Merus CEO Explains The Incyte Agreement: 'This Deal Is Strategic For Both'

Shares of Merus NV MRUS have spiked almost 45 percent in the past couple of days, following its announcement of a global strategic research collaboration agreement with Incyte Corporation INCY aimed at discovering and developing bispecific antibodies.

As per the deal, Incyte will pay Merus $120 million upfront and purchase 3.2 million shares of the company at $25 per share, $80 million in stock to get exclusive rights to as many 11 of the latter’s bispecific antibody research programs, including two preclinical immuno-oncology projects.

After the announcement, Benzinga had the chance to chat with Merus’ CEO, Ton Logtenberg and chief business officer Hui Liu, who shared some insight into the company and the agreement.

Deal Specifics

This deal is strategic for both companies, and it’s entirely preclinical, the chief executive began. This means that “it doesn’t include any of the clinical assets that Merus has, nor a program called MCLA-158 that is on its way to the clinic.”

“What we have done is do come up with a mix of target pairs that address different biologies that are relevant for the development of cancer as well as cancer metastasis and it includes the new programs for which target pairs still need to be identified,” he explicated. “And, that would also include some of the preclinical pipeline products that Merus has developed, including two of our programs in immunomodulation.”

The arrangement “provides access to cash from Merus, which we can then use to broaden our pipeline, but also to further advance our clinical programs going forward,” Logtenberg added. “And for that part we plan to work with the cash to create value with something we will update you on in the next year.”

A Complex Agreement

On top of the collaboration agreement, the deal included other clauses. For instance, under the terms of the contract, Merus will retain all development and commercialization rights in the U.S. for one of its preclinical programs, granting Incyte the ex-U.S. rights. After regulatory approval in any geography, the company selling the product will pay the other one tiered royalties ranging of 6 percent to 10 percent.

Also included in the covenant was the option for Merus to co-fund two other programs, and for Incyte to fund the other eight. For this latter case, Merus will be eligible to receive up to $350 million in milestones in addition to tiered royalties of 6 to 10 percent for each one of the eight programs in question.

Seeking to better understand such a complex arrangement, Benzinga inquired about the negotiation process.

“Going into any of the business development discussions, what is important [...] is that we are focused on building a product company,” Liu expounded. “So, it is very important for us to retain product rights.”

“Having the U.S. rights to one of the products was very important to us and that was a key focus of the discussion,” he continued. “Then, beyond that, we have the option to co-develop two programs and in return to receive 50 percent of the profit in the U.S. As we know certainly for cancer therapeutics, the U.S. is the most important market and having a significant share of this market obviously is very important to us.”

When asked if the royalty rates seemed fair to them, Liu responded, “We believe these royalties are very -I would say- respectful compared to other deals at the same stage; and we have to remind everyone that Incyte will be funding all of the discovery research, preclinical development, clinical, commercial [...] all of it, on these programs. So they will be taking all the financial risks for these programs.”

Liked this interview? Check out our conversation with Glassdoor's chief economist, who shared some thoughts on the labor market and the gender wage gap going into 2017.

Nick Donato contributed to this report.