commercialization partnership with Merck for its promising PARP Lynparza along with the experimental MEK drug selumetinib.

Merck $MRK agreed to pay a whopping $2.35 billion in an upfront and option fee to co-develop and market the two drugs, working on monotherapy studies as well as combinations alongside their rival PD-(L)1 drugs Imfinzi and Keytruda. Merck will also pay up to $6.15 billion in milestones, making this an $8.4 billion deal — one of the largest of its kind.

But it wasn’t enough to soften the blow.

AstraZeneca first acknowledged the failure of MYSTIC in a download early Thursday of new clinical trial results, then confirmed it in a release. There was more bad news.

“As a secondary endpoint, although not formally tested,” the company adds, “Imfinzi monotherapy would not have met a pre-specified threshold of PFS benefit over SoC in this disease setting.”

“We now have to wait for overall survival data in the first half of 2018,” said Soriot in a call with reporters, adding that he was disappointed by the initial results. “This is the main endpoint,” he added about OS, looking to keep hope alive.

AstraZeneca was 5th to market with a PD-(L)1 drug. Merck and Bristol-Myers Squibb were able to seize the lead in the megablockbuster cancer market, so AstraZeneca recalibrated its development plans to emphasize its combination strategy.

Soriot has repeatedly flashed signs of the stress that has been building over MYSTIC. It’s extraordinary for any Big Pharma to be in a position like this, where one trial can play such a crucial role in determining a company’s fate.

This morning, though, Soriot and R&D chief Sean Bohen defended their design of the MYSTIC study, putting PFS in for the first take.

“If it had been successful everyone would have been thrilled,” Bohen said about MYSTIC PFS data. Soriot also batted back concerns about the potential negative impact of crossovers on the OS endpoint, which several analysts have raised as a potential hurdle on survival rates.

“People are commenting on the danger of crossover,” the CEO told reporters. “We have limited crossover. The risk there is much lower than in other studies.”

We may never know, though, what role the data played in the strange story about Teva’s reported move to offer the CEO’s job to Soriot. Over several days AstraZeneca’s stock shed billions in market cap as rumors floated about his possible departure from AstraZeneca. Soriot dispelled those rumors with an internal memo underscoring his intention to stay and fight it out. Back when Pfizer was looking to buy the company, he pledged AstraZeneca will almost double last year’s $23 billion in revenue by 2023.

That goal, however, looks like it’s receding — at least today. In H1 AstraZeneca’s total revenue declined 11% compared to the same period in 2016 as franchise revenue continued to erode in the face of generic competition. The company expects a single-digit decline for the year in what has been presented as the bottom point for the numbers.

Soriot repeatedly refused to directly address the Teva story today, but he publicly reiterated his intention to stay focused on his goals at the pharma giant.

“I’m committed to delivering on our strategy to returning to growth,” he said. Not everything has worked out, he noted, but Soriot insisted that the company had made “enormous progress.”

Pressed on Teva, he added:

“I’m not a quitter. That is as far as I will go.”

Asked by Reuters’ Ben Hirschler about a share price that fell to £43 this morning, compared to the £55 that Pfizer offered, the CEO said: “Overall the pipeline is delivering…You have to give these things time,” says Soriot. “There’s a lot more in our pipeline than MYSTIC.”

As the dust settled later in the day, new predictions began to circulate that the weakened share price could attract a new bid for the company. And AstraZeneca is in a much worse position now to fight off an acquisition.

Image: Pascal Soriot AP Images

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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