Immuno-oncology, M&A

The I/O 2.0-combo tech race is on: Merck bags oncolytics player Viralytics in $394M buyout

Last spring the small Australian biotech Viralytics made a big splash at the annual AACR meeting, turning up in the showcase spot with an intriguing snapshot of the positive data their oncolytics therapy Cavatak was registering in the clinic.

This morning Merck $MRK — already loosely allied in a supply deal with Viralytics for their PD-1 star Keytruda — followed up by gobbling the whole company, bagging the biotech in a $394 million buyout as the leaders in the checkpoint race branch out with new deals for combination approaches.

Roy Baynes

Merck is paying a big premium — 160% — for Viralytics (ASX: VLA, OTC: VRACY), but their AUD 1.75 cash price per share represents a modest cost in a blockbuster business like the PD-1/L1 field which Merck and Bristol-Myers Squibb dominate.

It’s also no coincidence that Merck’s deal is coming just days after Bristol-Myers Squibb $BMY bought into Nektar’s oncology program with a record upfront. With 5 PD-1/L1 drugs proliferating around the world, and more on the way, the focus is on new combinations that work together to defeat cancer better than the monotherapies. And the leaders clearly want a stake — or full ownership — in the next big thing in the clinic.

Evercore ISI analyst Umer Raffat was one of the first analysts out with a note Wednesday, calling the deal a nice “tuck-in” and calling out one aspect of the tech that likely helped trigger the deal:

Outside of early ORR being seen in this trial of  lung and bladder cancer pts, the most intriguing signal previously emerging out of this trial was the upregulation of PDL1 expression seen within a couple of wks among pts with low PDL1 expression at baseline:

Roger Perlmutter

Like the fast-growing PD-1/L1 field, new research indicates that a large roster of oncolytic companies have been multiplying, following new approaches that promise to surpass the pioneer in the field: Amgen’s T-Vec, which Merck R&D chief Roger Perlmutter bought back in 2011 in a deal that totaled about a billion dollars, when he was running R&D at Amgen.

The basic approach is the same. These oncolytic viruses are designed to infect cancer cells and explode them, creating a target rich environment for the immune system’s sentinel T cells. But new approaches promise to amp up the impact over Amgen’s pioneer. And there’s general consensus that it’s a good match for a checkpoint like Keytruda.

In Viralytics’ case, researchers are working with a formulation of the common cold Coxsackievirus Type A21.

Here’s what we found at the showcase round at AACR last April:

Injected directly into lesions, researchers tracked an overall response rate of 50%, with 4 patients registering a complete response and 7 patients experiencing a partial response. The median duration of response was not yet reached, “with a number of responses greater than six months and several still ongoing” — a signal of potential durability.

Among 11 patients who had disease progression following earlier treatment with an immune checkpoint inhibitor, 4 had a response. The other 7 responders had not been treated earlier with a checkpoint.

“The preliminary overall response rate of 50% is very positive because previous reports indicate an 11% overall response rate for ipilimumab (Bristol-Myers’ Yervoy) alone and an approximately 28% overall response rate for CVA21 alone,” noted primary investigator Brendan Curtis at the time.

The relatively low cost for Viralytics may underscore the sheer volume of oncolytic viruses now in development. A recent study from the Cancer Research Institute found 69 in clinical development and another 95 in a preclinical program. The Australian biotech is now in Phase I and II studies, but the field appears poised to explode with pivotal data in the coming year or two.

“Viralytics’s approach of engaging the innate immune system to target and kill cancer cells complements our immuno-oncology strategy, which is focused on the rapid advancement of innovative monotherapy approaches and synergistic combinations to help the broadest range of cancer patients,” said Roy Baynes, senior vice president and head of global clinical development, chief medical officer, Merck Research Laboratories. “We are eager to further build on Viralytics’s science as we continue our efforts to harness the immune system to improve long-term disease control and survival outcomes for people with cancer.”

Image: Merck building in Branchburg, NJ. Shutterstock

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

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