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The odds may be extremely long, but when the wager is just $1.5m for a phase II-ready product in a major therapeutic area, it may just be worth a flutter. That could be the thinking behind Merck KGaA’s (OTC:MKGAF) decision to acquire PI-2301 from the bankrupt debris of Peptimmune, a curious deal given the product’s track record and its opposing tack to the main fleet of new MS drugs.

Merck’s plans to bring a complementary MS product for Rebif to the market are back at the drawing board stage following the huge disappointment of oral MS pill cladribine (Movectro) to gain regulatory approval. PI-2301 is an injectable compound similar to Teva’s (NYSE:TEVA) Copaxone, which will probably face generic competition before PI-2301 reaches the market. Whether it can fill that hole must be questionable at this stage, given that a number of leading investors and Novartis (NYSE:NVS) have already bailed on the project. But at just $1.5m for a similar product to the biggest-selling MS agent, it is a gamble worth taking.

Out of Peptimmune ’s ashes

Peptimmune was acquired by Genzyme (GENZ) in 1999, but then spun out in 2002. It initiated a phase I trial of PI-2301 in 2007 and a phase Ib study the following year.

Referred to as a second-generation peptide co-polymer similar to first generation Copaxone, PI-2301 enhances the regulatory response of the immune system to control the pathogenic autoimmune response in certain diseases, such as MS, but also potentially Crohn’s disease, rheumatoid arthritis and autoimmune uveitis.

Contrary to some press reports, PI-2301 is a novel compound and not a generic or biosimilar version of Copaxone, a company spokesperson told EP Vantage today.

Pre-clinical studies showed PI-2301 to be more potent and effective than Copaxone, and Peptimmune presented encouraging phase Ib results in August 2009 in secondary progressive MS.

The privately-held Massachusetts biotech had intended to start a phase II trial by the end of 2009, but it never materialised, nor did the bulk of an estimated $35m series D financing round initiated in 2008, according to the Boston Business Journal. Peptimmune’s lead investors included some notable venture capital investors including New Enterprise Associates and MPM Capital.

Meanwhile Novartis-- who in early 2009 secured an option to develop and commercialise PI-2301 in a deal worth up to $500m, as well as taking an equity stake in Peptimmune through the MPM Bio IV NVS Strategic Fund-- also passed on the opportunity to take the product forward.

With evaporating investor and partnering support, Peptimmune filed for bankruptcy in March this year and its assets, primarily PI-2301, were put up for sale.

Speculate to accumulate

Merck now holds complete rights to PI-2301 for $1.5m, which was also disclosed by the company spokesperson, and intends to initiate phase II studies although no time frame for the trials was provided.

Given the suggestion at this stage that PI-2301 is likely to be a ‘me-too’ version of Copaxone, Merck will undoubtedly have to conduct a head-to-head study against the Teva drug at some stage, and could seek to do so sooner than later.

Merck’s plans may also be influenced somewhat by the outcome of Teva’s current battle to defend its patents on Copaxone which are not set to expire until 2014 (Event – Teva needs Copaxone patent victory, August 22, 2011). Indeed, Peptimmune tried to do its bit for Teva’s cause by filing a Citizen Petition last year to request the FDA not to approve any generic version of Copaxone, highlighting the importance of this decision to the prospects for PI-2301.

Similarly, there are a number of exciting new treatment options in the pipeline for MS, the most promising of which is Biogen Idec’s (NASDAQ:BIIB) oral pill BG-12 (Biogen steals Teva's thunder with BG-12 data, April 26, 2011) which should follow in the footsteps of Novartis’ big breakthrough last year with approval of the first MS pill in Gilenya.

Both BG-12 and Gilenya are predicted to be blockbuster drugs with global sales around $2bn by 2016, yet Copaxone could still be the biggest-selling individual product with sales of $2.6bn. However, the extent of generic competition by 2016 will have a big impact on whether Copaxone can retain a decent share of the market as slightly bullish analysts are currently predicting.

As such, Merck will have some tough decisions to make on the development of PI-2301 if it is to prove that Novartis and some leading investors were wrong to let the product go. At least Merck does not have to justify a hefty price tag, and in some respects has little to lose.

Disclosure: No positions

Source: Merck's Curious MS Acquisition Was A Gamble Worth Taking