Merck bids $500m for Viralytics
Darren Shafren was behind the discovery of Cavatak. Picture: Renee Nowytarger
A cancer drug developed in Newcastle and based on a common cold virus has secured Australian biotech junior Viralytics a $502 million takeover bid from global pharmaceutical giant Merck.
Malcolm McColl, chief executive of Viralytics, said the offer was the biggest single upfront payment in Australia’s biotechnology sector.
“You see other deals of promised payments that don’t eventuate ... this is $500m in cash,” Dr McColl said.
“We think Merck is a great company and when they acquire us, they will do a tremendous job in rolling this drug out for the benefit of many cancer patients, which is not something we could’ve contemplated.”
Shares in the junior biotech soared 174.7 per cent to $1.69 yesterday on news of the deal.
MSD, which is the trade name for Merck outside the US, has bid $1.75 cash per share, which is a 160 per cent premium to the one-month volume-weighted average price of Viralytics’ shares.
Dr McColl said the investor feedback had been supportive, given the company conducted its first capital raising in January 2014 at 28c a share and a second completed years later was priced at 60c. “For the Newcastle team and the rest of us, it is nice to see the validation and we can now see this moving forward and potentially helping a lot of cancer patients,” he said.
Viralytics’ flagship treatment is its Cavatak drug, which uses a formulation of a common cold virus that has been shown to preferentially infect and kill cancer cells.
The drug is being tested in combination with Merck’s well-known cancer drug Keytruda, for use in melanoma, prostate, lung and bladder cancers.
“Viralytics is proud to have progressed its lead investigational candidate Cavatak to phase one and phase two clinical trials and we believe that MSD, the leader in immuno-oncology, is best suited to advance Cavatak for the benefit of patients globally, and to realise its potential,” Dr McColl said.
Roy Baynes, senior vice-president and head of global clinical development, chief medical officer, Merck research laboratories, said Viralytics’ approach of engaging the innate immune system to target and kill cancer cells complemented Merck’s immuno-oncology strategy.
“The strategy is focused on the rapid advancement of innovative monotherapy approaches and synergistic combinations to help the broadest range of cancer patients,” Dr Baynes said.
Darren Shafren, the chief science officer and inventor of technology at Viralytics, is behind the discovery of Cavatak, with initial studies done in the late 1990s and early 2000s. Dr Shafren leads a group of 12 scientists and research personnel at Viralytics’ laboratory in the Hunter Medical Research Institute in Newcastle.
He was once focused on trying to prevent viruses infecting patients but he slowly started to switch his thinking to examining whether the common cold virus could kill cancer cells.
Dr McColl said the Merck deal was not only a win for Viralytics but also the Australian biotech sector.
“There aren’t many acquisitions of this scope,” Dr McColl said.
“To have $500m cash offered is a big meaningful number and it has gained the attention of the global biotech sector.”
Dr McColl added that it was hard to raise money when he tapped the market in late 2013 to early 2014, because the Australian biotech sector was not that well known in New York, San Francisco and Boston.
“Those US investors have now made a good return and will be looking for the next Aussie biotech to support,” he said.
“This deal also creates validation for the sector that great science is being done here and to a quality that big pharma can ultimately acquire.”
Viralytics’ board of directors has unanimously recommended that its shareholders back the deal.
Dr McColl said the proposed acquisition was the culmination of years of dedicated work and represented an opportunity for significant value-creation for shareholders.
“There is certainty around the transaction and the substantial premium has been welcomed by the shareholders I’ve spoken to,” he said.
Viralytics’s largest shareholder, Lepu Medical Group, which holds a 13 per cent stake, intends to vote in favour of the deal.
“Lepu Medical Group acknowledges this is an attractive opportunity for Viralytics and, as such, is supportive of the transaction,” the company said.
