Merck KGaA: TH-302 enters phase III

Fair Value EUR93 (-8%)       NEUTRAL

News published on October Wednesday 17, 2012
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ANALYSIS
  • Yesterday, Merck KGaA announced that its compound TH-302 had entered phase III. Indeed the FDA reached an agreement with the company covering a Special Protocol Assessment for a Phase III randomised trial of TH-302 in patients with metastatic or locally advanced unresectable pancreatic cancer. “The trial is designed to evaluate the efficacy and safety of TH-302 in combination with gemcitabine compared with gemcitabine therapy alone.”
  • As a reminder, earlier this year, the company announced that the drug achieved its primary endpoint in phase II, i.e. PFS with TH-302 in combination with gemcitabine increasing PFS by almost 2 months. These results are clearly encouraging in this very difficult type of cancer even if the overall survival was not statistically achieved (but the trial was not powered to).
  • No doubt TH-302 is one of the most exciting compounds in development at Merck. Today, TH-302 is the only one product in development factored in our model with a probability of success of 20%. As a reminder, Threshold pharmaceuticals estimates the potential at more than USD1.2bn in the United States alone and only in the pancreatic cancer indication (Source JMP Securities, presentation Sept 2011).
VALUATION
  • Clearly the share price now suggests that a part of R&D needs to be factored in. However we think that the pipeline of the company is really too risky (at this step). Thus even if the consensus factors in very low expectations concerning the R&D pipeline of Merck KGaA, we think that it is too early to play the growth story led by the pipeline.
  • Should we deem TH-302 approved with 100% probability in both pancreas and soft tissues (i.e. EUR2bn peak sales in 2020), FV would be EUR102.
  • We maintain our Neutral recommendation
NEXT CATALYST
  • Q3 results on 15th November 2012
Martial Descoutures, mdescoutures@bryangarnier.com

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