Diabetes Risk Sharing Moves Up A Gear

|
 |  Includes: MRK, PFE
by: EP Vantage

Yesterday’s diabetes alliance between two big pharma rivals, Pfizer (NYSE:PFE) and Merck & Co (NYSE:MRK), is driven by a familiar desire to share the risk of developing drug classes facing increasing regulatory scrutiny that nevertheless target huge potential markets.

The deal gives Merck access to Pfizer’s SGLT2 inhibitor ertugliflozin, as well as putting in play its combination with Merck’s $4bn DPP-IV inhibitor, Januvia, and it will be interesting to see how other diabetes players respond. The deal is of immediate relevance to Boehringer Ingelheim’s alliance with Lilly (NYSE:LLY), and to the US biotech group Lexicon Pharmaceuticals (NASDAQ:LXRX).

Obviously, securing the necessary cash to develop ertugliflozin cannot be the collaboration’s driver, and indeed the financial metrics are nothing to write home about. Signing fees and initial milestones amount to just $60m payable by Merck, and revenue and cost sharing is split 60/40 in Merck’s favour.

Rather, the alliance must be seen as having a strong strategic rationale. Building a diabetes franchise nowadays involves offering a range of drugs with different mechanisms of action, and the risk-sharing approach probably allows for bolder bets than a single player could likely afford to make.

This has been the driving force behind AstraZeneca (NYSE:AZN) and Bristol-Myers Squibb’s (NYSE:BMY) joint acquisition of Amylin, and must also play its part in the longer-standing Lilly/Boehringer collaboration.

Troubled classes

After all, both the DPP-IV and SGLT2 inhibitor classes have suffered safety troubles, the former over a pancreatic cancer signal and the latter relating to genitourinary infections.

A U.S. FDA review of incretin mimetics represents a problem – by virtue of Januvia’s size as the biggest-selling DPP-IV inhibitor by far, Merck has a lot to lose (Diabetes drug safety controversy grows with new analysis, April 19, 2013). Meanwhile, SGLT2 inhibitor development has been tough, though Johnson & Johnson’s (NYSE:JNJ) Invokana recently became the first to reach the U.S. market; AstraZeneca/Bristol’s Forxiga is available in the EU but was rejected in the U.S.

But it might be possible that a combination of the two mechanisms gives a similar efficacy effect while allowing lower doses of each ingredient, thus avoiding many of their individual deleterious effects. Merck and Pfizer are not the first to go down this route – Boehringer and Lilly already have in phase III a fixed-dose combo of their marketed DPP-IV inhibitor, Tradjenta, and late-stage SGLT2 inhibitor empagliflozin.

The new partners also plan to combine ertugliflozin with metformin – mirroring precisely Lilly and Boehringer, whose empagliflozin/metformin combo is in phase I.

Bad omen

As for Lexicon, the latest flurry of activity has been taken as a bad omen for partnering LX4211, one of the few dual SGLT1/2 inhibitors in development, and the biotech group’s stock fell 10% yesterday.

Merck had been one of the likelier potential licensees for LX4211, and the big pharma group’s choice of a straight SGLT2 inhibitor does undermine Lexicon’s contention that dual 1 and 2 subtype inhibition improves tolerability. Nevertheless, as EP Vantage has argued, Sanofi is a natural partner for LX4211, and this has not changed (Lexicon could define Sanofi as the ideal diabetes partner, March 6, 2013).

Perhaps the sticking point is price, and a big pharma group’s likely insistence on a back-end-weighted deal structure. True, investors will baulk if the asset is given away cheaply, but Lexicon wants a partner-funded phase III trial to begin by the mid-year, and might be approaching the stage at which any partnership is better than no deal at all.

And, after Pfizer and Merck, the pressure is on.