AstraZeneca, Merck team up on Lynparza combos in collaboration worth up to $8.5B

Cancer drug Lynparza has been one of AstraZeneca’s biggest hopes amid generic competition for its blockbuster statin Crestor and spotty results for its pipeline. What would the company do without it?

We’re about to find out how AstraZeneca does without half of it. Merck & Co. has snapped up half the rights to Lynparza in an $8.5 billion deal, $1.6 billion up front and the rest contingent on sales and regulatory milestones, plus potential licensing payments worth up to $750 million.

It’s an ongoing partnership that includes co-development of the medication with AstraZeneca’s checkpoint inhibitor Imfinzi, a fourth-to-market therapy which just fell short in a lung cancer combo trial, and Merck’s Keytruda, which is among the top drugs in the same class. AstraZeneca’s pipeline drug selumetinib, a MEK inhibitor, and related combinations also come along.

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AstraZeneca billed the partnership as a way to extend Lynparza’s reach by racking up new indications and developing combo cocktails. Keytruda, after all, zoomed to blockbuster status, and combining that PD-1 drug with the AstraZeneca PARP inhibitor could hitch Lynparza to those coattails.

“[W]e are excited about our strategic collaboration with Merck that will maximize the potential of Lynparza as a backbone of many combinations,” AstraZeneca CEO Pascal Soriot said in a statement.

Plus, Merck will bear a big chunk of the cost of expanding Lynparza’s list of approvals, not to mention bringing selumetinib to market. It’ll shoulder half the spending on developing and marketing Lynparza and selumetinib as solo therapies. AstraZeneca will cover the cost of testing Lynparza with Imfinzi and selumetinib, and Merck will do the same for similar Keytruda combinations.

The tradeoff is obvious, however. AstraZeneca is giving up half of a promising drug that could pay off big down the line, provided it can fend off competition from new PARP drugs sold by Tesaro and Clovis Oncology. The competition from Tesaro could get tougher; it's on the block, and might get picked up by a big drugmaker with more marketing expertise.

The deal caught some quick fire from analysts. “In what appears to be an admission of defeat in the initial I-O race, this agreement gives away half of Lynparza profits in order for AstraZeneca to take advantage of Keytruda’s broad development,” Leerink analyst Seamus Fernandez said in a Thursday note. 

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AstraZeneca may be turning to Merck “to maximize the potential for Lynparza + PD-1 combos,” Fernandez added, “but it also sells off part of a very attractive asset for a series of near-term, one-time payments.”

That trade is one that AstraZeneca has made repeatedly over the past few years, beefing up its “externalization revenue” along the way. The series of deals, which include two selloffs in the past three months, have been criticized by analysts and investors as shortsighted. It unloaded a migraine drug, Zomig, to Grünenthal last month for up to $300 million, weeks after a $300 million heart drug sale to Recordati. 

It’s true that Lynparza brought in just $59 million in the first quarter, which amounts to 9% growth. It’s also true that Lynparza faces those competitive threats. And AstraZeneca expects the Merck deal to boost its 2017 revenue by about $1 billion.

Down the road, it will book the milestone payments, up to $6.15 billion worth, as externalization revenue, and gross profits will be split 50-50 with Merck.

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In the meantime, AstraZeneca is eyeing an expanded Lynparza approval in ovarian cancer, thanks to positive data for its tablet formulation in a broader patient population. In patients who’d relapsed, Lynparza held off recurrence for more than two years compared with placebo.

And it’s in the final stages of developing Lynparza in breast cancer. In a phase 3 study comparing the medication with standard-of-care chemo in patients with HER2-negative breast cancer and BRCA1 or BRCA2 mutations, Lynparza pared down the risk of disease worsening or death by 42%, AstraZeneca said at the American Society of Clinical Oncology annual meeting in May. In that field, it’s ahead of Tesaro and Clovis, whose medications Zejula and Rubraca are in phase 2 breast cancer testing.

With a Lynparza nod in that field, AstraZeneca is expecting a “change in medical practice” similar to the one it saw when the drug launched in ovarian cancer three years ago, Michelle Werner, AstraZeneca’s U.S. head of oncology, told FiercePharma at ASCO. “The ability to have an option that is not chemotherapy is also, I think, tremendous in terms of the potential that it has in being able to have a positive impact on a patient’s quality of life.”