Lessons from Merck's $20M-plus Harvard deal


Last fall, the folks behind Harvard's Blavatnik Biomedical Accelerator took a promising preclinical program from the lab of Matthew Shair and essentially posted a "for sale" sign on it--touting its potential for mounting a fresh line of attack on acute myeloid leukemia with a counterintuitive therapeutic strategy ready for the clinic. 

The move didn't escape Merck's attention.

Today, Harvard is taking the wraps off a $20 million upfront fee from Merck ($MRK) and handing over control of the small molecules spawned by Shair's work. The payoff Merck is fronting, which will be used to continue the accelerator's work, underscores the growing dealmaking power that prominent institutions like Harvard wield in a translational research world in which venture capitalists and big pharma giants compete for the IP needed to lay the foundation for biopharma's next prize drug programs.

"I think it's maybe the beginning of a trend," says Isaac Kohlberg, Harvard's chief technology development officer, in response to my query on the deal's significance. "You rarely see an upfront and milestones of this magnitude. We have taken this project further down the development path, not for value creation but for public good, to make sure it's developed."

Whatever public good that may eventually come out of the early-stage strategy, the value is more obvious, though Kohlberg isn't talking about specific milestones in the deal. Merck, like most of the Big Pharmas, sees no real advantage in discussing any of the terms of its deals. In Big Pharma land, there's no tangible upside in revealing details on deals; that can only erode a company's bargaining stance. And the numbers are so tiny relative to the big picture, that these figures never come close to anything amounting to a material issue for pharma investors. 

But Harvard, like any biotech operating in the deals sphere, does care about the numbers and what they say about the potential value of the work being done. And even if it can't spell out all the figures, Kohlberg's group carefully noted that Merck's package includes tiered royalties.

Kohlberg and the Harvard Square squad are also coy about just what Merck is getting in the deal. There are some trial-ready small molecules that "inhibit enzymes that regulate the transcription of key genetic programs that are altered in AML and other cancers." But that's about as far as they want to go.

Harvard officials, though, tipped their hand last fall with a report on Shair's work that we wrote up in FierceBiotechResearch. Shair's lab synthesized a molecule called cortistatin A, which was extracted from sea sponges. The molecule inhibits a pair of kinase twins--CDK8 and CDK19--and the team came up with a three-dimensional structure that they say narrowed the drug's focus to a very limited set of targets--reducing the chances of off-target toxicity. The strategy turns up the activity of genes involved in AML cells, restoring them to their normal identity and preventing further growth. And they've been crafting new molecules that can do the same work even better, building them in a way that should ease manufacturing processes during clinical development.

Add it all up, Harvard said in September, and you had a nice package deal waiting for a drug developer ready to take it into human studies. Six months later, Merck--which has shown just how aggressive it can be in development--won the bid.

Over the past three years, as biotech valuations swelled and shriveled, big biopharma has gone different directions in lining up new clinical programs. Johnson & Johnson ($JNJ), for example, has been Hoovering up early-stage research projects while Celgene ($CELG) has covered the waterfront from big deals to small. Pfizer ($PFE) inked the largest upfront package ever when it signed up with Merck KGaA on immuno-oncology. Throughout it all preclinical academic packages have been seen as good value for startups and their VCs. Now Merck's selective approach to licensing may help hike academic valuations, while pointing to new ways for institutions to spotlight these deals for prospective acquirers.