GTC Biotherapeutics (fka GTCB)

[DewDiligence]

GTC’s Supply Relationship with Merrimack Pharma

[Added paragraph on Merrimack’s funding.]


Merrimack is a private company based in Cambridge, Massachusetts whose lead drug, MM-0903, is human alpha-fetoprotein produced by GTC using transgenic goats. Merrimack and GTC 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).

Merrimack is well-funded: it raised $60M of new capital on 6/10/08 from the same cadre of VC heavyweights who supported Merrimack since its inception (#msg-29921273).

MM-093 is currently being tested in rheumatoid arthritis (RA) and uveitis, an ophthalmic “orphan” indication. (A program in psoriasis has been discontinued.) In both indications, Merrimack began a phase-2 trial in April 2007:

#msg-27652344 RA
#msg-18468726 Uveitis

Interim data from the RA program was reported at the EULAR conference in June 2007 (#msg-20817412). Patient enrollment was completed on 3/14/08 and reporting of the data is expected this year at an unspecified venue.

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Merrimack is a private company and does not reveal many details of its clinical programs; however, GTC generally discloses when it receives payments from Merrimack, which allows investors to track the collaboration to a limited degree.

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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 (#msg-27669769). 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.

GTC also holds a small equity stake in Merrimack, which was established in 2003 (#msg-29295823).

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What is the IP for MM-093?

#msg-20505008
http://www.merrimackpharma.com/newsEvents/2002/26Feb02CompMatterPatent.pdf



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