Merck KGaA Ties Up with Pfizer on Immuno-oncology Deal

Merck KGaA (MKGAF) inked a deal with Pfizer Inc. (PFE) to co-develop and co-commercialize Merck KGaA’s investigational anti-PD-L1 antibody, MSB0010718C, as a potential treatment for multiple types of tumor.

MSB0010718C is currently being evaluated in two programs for multiple types of cancers (phase I) and m-Merkel cell carcinoma (phase II), respectively.

Terms of the Deal

Under this agreement, MSB0010718C will be developed as a single agent as well as in combination with different agents in the broad portfolio (approved as well as pipeline candidates) of both the companies. The companies will team up for the development of up to 20 high priority immuno-oncology programs (including up to 6 pivotal phase II or III studies) that are expected to begin in 2015.

Additionally, the companies will jointly advance Pfizer’s anti-PD-1 antibody to phase I studies. Moreover, Merck KGaA will co-promote Pfizer’s Xalkori (non-small cell lung cancer) in the U.S. as well as several ex-U.S. markets.

According to the deal, Merck KGaA will receive payments (up to $2 billion) on the achievement of certain regulatory and commercial milestones apart from an upfront payment of $850 million. Both companies will share the costs related to the development and commercialization of the products as well as the revenues generated from the sale of any anti-PD-L1 or anti-PD-1 product developed under this collaboration.

Our Take

We are encouraged by Merck KGaA’s collaboration with Pfizer. This agreement should help Merck KGaA’s biopharmaceutical division, Merck Serono, to remain on track with its “Fit for 2018” Program, which was initiated in 2011. Earlier in Jun 2014, Merck KGaA had signed an agreement with MorphoSys AG for the discovery and development of therapeutic antibodies against undisclosed immune checkpoints.

We believe that the agreement with Pfizer will leverage Merck KGaA’s immuno-oncology pipeline and accelerate the timelines involved with the development programs. Moreover, this alliance should facilitate Merck KGaA’s entry into the U.S. oncology market apart from boosting the company’s existing oncology business in other markets.

Additionally, the terms of the deal look favorable – costs associated with the development and commercialization of any product evolving under the agreement will be equally divided between the companies.

Meanwhile on Sep 18, 2014, Merck KGaA announced that it was pursuing an in-licensing agreement for a late-stage biosimilar. We expect investor focus to remain on updates from the company. Additional phase I data on MSB0010718C in patients with non-small cell lung cancer and ovarian cancer is also expected in 2015.

Merck KGaA currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the pharmaceutical sector are Lannett Company, Inc. (LCI) and Biodel Inc. (BIOD). Both carry a Zacks Rank #1 (Strong Buy).

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