- For $1.3 billion, a pension plan run by the Canadian government has acquired royalty rights to Merck & Co.'s Keytruda from Lifearc, a charity responsible for handling intellectual property rights on discoveries made under the United Kingdom's Medical Research Council.
- In mid 2007, Lifearc — known then as Medical Research Council Technology, or MRCT— agreed to humanize an antibody from Organon Bioservices in exchange for R&D milestone payments and net sales royalties on any products the deal produced. The antibody Lifearc helped develop was pembrolizumab, or Keytruda, which Merck snagged through an 11 billion euro acquisition of Organon later that year.
- Lifearc and Organon didn't disclose financial terms of their deal. However, Keytruda's market success makes the royalties an attractive asset whatever their size. Lifearc sold a portion of them to a private equity fund in 2016 for $150 million. Another, presumably larger, portion is now in the hands of the Canada Pension Plan's investment arm, CPPIB, which bought it through a wholly owned subsidiary.
Lifearc touts its ability to help move monoclonal antibodies from the lab bench to market. In addition to Keytruda, the charity has worked on Takeda's ulcerative colitis medicine Entyvio (vedolizumab), Roche's arthritis treatment Actemra (tocilizumab) and Biogen's multiple sclerosis therapy Tysabri (natalizumab) — all drugs that ultimately turned into blockbuster franchises.
Despite those successes, Lifearc says its contract and royalty revenue still primarily comes from Keytruda, which has become one of the world's top-selling drugs since securing U.S. approval in 2014. Merck recorded Keytruda sales of $2.3 billion for the first quarter this year and $7.2 billion in all of 2018.
Last year, Merck incurred $1.3 billion worth of royalty expenses across its business last year, but didn't break down which products drove those charges.
For its part, Lifearc has been looking to diversify its revenue stream. Selling off a portion of the Keytruda rights should help in that aim, according to the charity's leadership.
"This agreement with CPPIB allows us to increase our support for new approaches and collaborations and bolster access to our expertise and resources," CEO Melanie Lee said in a May 20 press release.
Meanwhile, CPPIB, or the Canada Pension Plan Investment Board, sees the deal providing "stable, long-term cash flows" that will allow board to continue its work.
"Alternative assets related to intellectual property help to diversify the Fund through income streams that are typically uncorrelated to the broader capital markets," said John Graham, senior managing director and global head of credit investments at CPPIB.
Lifearc expects that the infusion of $1.3 billion from Merck will make it one of the U.K.'s leading medical research charities by size of its investment assets.