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Merck's cancer deal turns up heat in high-stakes immunotherapy market

With its nearly $400 million acquisition, U.S. drugmaker Merck & Co. Inc. is creating possibilities for combinations in a competitive class of cancer therapies a week after a key rival made its own deal, shifting the lung cancer market once again.

Merck announced Feb. 21 that it would buy Australian company Viralytics Ltd. for $394 million, gaining access to the experimental Cavatak, a product designed to infect and kill cancer cells.

This method of treatment, known as an oncolytic virus, has been a lesser-known field of cancer therapy development for years. Yet this avenue is increasingly being explored as a combination agent with drugs that work by supporting the immune system's fight against cancer, such as Merck's Keytruda.

Keytruda works by blocking healthy cells' PD-1 protein from linking up with a partner arm on the surface of cancer cells known as the PD-L1 protein, similar to Bristol-Myers Squibb Co.'s Opdivo and Regeneron Pharmaceuticals Inc.'s experimental cemiplimab, the latter of which is also in early stage trials with an oncolytic virus, Korea-based SillaJen Inc.'s Pexa-Vec.

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In the same class of immune system-boosting drugs known as checkpoint inhibitors is a group that blocks the PD-L1 protein, including AstraZeneca PLC's Imfinzi, Pfizer Inc. and Merck KGaA's Bavencio and Roche Holding AG's Tecentriq. Yet this group has stumbled in some major trials, such as Imfinzi's lung cancer failure last year and Bavencio's recent disappointing results for the same disease, one of the largest cancer markets.

Dozens of cancer studies and rapid product launches have largely pitted Merck and Bristol-Myers against each other for dominance of this class of medicine.

The timing of Merck's acquisition seems particularly interesting, Evercore ISI analyst Umer Raffat said, noting that Viralytics has clinical updates for its therapy slated for the second quarter of 2018. Cavatak is in phase 1 skin cancer trials both with Merck's Keytruda and another Bristol-Myers medicine, Yervoy, showing early promise in both cases.

The race for first in lung cancer

The deal also comes a week after Bristol-Myers announced a collaboration with the smaller, California-based biotech Nektar Therapeutics to develop its experimental immunotherapy NKTR-214, and not long after, Bristol-Myers revealed broad plans to step outside checkpoint inhibitors' current market limitations. While most PD-1 and PD-L1 research has been limited to patients who show high levels of those markers, Bristol-Myers recently announced that it is studying Opdivo and Yervoy in combination across cancers that may not show specifically high PD-L1 levels but do show high tumor mutation burden, or TMB.

Success with this patient group, which will be decided when the trial is wrapped up next year, could make Bristol-Myers a pioneer among the immunotherapy makers. In the meantime though, its long wait for data has left a window open for other rivals, particularly in the massive lung cancer class.

The expectation that Bristol-Myers' Opdivo would lock in approval this year for adjuvant lung cancer care, or post-surgical use to treat lingering disease, buoyed Cowen analyst Steve Scala's notably higher-than-consensus revenue expectations for the company through the next few years, he said in a Feb. 20 note.

Now, the company has pushed back some trial results to include goals such as TMB treatment, and AstraZeneca's Imfinzi can expect to enjoy 100% market share for that particular patient population until Merck gets its own data together for adjuvant care, likely in 2021, Scala said.

Bristol-Myers will still reap significant revenue from Opdivo: Scala expects $15 billion in sales by 2024. But he also said that with these recent developments, the company's market lead has narrowed and "admittedly, takeover remains a possibility."

Overall, Scala reduced his checkpoint inhibitor revenue expectations for 2024 by more than $8 billion, saying that while there is still "a massive opportunity" in the class, recent data and approvals provided some clarity, with Merck, Bristol-Myers and Roche increasingly looking like equal contenders for the first-line lung cancer market.