Pfizer, Germany's Merck to Develop Tumor Treatment --2nd Update

By Natalia Drozdiak and Christopher Alessi 

FRANKFURT-- Pfizer Inc. and Germany's Merck KGaA are teaming up to develop a new tumor treatment product in an effort to boost their respective oncology businesses, even as U.S.-based Pfizer reduced its guidance for 2014 as a result of the deal.

Pfizer said it will pay Merck $850 million upfront to jointly develop and commercialize an anti-PD-L1 antibody. The German company, which is already developing the compound as a drug for various types of cancerous tumors, could receive a further $2 billion in regulatory and commercial milestone payments from Pfizer, the companies said.

"It is the largest deal in the pharmaceutical industry for a single asset in this stage of development," said Belén Garijo, chief executive of Merck's pharmaceutical division. The deal also "enables Merck to accelerate its entry into the U.S. oncology market" and "fill one of our big strategic gaps," Ms. Garijo added.

Analysts at Berenberg bank called the deal a "significant transaction for Merck," saying it had "attracted a deep pocketed partner in Pfizer."

Pfizer cut its expected reported diluted earnings per-share for 2014 to a range of $1.4 to $1.49 from $1.5 to $1.59.

The two companies will also work to push Pfizer's anti-PD-1 antibody--another tumor fighting compound--into phase 1 trials, while Merck will co-promote Pfizer's lung cancer drug XALKORI in the U.S. and other markets.

The value-added co-commercialization agreement for XALKORI "allows Merck to leverage its U.S. marketing sales force" in order to expand its oncology presence before a potential approval of the anti-PD-L1 compound, according to analysts at Warburg Research. "It will allow us to enter the market immediately," Ms. Garijo said.

Merck and Pfizer currently have a co-promotion agreement for Merck's Multiple Sclerosis drug Rebif in the U.S., set to expire at the end of 2015.

Merck and Pfizer said they will jointly fund development and commercialization costs and will share all revenues from any anti-PD-L1 or anti-PD-1 products. The companies will initiate around 20 immuno-oncology clinical development programs starting next year.

"Merck's [anti-PD-L1 antibody] has shown promising results in more than 550 patients" in phase 1 development and was "a really good starting point for an alliance," said Mikael Dolsten, president of Pfizer's research and development division.

Growth in Merck's pharmaceutical division, Merck Serono, was held back in the third quarter, reported Nov. 13, because of a 69% decline in royalty, license and commission income connected with patent expirations for arthritis drugs Humira and Enbrel.

The company has moved over the past year to bolster its non-pharmaceutical divisions through the acquisitions of the U.K.'s AZ Electronics PLC and U.S.-based Sigma-Aldrich Corp., a supplier of laboratory testing materials.

Merck KGaA isn't affiliated with Merck & Co. of the U.S.

Pfizer, which has also been squeezed by patent expirations for popular drugs like cholesterol-lowering Lipitor, lowered the top end of its full-year revenue forecast for 2014 to $49.46 billion from $50.7 billion when it reported its third quarter results in October.

Write to Natalia Drozdiak at [e-mail] and Christopher Alessi at [e-mail]

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