KalVista, Merck Partnership on Blindness Drug Sends Shares Skyward

Xconomy Boston — 

KalVista Pharmaceuticals has inked a partnership with pharmaceutical giant Merck for its lead drug, an experimental treatment for a complication of diabetes that can lead to blindness.

According to the deal announced Tuesday, Merck (NYSE: MRK) will pay Cambridge, MA-based KalVista (NASDAQ: KALV) $37 million up front. Merck gains the option to acquire the diabetic macular edema drug candidate, KVD001, after the completion of a Phase 2 study. Merck also receives the option to acquire other investigational compounds for that condition that are in KalVista’s pipeline. If Merck exercises those options and successfully commercializes new drugs, the pharmaceutical giant could owe KalVista up to $715 million in milestone payments. KalVista would also receive royalties from any drug sales.

Following the announcement of the deal, shares of KalVista soared nearly 50 percent to $11 apiece in midday trading.

Diabetic macular edema (DME) is a buildup of fluid in the macula, the central portion of the retina at the back of the eye, according to the nonprofit organization Prevent Blindness. It is a complication of diabetic retinopathy, an eye disease in which the blood vessels in the retina are damaged and leaky. Prevent Blindness says up to 10 percent of people who have diabetes may also develop DME, which can progress to vision loss. According to the Centers for Disease Control and Prevention, diabetes is the leading cause of new blindness in adults between the ages of 20 and 74.

DME can be treated with drugs called vascular endothelial growth factor (VEGF) inhibitors, drugs that block the excessive permeability of the blood vessels that leads to the condition. KalVista says its injectable drug could complement anti-VEGF drugs. The KalVista drug blocks plasma kallikrein, which is involved in inflammation and is thought to contribute to the fluid buildup in the retina.

So far, KalVista has completed a Phase 1 dose-ascending study in 14 patients. While that trial was not designed to show vision improvement, KalVista says in its securities filings that a pooled analysis of all patients and all doses showed a trend toward vision improvement over time. No side effects were observed at the low or high doses. In the middle dose, KalVista says two adverse events were observed; eye inflammation of “mild intensity,” and an increase in intraocular eye pressure. The company has said that the main goal of the Phase 2 study will be to show a change in best corrected visual acuity, a measure of a patient’s ability to read a standardized chart of letters.

The deal with Merck calls for KalVista to finance the upcoming Phase 2 trial, as well as the testing of its other compounds, unless Merck exercises its options earlier. In addition to the partnership in diabetic macular edema, the companies reached a separate deal in which Merck will acquire a 9.9 percent stake in KalVista for $9.1 million, or $8.50 per share. This private placement closed with the execution of the option agreement on the DME drugs.

Photo by Michael Gil, via a Creative Commons license.