Immunotherapy arms race latest: Merck buys Viralytics for $394m

Merck & Co is to acquire Australian biotech Viralytics for $394 million, adding a virus-based immunotherapy to its R&D pipeline.

The acquisition, hot on the heels of BMS' $1.8 billion deal to buy into Nektar's natural killer cell platform, signals a new phase in the immunotherapy arms race.

The two companies lead immunotherapy, Merck with Keytruda and BMS with Opdivo, but know that finding the best drug to combine with these agents is vital for longer term success.

Viralytics is developing treatments that use viruses to attack a range of cancers - one of the oldest ideas in immunotherapy, but one that hasn't yet come of age.

Once the transaction is complete, Viralytics will become a wholly-owned subsidiary of Merck, which will gain full rights to Cavatak (CVA21).

Cavatak is based on Viralytics’ formulation of an oncolytic virus – Coxsackievirus Type A21 – that has been shown to preferentially infect and kill cancer cells.

Cavatak is in phase 1 and phase 2 clinical trials, injected directly into tumours and intravenously, including combinations with Merck’s Keytruda (pembrolizumab) anti-PD-1 therapy.

Merck’s acquisition values Viralytics at around 502 million Australian dollars (A$) and around A$1.75 per share is a 160% premium to company’s average price over the last month.

Lilly already had an R&D agreement in place with Viralytics since November 2015, investigating the Sydney-based biotech’s lead drug Cavatak in combination with its anti-PD-1 immunotherapy Keytruda in melanoma, prostate, lung, and bladder cancers.

Viralytics’ board has unanimously recommended the deal to shareholders unless it receives a better offer. The companies expect the transaction will be completed towards the end of June, if shareholders vote in favour and if competition regulators raise no concerns.

Viralytics’ largest shareholder, Lepu Medical Group, which holds 13% of its shares, has said it will vote in favour of the scheme, in the absence of a better offer.

Dr Roy Baynes, senior vice president and head of global clinical development, chief medical officer, Merck Research Laboratories, said: “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.”

[caption id="attachment_37533" align="alignnone" width="186"] Viralytics' Malcolm McColl[/caption]

Viralytics’ CEO, Malcolm McColl, said: “Viralytics is proud to have progressed its lead investigational candidate CAVATAK to phase 1 and phase 2 clinical trials and, we believe that Merck, the leader in immuno-oncology, is best suited to advance CAVATAK for the benefit of patients globally, and to realise its potential.”

The FDA approved Amgen's oncolytic virus, Imlygic (talimogene laherparepvec) in 2015 for melanoma, although sales have been disappointing.