Merck’s Research Chief Saved Biotech Deal With Juicy Pitch

After a bidding war for a stake in a promising experimental drug, Merck & Co. received a disappointing phone call. It had lost.

A small biotechnology firm, NGM Biopharmaceuticals Inc., had decided to grant rights to the potential diabetes and obesity treatment, known as NP201, to another major U.S. drugmaker. Unwilling to accept no for an answer, Merck’s research head, Roger Perlmutter, hopped a plane for San Francisco. Over dinner with NGM executives he outlined a plan for a much broader alliance that won them over.

Merck is paying closely held NGM $200 million up front, plus as much as $250 million to fund research over the next five years, the companies said Monday in a statement. Merck got a piece of NP201 and an open-ended option on any new drugs the biotech company might come up with. When NGM reaches final-stage trials, the biotech can choose between taking milestone and royalty payments or to co-fund development and share as much as half of the profit and costs of the drug.

The episode provides a window into the deals drugmakers strike behind the scenes to secure hot new molecules to fill their pipelines. Drugmakers scout the landscape at scientific meetings, scour research publications and, as in this case, bank on knowledge of old friends at other companies to help make their decisions.

The deal gives Merck, the second-biggest U.S. drugmaker, the right to take a stake in any drug that NGM scientists come up with -- and they remain free to research anything they like. In one notable exclusion, Merck doesn’t get rights to NGM’s most-advanced drug candidate, NGM282, which is currently in mid-stage clinical trials for primary biliary cirrhosis, a liver disease.

Merck shares fell less than 1 percent to $58.30 at the close in New York.

Gastric Bypass

“It’s quite a new model for us,” Perlmutter said in a telephone interview. In essence, Merck has decided to “bet on a very talented and accomplished team, and say ‘Take your interests wherever they take you,’” he said.

Before Merck, NGM, based in South San Francisco, had raised $170 million from venture capitalists. It was founded in 2008 by Jin-Long Chen, a longtime colleague and friend of Perlmutter.

Chen was vice president of biology at Tularik Inc., a biotech firm developing drugs for inflammation and metabolic diseases, until it was acquired by Amgen Inc. in 2004.

Through the acquisition, Chen became vice president of research at Amgen, working closely with Perlmutter, who was then Amgen’s head of R&D. Both sides say the researchers’ mutual trust was key to sealing the deal.

Chen said NGM is interested in innovations, not drugs that incrementally improve what’s already on the market. He has spent the last seven years exploring the metabolic effects of gastric bypass surgery.

Slimmed-Down Monkeys

The operation, which targets obesity, shrinks the stomach and has been shown to lower blood sugar and blood pressure, even though scientists don’t fully understand how the surgery affects the metabolic system, which includes the cellular processes involved in digestion.

The company’s NGM282 mimics a hormone called FGF19 that plays a role in metabolism. Data on its trial results are expected sometime this year, William Rieflin, NGM’s chief executive officer, said in an interview.

NP201, which Merck holds a stake in, may have promise against diabetes, obesity and non-alcoholic steatohepatitis, a dangerous buildup of fat in the liver. NP201 led to significant weight loss and reduction in food intake in monkeys, and normalization of blood sugar in other animal models, according to NGM. It has not been tried in humans.

Since human research would require large populations and expense, NGM started looking for a big-pharmaceutical partner for NP201 in June.

Close Call

It approached a number of drug companies -– “in the high single digits,” said Rieflin -- at the American Diabetes Association’s annual conference in San Francisco.

Companies were intrigued, and by a Dec. 12 board meeting, the candidates had been narrowed to Merck and one other company, which NGM declined to name. It was so close that Aetna Wun Trombley, NGM’s vice president of business development, approached the board meeting with two contracts drawn up, ready to be signed.

“One hour before going into the board meeting, Merck was the preferred company,” she said. “Then, five minutes before, the other partner came back” with a better offer, Trombley said. The board agreed with Trombley -- Merck was out. NGM executives called both companies to give them the news.

Fifteen minutes later, Merck called back.

A meeting with Perlmutter was arranged. At first, NGM’s executives were apprehensive. Some worried he might propose a takeover of NGM, President Jeff Jonker said.

“We didn’t think it was a social call,” said Rieflin.

Dinner

Two days later, over dinner at Central Park Bistro in San Mateo, Perlmutter surprised them as he laid out a vision for a broad collaboration. As he sized it up, Merck was interested in building up its biotech research capabilities, and it would take it a long time to replicate what was already in place at NGM, he said in an interview.

Chen and Rieflin took his news back to NGM’s business development team, which then had to ask the board of directors for permission to reverse the approval it had already given to a deal with the other company. The board, which is led by David Goeddel, a former Genentech scientist who founded Tularik and subsequently worked at Amgen, gave them the green light.

Merck was offering to pay more than its closest rival, and its endorsement of NGM’s research was seen as a selling point in its plans for an eventual public stock offering, according to Jonker.

It took two more months to hash out the details before the agreement was sealed. As drugs covered by the deal have yet to be tried in humans, it will take years to tell if Merck’s bet will pay off.

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