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Lilly strikes $1.6B deal to buy I-O player Armo Biosciences

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By Michael Fitzhugh
Staff Writer

Eli Lilly and Co. said it will buy Armo Biosciences Inc. for about $1.6 billion, in an all-cash transaction intended to bolster its immuno-oncology program through the addition of Armo's lead candidate, pegilodecakin, a pegylated interleukin-10. The $50-per-share offer, coming just months after Armo's upsized January IPO, represents a 68 percent premium to Wednesday's close.

Levi Garraway, Lilly's head of global oncology development and medical affairs, told BioWorld that the company has been looking for deals that give it "a first-in-class opportunity or a distinct mechanism of action." Pegilodecakin, in particular, fit that bill, he said.

"If we're successful in our development plans, it could be something that adds value in not just one or two cancer subtypes, but potentially across multiple types of cancer," he said, adding that the company has already identified several assets in its current portfolio that could make for novel combinations.

Replenishment of Lilly's late-stage pipeline is a key priority for the Indianapolis-based company's CEO and president, David Ricks, who is looking to see at least a third of the assets in his company's pipeline sourced externally, with an eye toward growth beyond 2020, a path certain to be paved in part with more oncology deals.

Pegilodecakin, also known as AM-0010, has so far demonstrated clinical benefit as a single agent and in combination with both chemotherapy and checkpoint inhibitors across several tumor types, Lilly said. It's currently being studied in a phase III trial in pancreatic cancer, as well as earlier-stage trials in lung and renal cell cancer (RCC), melanoma and other solid tumor types.

The compound is a long-acting form of human IL-10, a naturally occurring immune cell growth factor that's critical for the proliferation and cytotoxic activity of tumor-specific CD8+ T cells. Armo's scientists increased the size of IL-10 by linking it to polyethylene glycol to prolong its circulation time in the body to maximize its activation of antitumor CD8+ T cells. So far, it has been studied in more than 350 people with cancer across more that 14 tumor types. In a phase I/Ib trial, the company has observed objective tumor responses, including partial and complete responses.

Now, Redwood City, Calif.-based Armo is running the phase III Sequoia trial in second-line pancreatic ductal adenocarcinoma (PDAC). In that study, investigators are combining pegilodecakin with 5-FU, leucovorin and oxaliplatin (FOLFOX) – a widely accepted second-line treatment for patients who've progressed after a first-line gemcitabine-containing regimen – and comparing it with FOLFOX alone, as second-line therapy in patients with PDAC whose disease has progressed during or following first-line treatment.

In mid-March, during the first interim analysis in Sequoia, the trial's data monitoring committee recommended that the study continue without modifications. A second interim analysis, which could provide the basis for a biologics license application, is expected in 2020.

The company is also running a phase II development program for pegilodecakin in non-small-cell lung cancer (NSCLC), which initially includes two randomized trials in patients with different levels of tumor PD-L1 expression in different lines of treatment. The first trial, Cypress-1, is comparing the safety and efficacy of pegilodecakin plus Merck & Co. Inc.'s anti-PD-1 therapy, Keytruda (pembrolizumab), to standard of care pembrolizumab alone as front-line therapy for patients with high tumor PD-L1 expression (greater than 50 percent). CYPRESS-2 will look at the safety and efficacy of pegilodecakin plus Opdivo (nivolumab, Bristol-Myers Squibb Co.) to standard of care vs. Opdivo alone in patients who've tried one prior therapy that was not a PD-1 or PD-L1 inhibitor with low tumor PD-L1 expression (less that 50 percent). The first patients in both trials have now been dosed.

Armo plans to present overall survival data from its pancreatic cancer study, response data from its NSCLC trial, and data on a combination of pegilodecakin and Opdivo in patients with metastatic RCC at the American Society of Clinical Oncology annual meeting in June.

Armo licensed pegilodecakin from Merck, Sharp & Dohme Corp., more commonly called Merck & Co. Inc. in the U.S., in December 2012. By the end of December, it had paid Merck just $1.45 million under the deal's obligations and remained on the hook for milestone payments to Merck of up to $11.3 million as well as royalties on annual net sales of the drug, should it gain approval.

It wasn't immediately clear how the Lilly deal would impact the timing or size of payouts Armo could owe Merck. Costs aside though, pegilodecakin's performance will "likely become one of the top catalysts for Lilly in the coming weeks and months," Evercore ISI analyst Umer Raffat said during a Thursday webinar. "What's about to happen is that this company will have randomized head-to-head data of PD-1 plus this IL-10 vs. PD-1 in first-line lung and second-line lung as early as later this year."

Armo also has several other drugs in development, including the anti-PD-1 checkpoint inhibitor AM-0001, which it has planned to eventually test with pegilodecakin; AM-0015, a preclinical recombinant human IL-15 cytokine that has demonstrated preclinical antitumor responses that are additive with AM-0010; and AM-0012, a recombinant human IL-12 cytokine currently in preclinical studies. (See BioWorld Today, Feb. 11, 2016.)

The company is also developing AM-0003, a preclinical anti-LAG-3 checkpoint inhibitor program. LAG-3 (Lymphocyte-activation gene 3) is a cell surface protein and immune checkpoint receptor.

Armo joined the public market in January, just ahead of the J.P. Morgan Healthcare Conference, closing out that month with a $133.2 million oversubscribed IPO. "This is one of the fastest post-IPO exits we've seen in a long time," Jefferies analyst Biren Amin wrote in a research report.

The transaction is expected to close by the end of the second quarter.

Shares of Armo (NASDAQ:ARMO) were up 67 percent on Thursday, closing at $49.80, while Lilly's shares (NYSE:LLY) rose about 2 percent to $80.86.