Pharma R&D underachiever Merck KGaA gambles €250M on a PhIII comeback

Fresh off its latest major setback in R&D, Merck KGaA is marshaling the big euros in an attempt to make 2016 its long-awaited turnaround year in drug development. And it's reserving most of its chips for a big gamble on immuno-oncology.

The German Merck--known primarily now for going well over a decade without producing a single blockbuster drug--said today that it is budgeting an extra €250 million for research in 2016. Much of that is being devoted to avelumab, its star PD-L1 checkpoint inhibitor partnered with Pfizer ($PFE).

Merck expects €150 million to €200 million more in research costs for avelumab and some early-stage assets in 2016. Its research team now has four pivotal studies to pursue, including two new ones just announced for advanced gastric and gastro-esophageal junction cancers.

If all goes well for a change, the pharma company says it is in line to gaining its first approval and launch commercialization efforts in 2017.

After that the focus turns to early-stage work, including a program for M7824, which it bills as a "first-in-class bifunctional fusion protein (which) targets PD-L1 and TGF-β." Merck added that it is considering a partnership for its Bruton's tyrosine kinase program.

Merck KGaA's current generational R&D challenge began more than four years ago, when its MS drug cladribine failed spectacularly with regulators who were left cold by the company's mismanaged development effort. That failure led to a major reorganization with a vow to create a more efficient, smarter R&D machine. The group then pursued a big effort on a cancer vaccine, Stimuvax, which failed two consecutive late-stage programs. Remarkably, Merck KGaA said back in September that it was taking a long-delayed second stab at a cladribine approval in Europe, saying it was encouraged by new data that had since been gathered on the failed drug.

While Merck KGaA's rivals in the MS field have advanced big new treatments like Tecfidera (from Biogen ($BIIB)), the company also had to acknowledge a few days ago that its cancer therapy TH-302 (evofosfamide, in-licensed from Threshold) failed two Phase III studies, forcing it to abandon two indications while reconsidering its commitment to a drug that has long been hailed as a top program in their pipeline. Shares of Threshold were crushed by the news.

Merck KGaA--as well as Pfizer, which paid a record $850 million upfront to partner on the drug--now has an enormous interest in making a success of avelumab, which is designed to unleash an immune system attack on cancer cells. U.S.-based Merck ($MRK) and Bristol-Myers Squibb ($BMY), though, have already pioneered their PD-1 drugs on the market, with Roche and AstraZeneca in hot pursuit with rival therapies.

Any new setbacks at Merck KGaA would likely signal more big changes for an R&D group that has been in constant turmoil.

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