CD-388

It appears $19 billion in deals this year is just the beginning of Merck’s plan to build its next chapter. Merck has the world’s top-selling medicine, but it will need a suite of treatments to fill the gap left by Keytruda once the cancer immunotherapy begins to lose patent protection in the coming years. Last week’s $9.2 billion deal for flu antiviral developer Cidara Therapeutics and the $10 billion acquisition of commercial respiratory drugmaker Verona Pharma could help pad sales gaps for Keytruda over the next decade. But Merck is not done hunting. “We look forward to a future with a far more diversified set of growth drivers,” Merck CEO Rob Davis said on a Monday call with analysts to discuss the Cidara acquisition, which is expected to close next quarter. He cited the company’s ability — and perhaps its need — to conduct more deals of up to $15 billion. Here are five more takeaways from the call and Merck’s plans for Cidara’s CD388, a long-acting antibody-drug conjugate in Phase 3 testing for influenza prevention. It’s not a vaccine: Merck executives noted that CD388 would complement its existing work in vaccines and antivirals, such as HIV, but that the molecule isn’t a vaccine. “I just want to continue to emphasize this is not a vaccination. This is an antiviral,” Merck Research Laboratories president Dean Li said. CD388 could be strain-agnostic, have low resistance and help immunocompromised individuals who have a higher risk of flu complications, Merck said in its presentation . “Unlike flu vaccines, efficacy of CD388 should not vary season to season, nor be dependent on immune response. CD388 is designed to provide a full season of coverage from influenza strains A and B, and given its mechanism, it has the potential to be complementary to flu vaccines,” Li said. ‘We want to do more’: Davis said Merck is looking for additional medicines across oncology, immunology, cardiovascular, cardiometabolic and cardiorespiratory diseases. “The $1 billion to $15 billion range is still our primary focus, but as we pointed out, we are willing to go larger than that if we see an asset that brings the scientific benefits I’ve talked about and is aligned to the portfolio,” Davis said. But he’s not looking at a merger with another big pharma: “We continue to believe there is no need for a cost-synergy-driven type of transaction.” On deal value: Given that CD388 is still in Phase 3, Merck executives were asked why they were paying fully in cash upfront, and not sticking some of the potential payout in a contingent value right (CVR), which has been popular this year for assets that are still in trials. “We are very comfortable with the valuation that we have given for this acquisition,” said Merck chief financial officer Caroline Litchfield. “We see it having a high probability of success of making it across the finishing line, and therefore feel we’ve paid a full and fair value for an asset that has the potential to be over $5 billion as we move forward.” Peak sales target, and pricing plans: Merck thinks CD388 could reach annual revenue of $5 billion or more, though analysts are less bullish, projecting a peak of $3.1 billion, according to a note from Cantor Fitzgerald. The medicine is expected to reach the market by the end of this decade. Asked about pricing, Litchfield said Cidara did market research that showed a “price point up to $600 was very effective” for the once-yearly flu prevention tool. “We will look at that research to determine what’s the right price point for ourselves,” Litchfield said. She said the ex-US market would “expect to see fairly comparable prices to the United States.” The Merck CFO said potential US sales of CD388 made up “the most significant part of our valuation” of Cidara. Plans for American manufacturing: With domestic drug manufacturing at the forefront of the Trump administration’s healthcare policies, one analyst called out  that Cidara’s commercial strategy for CD388 “leaned heavily on WuXi-manufactured product from China with new CDMOs potentially serving as a back-up.” That will change under Merck. Davis said CD388 will be manufactured in the US, and that Merck will “have to work through the transition with WuXi over time.”