Merck to acquire Afferent

Investors are backing several biotech firms created to advance molecules discarded by larger drug companies. Validating the strategy, Merck & Co. has agreed to pay $500 million to acquire one of them: Afferent Pharmaceuticals, which is based on compounds licensed from Roche.

Afferent is developing small-molecule drugs targeting the P2X3 receptor for the treatment of neurogenic conditions. Its lead candidate, AF-219, is being evaluated in Phase IIb clinical trials for refractory, chronic cough and in Phase II trials for idiopathic pulmonary fibrosis with cough.

“Afferent has pioneered the clinical development of novel investigational candidates selectively targeting the P2X3 receptor, an exciting area of research,” says Roger M. Perlmutter, president of Merck Research Laboratories.

Afferent licensed the P2X3 program in 2009, securing financing from investors including Third Rock Ventures and Pappas Ventures. Now, these investors are being rewarded with $500 million plus potential clinical development and commercialization milestone payments of up to $750 million.

In recent weeks, several firms have been formed with a similar model. Iceni Pharmaceuticals is developing a Merck KGaA cancer drug, Ixaltis is advancing an old Sanofi drug in a new indication, and Myovant Sciences has taken on two Takeda compounds.

John LaMattina, a senior partner at Pure Tech Health and former head of research at Pfizer, says the decisions made by major drug companies to discontinue research in certain therapeutic areas have created opportunities for such start-ups. He cites Ziarco, a U.K.-based biotech launched in 2012 with a portfolio of allergy and inflammation drug candidates licensed from Pfizer.

Pfizer Venture Investments, the drug firm’s venture capital arm, is among the investors in Ziarco, LaMattina notes.

“Companies make strategic decisions to get out of therapeutic areas, but they have pipelines with drugs in them,” he says. “A lot of these are good drugs that people will take up.”