Ariad Pharmaceuticals and Merck have revised terms of their 2007 oncology deal, giving each side something it needs near-term - innovative R&D for Merck and a financial cushion for Ariad.

Under the new deal terms, Merck gets full development and commercialization rights to Ariad's mTOR inhibitor ridaforolimus in oncology indications. In exchange, Ariad gets $69 million in cash immediately, giving it an additional cushion as it embarks on another ambitious clinical development program.

The revisions, announced May 5, will help Merck jump start its currently small, but growing, oncology program. They also extend Ariad's cash runway into the second half of 2011, valuable time for the Cambridge, Mass. oncology company, which only had enough funding ($40.4 million) on hand at the end of 2009 to see it through the second quarter. They also reduce Ariad's expenses, since it was sharing development costs with Merck but now will no longer do so.

The companies are waiting for the outcome of an ongoing pivotal trial for ridaforolimus in sarcoma. Ariad executives said they expect to have interim data in hand in the second quarter and full data in the second half of the year, and that Ariad would initiate a pivotal trial for a key pipeline drug, AP24534, a Bcr-Abl inhibitor.

Ridaforolimus, an oral mammalian target of rapamycin, has the potential to be the first targeted agent for the treatment of sarcoma. It is Merck's only Phase III oncology drug. The two companies are gearing up for a regulatory submission later this year or early next depending on the outcome of the data.

Ariad and Merck had been working to re-negotiate the deal for close to a year, driven partly by Ariad's need for financing and also by both companies' desire to broaden the development program for ridaforolimus. Under the original agreement, Ariad funded 50 percent of the development costs, a provision that limited the amount of work the partners could do on the drug.

"In order to broadly develop ridaforolimus in multiple indications, not only the ones we currently were in,... and to move the drug into multiple Phase III trials, it was clear that a somewhat different structure for the agreement would make sense," Ariad CEO Harvey Berger said in an interview.

The original deal, signed in July 2007, called for Merck to give Ariad an upfront cash payment of $75 million in exchange for co-development and co-commercialization rights, and the two companies split the cost of development (Also see "Merck/Ariad Form Billion-Dollar Collaboration To Develop mTOR Inhibitor For Cancers" - Pink Sheet, 12 July, 2007.). Merck later paid Ariad $53.5 million in milestones for the initiation of Phase II and Phase III clinical trials for ridaforolimus.

Under the revised deal, Merck will take over all development and funding responsibilities for the ridaforolimus clinical program. The $69 million in cash payments from Merck include a $50 million upfront payment and $19 million for reimbursement of ridaforolimus expenses incurred since the start of the year. Ariad also is poised to get up to $514 million, if ridaforolimus meets certain regulatory and sales milestones in multiple indications.

Revised Deal Value "At Least As Large," Ariad CEO Says

"The value of this deal is at least as large as the original transaction," Berger maintained. "The advantages to us first and foremost are that we don't have to fund any part of global development." At the same time, he said Merck was adamant that it would make the final decisions on the development program going forward.

JP Morgan analyst Cory Kasimov called the revised deal terms "favorable" to Ariad in a same-day research note. "We now assume that the substantial balance sheet relief (immediate $69 million payment plus elimination of [ridaforalimis] associated burn) could unlock significant value in Ariad over the course of 2010 as investor focus turns to what we view as an attractive oncology pipline," he said.

The new terms break down into $65 million in milestones associated with the sarcoma indication ($25 million for acceptance of the new drug application by FDA, $25 million for U.S. marketing approval, $10 million for European marketing approval, and $5 million for Japanese marketing approval), as well as $200 million in milestones based on the achievement of sales thresholds. The revisions eliminate $74.5 million in milestones granted under the original agreement for the initiation of four Phase III trials in indications beyond sarcoma, since Merck will be funding the trials.

Originally, the two firms agreed to split profits in the U.S., and Ariad would receive royalties on sales outside of the U.S. Going forward, Merck will book all sales of the drug and pay Ariad tiered double-digit royalties on global sales. The global royalty rate is approximately one-third greater than the royalty rate Ariad would have received on ex-U.S. sales under the original agreement, the firm said. "The commercial return worldwide will be similar to what we would have received under the original agreement," Berger said during as same-day conference call with investors.

Ariad will still have an option to co-promote ridaforolimus under the revised deal, assuming responsibility for up to 20 percent of the sales effort for the product in all indications in the U.S. Retaining a co-promote option was important to the company, since it ultimately intends to become a fully integrated oncology company. Ariad has aims to commercialize its next drug candidate, an oral multi-targeted kinase inhibitor, AP24534, on its own, at least in the U.S.

Ariad plans to transfer all ridaforolimus activities to Merck within the next six months. The drug is being developed as a once-daily oral treatment. The 650-patient, Phase III SUCCEED trial is currently evaluating patients with metastatic soft-tissue and bone sarcomas who have had a favorable response to chemotherapy. Phase II clinical trials in advanced endometrial cancer, prostate cancer and non-small cell lung cancer are also ongoing.

Two mTOR inhibitors are already on the market, Pfizer's Torisel (temsirolimus), dosed via infusion, and Novartis' Afinitor (everolimus), once-daily tablets. Both are approved for renal cell cancer.

Ariad is studying AP24534 in hematological cancers, including resistant, refractory chronic myeloid leukemia. The company is planning to initiate a pivotal trial for AP24534 in that patient population later this year. The study is expected to enroll approximately 250 to 300 patients, starting in the second half of the year and could take about one year to enroll. The company's pipeline also includes AP26113, an anaplastic lymphoma kinase inhibitor, which the company is aiming to file an IND to begin clinical testing.

-Jessica Merrill (j.merrill@elsevier.com)

Revised mTOR Deal With Merck Gives Ariad Time

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