A competitive partnering process for a preclinical-stage asset gave way to broader negotiations that brought together former Amgen Inc. colleagues and resulted in a deal that could accelerate the growth of low-flying biotech NGM Biopharmaceuticals Inc. beyond its early work in cardio-metabolic diseases.

South San Francisco-based NGM inked a multiyear, multiproduct deal with Merck & Co. Inc. that is valued at a potential $450 million, at least for starters. That includes a $94 million up-front payment in cash and $106 million in the form of a 15 percent equity stake in NGM – the price per share marks a 20 percent premium to NGM's most recent financing.

It also includes a committed $250 million to cover NGM's R&D efforts under the initial five-year term. "There is also a provision that will expand that funding based on certain conditions being met," NGM President Jeff Jonker said during a Monday morning call with investors.

In exchange, Whitehouse Station, N.J.-based Merck picks up a license to NP201, a preclinical-stage compound in testing for diabetes, obesity and nonalcoholic steatohepatitis. For that program, Merck will be responsible for further development. Meanwhile, NGM retains control over advancing additional preclinical compounds, with Merck holding an option to license those products upon human proof of concept.

Retaining that autonomy was a key element to the deal, allowing NGM to pursue the most compelling science in a disease-agnostic manner, Jonker said. "There are no restrictions on therapeutic areas, targets or pathways."

Another important element was retaining downstream opportunity. NGM has the opportunity to share in costs and profits by way of a co-funding option – to be elected before Merck initiates the first phase III program for a licensed program – in which it can shoulder up to 50 percent of the costs for the remainder of the development process in exchange for direct profits.

The deal also builds on a U.S. co-promotion option for NGM for any co-funded program.

Should NGM not be in a position to cover those development costs, it would be eligible for "substantial" development and commercialization milestones, plus royalties, Jonker said.

"The significance of the [deal] structure can't be understated," Jonker added. "The trust Merck is placing in NGM is truly flattering."

THE AMGEN CONNECTION

In the end, it was that commitment – the financial terms are particularly impressive for an early stage agreement – that sealed the deal. NGM originally had initiated a partnering process last fall, seeking only to out-license NP201.

"That turned into a robust interrogation of that program by multiple pharmaceutical companies," said Bill Rieflin, NGM's CEO, and the privately held firm found itself on the verge of signing a licensing agreement with another firm. "It was at that point that Merck proposed a broader collaboration to us that we found particularly attractive."

It certainly also helped that members of NGM's management had worked previously with Roger Perlmutter, who joined as president of Merck Research Laboratories in 2013 after more than a decade spent leading R&D efforts at Thousand Oaks, Calif.-based Amgen.

NGM co-founders David Goeddel, who serves as NGM chairman, and Jin-Long Chen, who serves as chief scientific officer, previously had worked at Tularik Inc., a firm bought by Amgen in 2004 for $1.3 billion. Following that acquisition, Chen stayed on at Amgen, where he headed up the metabolic disorders therapeutic area.

CEO Rieflin's previous experience also includes time at Tularik. And NGM's chief medical officer (CMO), Alex DePaoli, also previously spent time at Amgen.

Merck's Perlmutter noted that NGM's research program "has permitted identification of novel, and quite consequential, pathways for metabolic regulation." With Merck's "well-established translational capabilities," that program could lead to "innovative biologics that address the needs of patients suffering from diabetes, metabolic dysregulation and malignancy."

The NGM deal is the latest for Merck, which has been beefing up its R&D pipeline since Perlmutter came on board. Last month, the big pharma signed a three-year license and collaboration deal gaining rights to up to five product candidates from messenger RNA firm Moderna Therapeutics Inc. A month before that, it agreed to take over Swiss firm Oncoethix SA for $110 million up front and up to $265 million in milestones, gaining rights to phase Ib-stage bromodomain inhibitor OTX015. (See BioWorld Today, Dec. 19, 2014, and Jan. 14, 2015.)

NGM TO 'AGGRESSIVELY' EXPAND

Details of NP201, and other preclinical-stage assets included in the NGM deal such as NGM313, were not forthcoming. NGM has stayed relatively tight-lipped about its early programs. But CEO Rieflin assured investors those compounds "are quite distinct in mechanism of action" compared to NGM's lead candidate, NGM282.

Not included in the Merck deal, NGM282 is a pharmaceutically optimized form of FGF19 that CMO DePaoli described as a "potent regulator of bile acid synthesis, insulin sensitivity and triglyceride metabolism."

FGF19, a "powerful hormone that is reduced in patients with diabetes or obesity" was discovered to be up-regulated in patients following gastric bypass surgery, DePaoli said. That explained why patients who underwent gastric bypass not only lost weight but often end up losing their type 2 diabetes.

Designed to mimic the curative effects of gastric bypass, NGM282 did just that in rodent models of diabetes, significantly reducing blood glucose and body weight and improving insulin sensitivity. Phase I data indicated a favorable safety, tolerability and exposure profile, and the compound is in a phase IIb trial in primary biliary cirrhosis, for which it has orphan status in both the U.S. and EU and fast track status in the U.S. Data from the phase IIb are expected later in 2015.

"We will initiate additional studies with NGM282 later this year," DePaoli said, with possibilities including NASH.

At this time, there are no plans to partner that program, he added. "We plan to develop and commercialize this compound independently of the Merck collaboration."

Prior to the Merck deal, NGM had signed a handful of other collaborations – an effort focused on enteroendocrine cells with London-based Astrazeneca plc's Medimmune Inc. unit; a protein discovery partnership with Johnson & Johnson unit Janssen Pharmaceuticals; and a beta cell regeneration deal with Daiichi Sankyo Inc. – but the Merck agreement is by far the most significant.

"To date, we have focused our efforts on the cardio-metabolic area," said CEO Rieflin. "However, as a benefit of this collaboration with Merck, we now have the ability to aggressively expand our pursuits into other therapeutic areas."

The deal "both rewards the investments we've made and accelerates our plans to grow the company in the direction in which we've always intended," he added.

NGM's investments had included more than $100 million in venture funding, including a $50 million series C round closed in 2013 that brought funding from Topspin Fund, The Column Group, Prospect Venture Partners, Rho Ventures and Tichenor Ventures. (See BioWorld Today, July 19, 2013.)