Merck is playing defense against Summit Therapeutics with a $3.3 billion licensing deal announced Thursday for a cancer drug from China's LaNova Medicines.
Under terms of the deal, Merck will pay $588 million up front to license LaNova's LM-299. LaNova is also eligible to receive up to $2.7 billion in milestone payments.
LaNova's drug uses the same mechanism as Summit Therapeutics' Akeso-partnered ivonescimab. In September, Merck stock took a hit after ivonescimab outperformed Keytruda in a study of patients with lung cancer. Keytruda is Merck's biggest moneymaker.
"For a while, the question was: Could this become a big competitive headache for Keytruda?" Evercore ISI analyst Umer Raffat said in a report.
Merck stock fell a fraction at the close to 98.36. Summit stock also dipped a fraction to 19.45.
Rivaling Summit Therapeutics
The drugs from LaNova and Summit Therapeutics work by simultaneously blocking proteins called PD-1 and VEGF. Cancer cells often hide behind PD-1 proteins. Blocking it allows the immune system to find and kill cancer cells. Inhibiting VEGF prevents the formation of new blood cells, cutting off the cancer's blood supply. Keytruda, on the other hand, works by blocking PD-1 alone.
Evercore's Raffat says Merck either believes there is potential in this combination — or it's looking for an insurance policy against Summit Therapeutics.
On Sept. 9, Merck stock dropped more than 2% after Summit said lung cancer patients who received ivonescimab had a 49% lower risk of progression or death than those given Keytruda, a measure known as progression-free survival.
Initial data suggests ivonescimab could treat roughly 25% of patients eligible for Keytruda, Raffat said. Still, investors are closely watching whether ivonescimab's improvement on progression-free survival translates to a benefit on overall survival. Overall survival is how long patients live before dying of any cause.
"But with Merck doing this deal, in a scenario where Summit-Akeso do actually 'work' on overall survival in a Western population, maybe this deal today creates the most direct path for Merck to hold onto a very large chunk of Keytruda franchise beyond the (patent expiration) through this new program," he said.
Merck Will Progress Quickly
Raffat expects Merck to progress "very rapidly." The LaNova drug has yet to begin Phase one testing.
"However you look at it, this is incredibly savvy business development — for a very reasonable price of less than $1 billion (up front)," he said.
He has an outperform rating on Merck stock, but doesn't list a rating for Summit Therapeutics shares.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
