Merck bets big on NGM with a $450M handshake

Taking a page from famed partners like Sanofi ($SNY) and Regeneron ($REGN) and Roche ($RHHBY) and Genentech, Merck ($MRK) has signed a sweeping R&D deal with biotech NGM Biopharmaceuticals, promising up to $450 million for 5 years of pipeline-building collaboration.

Under the agreement, Merck will pay NGM $94 million up front and trade $106 million for a 15% stake in the company. In exchange, the pharma giant gets the chance to collaborate on NGM's wide range of preclinical biologics, committing up to $250 million to bankroll development.

The terms of the agreement are particularly favorable for NGM, as the biotech will remain in charge of all R&D and have the autonomy to kick off new discovery projects on Merck's dime. Once NGM establishes human proof of concept with an asset, its partner then gets the option of stepping in with a license deal covering global development and commercialization. And, before Merck initiates a Phase III trial on any such candidate, NGM gets to choose whether it wants to get milestone and royalty payments or co-fund development in return for up to 50% of revenue.

That, CEO Bill Rieflin said, gives the biotech an opportunity to build a broad pipeline and grow into a self-sustaining drug development operation.

"It's an opportunity for us to establish a big brother-little brother relationship with one of the world's leading pharmaceutical companies," Rieflin said.

NGM is "an old school biotech company in the sense that we attract drug hunters who aspire to do something important," he said, and Merck signing on for 5 years of unfettered R&D gives the company "the latitude to take risks and explore things without a financial sword of Damocles hanging over our head."

The collaboration's only thus-far disclosed asset is NP201, a preclinical candidate with potential in obesity, diabetes and nonalcoholic steatohepatitis (NASH), NGM said. Beyond that, the biotech has hinted at a pipeline of potential treatments for other cardiometabolic diseases, cancer, central nervous system disorders and kidney ailments, otherwise keeping details under wraps. NGM's lead asset, the Phase II NASH treatment NGM282, is not part of the Merck deal and remains wholly owned by the biotech.

Looking out over the life of the agreement, Rieflin said the Merck deal will be a success if NGM can make itself an indispensable partner, getting multiple products into human development and inspiring its counterpart to take the plunge on many of them.

"We think 5 years from now people will look back and say Merck got a spectacular deal on a company that was a little under the radar screen but was ripe for creative flowering in drug development," he said.

- here's the release

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