GTC Biotherapeutics (fka GTCB)

[DewDiligence]

GTC’s Supply Relationship with Merrimack Pharma

[Added info on the U.S composition-of-matter patent.]

Merrimack is a private company based in Cambridge, Massachusetts whose lead drug, MM-0903, is human alpha-fetoprotein produced by GTC using transgenic goats. The companies have been working together since 1999 (when Merrimack was doing business as Atlantic BioPharmaceuticals) the most recent update to the relationship came in September 2005 (#msg-7807962).

MM-093 is being tested in three indications: rheumatoid arthritis (RA), psoriasis, and uveitis (an ophthalmic “orphan” indication). In RA and psoriasis, Merrimack has run phase-2b and phase-2 trials, respectively; in uveitis, a phase-2 trial just began. These are the latest PR’s on each program:

#msg-8163705 (RA)
#msg-10727170 (psoriasis)
#msg-18468726 (uveitis)

Recently, our own board moderator, floblu, reported that Merrimack will soon announce an extension to the phase-2 RA trial using a higher dose: #msg-18513958.

Merrimack may report preliminary data from the phase-2b RA trial at the European Congress of Rheumatology (EULAR) in Barcelona, Spain, June 13-16, 2007; however, this has not been confirmed.

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Although Merrimack is a private company and does not reveal many details about its clinical programs, we know that GTC has budgeted cash receipts from Merrimack during 2007 (see the bottom of #msg-17607391) and has expanded the size of the goat herd for MM-093 (#msg-14522024). This and the fact that the uveitis program just commenced are signs that, overall, Merrimack is making progress with MM-093.

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What are the economics of the Merrimack relationship with GTC?

The main economic upside for MM-093 is in RA, a very large indication. If MM-093 works in RA, its non-TNF-a mechanism of action and presumably low incidence of side effects ought to put it in a strong position to serve the roughly 50% of RA patients for whom one of the TNF-a drugs (Remicade, Humira, Enbrel) does not do the trick. Moreover, MM-093 should be safer than Rituxan, which is emerging as a popular choice in second-line RA following failure on a TNF-a drug.

Although it’s still early in the development program, it’s not unreasonable to think that MM-093 has bona fide blockbuster potential in RA. If this turns out to be true, even relatively thin supplier margins could eventually mean big money for GTC.

My guess is that GTC will get a mid-single-digit IP royalty on MM-093 sales and a markup on GTC’s fully-allocated production cost for bulk product that GTC sells to Merrimack. For the production cost mark-up, the industry standard is about 10%. If, for the sake of discussion, we say that GTC’s fully-allocated production cost will be 15% of the end-user selling price of MM-093, then the 10% mark-up is equivalent to a 1.5% royalty on sales over and above the royalty that will be earned for Merrimack’s use of GTC’s IP. Hence, the overall economic value of the deal for GTC could be a high-single-digit royalty on sales. This could amount to a highly consequential income stream if MM-093 achieves blockbuster status.

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What is the IP for MM-093?

http://www.merrimackpharma.com/newsEvents/2002/26Feb02CompMatterPatent.pdf