$17mill

For those that might not fully appreciate the significance of today's announcement, Keytruda costs US$12,500 per month or $150,000 per patient per year. The combination trial announced today will enroll 80 patients. If Viralytics were to try and conduct a trial of this size without Merck sponsoring it, and if VLA were unable to negotiate discounted pricing, it would cost VLA around A$17mill. Add the cost of biomarker analysis and this partnership with Merck is effectively saving VLA shareholders around $20mill. (The cost to Merck is much less than this, of course, because they can supply Keytruda at cost).

Shareholders might also not be aware that because Keytruda is already registered, and because CAVATAK has already passed phase 2, if this 1b combination trial is sufficiently successful (in either indication), Merck and Viralytics will have the option to move straight into phase 3 without conducting additional phase 2 trials.

Merck have now effectively declared their hand as a potential suitor for Viralytics. My guess is that Viralytics will become a takeover target for Merck as soon as sufficient efficacy data for this trial becomes available (It is no accident that Merck want to do the biomarker analysis internally). Alternatively, if Merck exclusively licence cavatak re phase 3 combination therapy, Virylatics is likely to see hefty up front payments and milestone payments.

Furthermore, in my view, if the previously announced Yervoy-CAVATAK combination trial (MITCI, currently being conducted in the US) is also sufficiently positive, then Bristol-Myers Squibb (the owner of yervoy) will also likely want to own/exclusively licence CAVATAK. With a bit of competitive tension between BMS and Merck, should all or most of these combination trials prove sufficiently successful, it not too much of a stretch to see Viralytics being valued in excess of $1bill.

And given that these trials only take around a year to complete, with interim data also available, we may not have too long to wait for this kind of competitive scenario to play out. There is plenty of risk here, of course, but this is one of the few listed ASX biotechs with genuine Disallowed potential over a fairly short time frame.