Merck Collaborates With Ambrx To Develop New Antibody Drug Conjugates

Merck (NYSE:MRK) has entered into a partnership with Ambrx, a development-stage biotechnology company, to design and develop antibody drug conjugates (ADCs) that deliver small molecules to specific parts of the body. ADC is a relatively new type of targeted therapy with lower side-effects and is usually used to target cancer. Merck will identify some specific targets other than oncology and use Ambrx’s site specific protein conjugation chemistry technology to develop ADCs.

The move represents Merck’s strategy to develop next generation therapeutics as many are predicting, that by 2014, biotech drugs will replace small molecule drugs to become the world’s largest drugs. ^[1] This will also help the company fend off patent expiry of blockbuster drugs as it struggles with uncertain prospects for its new drugs.

Our price estimate for Merck Labs stands at $41, implying a premium of about 5% to the current market price.

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Under the deal, Merck will make an upfront payment of $15 million to Ambrx while another $288 million will be paid in milestone payments. Ambrx will also receive royalties (royalty rate undisclosed) on global sales of drugs from the collaboration. Merck will retain rights to develop and commercialize the drugs worldwide.

While at this stage it may be difficult to judge the impact of the event on the company’s value, it certainly signifies Merck’s relentless focus on R&D over the years. Merck is among the largest R&D spenders and shows no signs of curtailing its R&D expense. However, of late, the drug maker has witnessed trial successes drying up significantly.

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1. Merck Bets $15M on Ambrx’s “Smart Bomb” Antibodies, Xconomy, June 18 2012 [↩]