Merck & Co. has agreed to acquire Sydney-based Viralytics for approximately A$502 ($394 million), the companies said today, in a deal that expands the buyer’s immuno-oncology pipeline with a mid-stage oncolytic immunotherapy that has already shown positive clinical data in combination trials.

Cavatak® (coxsackievirus Type A21, or CVA21), Viralytics’ lead product, is designed to preferentially bind to receptor proteins highly expressed on multiple cancer types, in order to kill both local and metastatic cancer cells through cell lysis and the potential generation of an immune response against the cancer cells.

Cavatak’s two-pronged mechanism of action showed promise last year in combinations with two marketed cancer immunotherapies, Merck’s programmed cell death protein 1 (PD-1) inhibitor Keytruda® (pembrolizumab) and Bristol-Myers Squibb’s cytotoxic T-lymphocyte–associated antigen 4 (CTLA-4) immune checkpoint inhibitor Yervoy® (ipililumab).

At the 32nd Annual Meeting of the Society for Immunotherapy of Cancer (SITC) in National Harbor, MD, Viralytics presented results from the Phase Ib CAPRA trial assessing the Cavatak–Keytruda combo, showing a preliminary Best Overall Response Rate (BORR) of 61% (14 of 23 patients) and a disease control rate of 78% (18 of 23 patients), with what it called “very promising” durability of response in 7 of 11 patients with the most advanced Stage IV M1c melanoma.

The Cavatak–Keytruda combination is now under study in melanoma, prostate, lung, and bladder cancers under an agreement between the companies announced in November 2015.

And in the Phase Ib MITCI trial, the Cavatak–Yervoy combination showed a BORR of 50% (11/22 patients) and a disease control rate of 77% (17/22 patients) in the first 22 patients evaluable for efficacy.

Expanding Oncology Portfolio

Merck said the deal reflected its commitment to expanding its oncology portfolio through strategic acquisitions and bolstering an immuno-oncology presence in which Keytruda is being assessed in trials across more than 30 tumor types.

“Viralytics’s approach of engaging the innate immune system to target and kill cancer cells complements our immuno-oncology strategy, which is focused on the rapid advancement of innovative monotherapy approaches and synergistic combinations to help the broadest range of cancer patients,” Roy Baynes, M.D., Ph.D., SVP and head of global clinical development, CMO, Merck Research Laboratories, said in a statement. “We are eager to further build on Viralytics’s science as we continue our efforts to harness the immune system to improve long-term disease control and survival outcomes for people with cancer.”

Added Malcolm McColl, BVSc (Hons), MBA, Viralytics managing director and CEO: “This proposed acquisition culminates years of dedicated work by the Viralytics team and represents an opportunity for significant value creation for our shareholders. Viralytics is proud to have progressed its lead investigational candidate Cavatak to Phase I and Phase II clinical trials, and we believe that Merck, the leader in immuno-oncology, is best suited to advance Cavatak for the benefit of patients globally, and to realize its potential.”

Through a subsidiary, Merck would acquire all issued shares of Viralytics at A$1.75 ($1.37) per share—representing a premium of 160% to the one-month volume weighted average price (VWAP) of Viralytics shares.

Viralytics’ board has unanimously recommended that shareholders approve the acquisition, subject to there being no superior proposal and an independent expert concluding that the deal is in the best interest of shareholders.

The acquisition is set to be completed by the second quarter and implemented effective June 20—subject to the independent expert’s conclusion and other customary conditions, including Viralytics shareholder approval expected on May 28, court approval, regulatory approval, and no material adverse change or prescribed event occurring. Upon completion of the deal, Viralytics will become a wholly owned subsidiary of Merck.

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