Biotech Movers: Eagle Pharmaceuticals, Inc. (Nasdaq:EGRX) And Merck (NYSE:MRK)

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Eagle Pharmaceuticals, Inc. (NASDAQ:EGRX) was an end of the week mover in the biotechnology space last week. The company announced on Friday that the Food and Drug Administration (FDA) in the US has approved its lead development asset, a drug called Pemfexy, as a therapy for the treatment of patients with locally advanced or metastatic nonsquamous non-small cell lung cancer (NSCLC) in combination with cisplatin; locally advanced or metastatic NSCLC whose disease has not progressed after four cycles of platinum-based first-line chemotherapy, as maintenance treatment; locally advanced or metastatic NSCLC after prior chemotherapy as a single agent; and malignant pleural mesothelioma whose disease is unresectable or who are otherwise not candidates for curative surgery in combination with cisplatin.

That’s a pretty wide-ranging approval spectrum and – for Eagle – it could potentially be a game changer in terms of revenue generation potential; but there’s a catch – the drug is a generic formulation (for all intents and purposes) of an already approved branded asset, called pemetrexed, which is marketed and sold by Eli Lilly and Co (NYSE:LLY), and it’s under patent protection as things stand.

The situation is this – Eli doesn’t want Eagle to be able to sell its own version of the drug so the company has taken Eagle to court in an attempt to get some patents related to construction and mechanism of action upheld. Eagle is fighting its own corner, however, and is doing so just as hard as Eli. The decision by the FDA to tentatively approve Eagle’s drug means that it has met all required quality, safety and efficacy standards, but is not eligible for marketing in the U.S. because of existing patent protections.

So, the key to getting this situation resolved favorably for Eagle and its shareholders is rooted in the company’s legal efforts to invalidate (or at least render moot) Eli’s patents.

As soon as the patent issue resolves we should see the real action associated with this drug in terms of what markets think about its potential impact on Eagle’s market capitalization. On the recent approval, the company has only moved a few percentage points. If the litigation resolves favorably for the company (and, subsequently, Eagle is able to start selling its drug in the US market and to start doing so at a discount to the branded version) we should see the company really start to run. Eli generates around a billion dollars annually from this market and so, even with a discounted generic product, there’s the potential here for Eagle to substantially ramp up its revenue count going forward.

Another mover in the large-cap biotech and healthcare space at the end of last week was Merck (NYSE:MRK). This one’s not the same sort of move, however. On Friday, Merck announced that it was withdrawing its European application for KEYTRUDA (pembrolizumab) in combination with pemetrexed and carboplatin as a first-line treatment for metastatic nonsquamous non-small cell lung cancer (NSCLC).

This one’s a bit of a strange situation – the company has previously stated that it was very confident in the data that supports the application and, in line with this statement, reinforced its confidence as part of the press release that announced the withdrawal. This seems to go against the action, however, since, if the company was so confident in its ability to pick up approval back on the data that underpins the application, it wouldn’t have withdrawn it for consideration by the agency.

So what’s going on?

The data that underpinned the application was relatively strong, so we’ll give the company the benefit of the doubt on that one, but it was collected from a pretty small patient base – circa 130 patients in total. This means that the accuracy (in terms over transferability of the implications from the study to a real-world population is a little questionable. This might have been an issue for the FDA. Merck is waiting on some near-term data that could serve to strengthen the initial set (by adding more patients to the pooled population) so there’s a chance that the company is going to wait until this data is in hand to go for approval.

We’ll keep an eye on the situation as it unfolds.

Merck is currently trading down by a little over a percentage point on the news.

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