Schering-Plough's common stock is falling (about 2.5 percent, so far, on solid volume, while Merck is off more -- about 4 percent, on lighter volume) on the NYSE this morning, and I think it is due largely to the fact that Merck has signed yet another rather expensive mid-stage development deal -- this time, agreeing to pay about a half a billion for a potentially new clot-buster candidate, to be used in atrial fibrillation patients. It would be a daily med, if it clears FDA -- and would, it is hoped, start to supplant the older standard, wafarin, but it is yet another longer term project, with significant upfront cash-flow impact to Merck, as Merck has agreed to fund all the costs of development for Portola.
According to Reuters' now updated story:
. . . .Under the terms of the deal, Merck will pay Portola an initial fee of $50 million. Portola is eligible for additional cash payments of up to $420 million upon achievement of certain milestones. Portola is also eligible to receive double-digit royalties on worldwide sales.
Merck will assume all development and commercialization costs, including the costs of Phase III clinical trials.
Portola has an option to co-fund Phase III clinical trials in return for additional royalties. . . .
That is a lot of near-term cash cost -- and perhaps, if the bet pays off, Portola may choose to soak up the lion's share of the margins, by paying the Phase III costs itself, and thus dropping Merck's "on launch" take, after commercialization begins, in earnest. Net, net -- this does not seem like a particularly good deal for Merck (soon to be merged with Schering-Plough -- thus it belongs here).
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