Viralytics to be acquired for $502 million

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US-based global pharmaceutical company MSD has announced it will acquire Australian-based biotechnology company Viralytics (ASX:VLA) in a deal that values the company at $502 million.

On completion of the transaction, Viralytics will become a wholly-owned subsidiary of MSD and the US company will gain full rights to CAVATAK (CVA21).

CAVATAK is Viralytics’s investigational oncolytic immunotherapy. It is based on Viralytics’s proprietary formulation of an oncolytic virus (Coxsackievirus Type A21) that has been shown to preferentially infect and kill cancer cells.

The acquisition price, of $1.75 per share, represents a premium of 160 per cent to the one month volume weighted average price of Viralytics shares.

CAVATAK is currently being evaluated in multiple Phase 1 and Phase 2 clinical trials, both as an intratumoral and intravenous agent, including in combination with MSD's PBS-listed anti-PDL1 immunotherapy KEYTRUDA (pembrolizumab).

Under an agreement between Viralytics and a subsidiary of Merck, announced in November 2015, a study is investigating the use of the CAVATAK and KEYTRUDA combination in melanoma, prostate, lung and bladder cancers.

“Viralytics’s approach of engaging the innate immune system to target and kill cancer cells complements our immuno-oncology strategy, which is focused on the rapid advancement of innovative monotherapy approaches and synergistic combinations to help the broadest range of cancer patients,” said Dr Roy Baynes, senior vice president and head of global clinical development, chief medical officer, MSD. “We are eager to further build on Viralytics’s science as we continue our efforts to harness the immune system to improve long-term disease control and survival outcomes for people with cancer.”

“This proposed acquisition culminates years of dedicated work by the Viralytics team and represents an opportunity for significant value creation for our shareholders. Viralytics is proud to have progressed its lead investigational candidate CAVATAK to Phase 1 and Phase 2 clinical trials and, we believe that Merck [MSD], the leader in immuno-oncology, is best suited to advance CAVATAK for the benefit of patients globally, and to realize its potential,” said Dr Malcolm McColl, managing director and chief executive officer of Viralytics.

MSD and Viralytics said they anticipate the transaction will be implemented by the second quarter of 2018. Implementation of the transaction is subject to a Viralytics’s shareholder vote and customary regulatory approvals.

Viralytics’s largest shareholder, Lepu Medical Group, which currently holds voting power in 13 per cent of its shares, has informed the company it intends to back the transaction.

According to the chair of Lepu Medical Group, Dr Pu stated, “Lepu Medical Group acknowledges this is an attractive opportunity for Viralytics and, as such, is supportive of the transaction. In line with its existing strategy, Lepu Medical Group intends to continue to focus on developing immuno-oncology therapies, including in collaboration with companies globally.”