Hunter company Viralytics slated for acquisition in $502 million deal

Future: Associate Professor Darren Shafren said his team’s involvement in Cavatak would be up to MSD, but he was “optimistic”. “We’d like to be there to at least to pass on some of the knowledge we’ve got.”
Future: Associate Professor Darren Shafren said his team’s involvement in Cavatak would be up to MSD, but he was “optimistic”. “We’d like to be there to at least to pass on some of the knowledge we’ve got.”

WHAT Associate Professor of Virology Darren Shafren describes as a “fortuitous” discovery has put Newcastle-born company Viralytics at the centre of one of the biggest biotechnology deals in Australian history.

Global pharmaceutical company Merck and Co – which trades outside the USA as MSD – has offered $502 million in an acquisition bid that would give it full rights to Viralytics’ oncolytic immunotherapy treatments, which harness the power of viruses to preferentially infect and kill cancer cells.

Its lead investigational product, Cavatak, uses a form of the common cold virus that directly targets, infects, multiplies within and bursts cancer cells apart – both at the tumour site and, by activating the immune system, elsewhere throughout the body.

Viralytics’ board of directors has unanimously recommended shareholders vote in favour of the acquisition.  

“It's exciting for all the people who have been involved and I'm excited for the patients that there’s the best chance of moving this drug forward,” said Associate Professor Shafren, who still lives in the Hunter and is Viralytics’ chief scientific officer and inventor of the technology. 

“There’s a lot of interest in what they’re calling immuno-oncology [a type of immunotherapy that specifically treats cancer] at the moment and this is building on a trend that’s going on worldwide, about shifting away from chemotherapy into combinations of therapeutics that have positive effects on patients’ immune systems to try and fight cancer. 

“It's great for Newcastle and for all the support we’ve had with all the staff in the Hunter Medical Research Institute (HMRI) and the University of Newcastle [UON]. 

“We’ve been fortunate to have a lot of skilled people through the university system here and that’s been pivotal to keeping it in Newcastle.

“We’ve had smart, enthusiastic and passionate people and that’s always a good nucleus to any success.”

UON Senior Deputy Vice-Chancellor (Research and Innovation) Professor Kevin Hall said the “historical buyout” was indicative of the university’s track record of turning research into commercial opportunities.

“An achievement of this magnitude demonstrates that this is a region that is capable of developing a start-up business to a global scale,” he said. 

HMRI director Professor Michael Nilsson said “game-changing advances” like Cavatak “emerge quite suddenly in the health sphere when you provide the right research foundations combined with the support of donors”.

Associate Professor Shafren’s work originally aimed to prevent the cold virus binding to molecules on the surface of cells in the lungs, nasal passage and respiratory tract.

At 35 he was named Young Medical Researcher of the Year at the inaugural HMRI gala dinner in 1998. He spoke that night to then Greater Building Society (now Bank) chief executive John Arnold, who agreed to provide seed funding of $25,000 plus ongoing support for the next 10 years. 

“I said to John ‘It’s difficult to get funding’ and he said ‘Well let me see about that’ and came in with supporting funding that really got us going,” he said. “They played a really integral part.”

A year later, Associate Professor Shafren and his mentor, Conjoint Professor Richard Barry, were approached by a colleague who was unsuccessfully trying to kill melanoma cells in a test tube and asked if they had any suggestions. 

Conjoint Professor Barry suggested the Coxsackie B virus which causes fever, sore throat, headaches and gastrointestinal distress, and is linked to chest pain, permanent heart damage and death. 

Associate Professor Shafren suggested airborne virus Coxsackievirus A21, one of the causes of the common head cold.

He told Fairfax Media in 2015 they tried Coxsackie B first, but it had no effect on the cancer cells. They then used Coxsackievirus A21 and were “blown away”. 

“It just obliterated the melanoma cells,” he said. “It was a defining moment. We had tried the biggest cannon we had, with no effect, but then this ‘innocuous’ weapon –  in virus terms –  did the job.”

Speaking on Friday, Associate Professor Shafren said while viruses had historically been “very good biological tools to investigate what happens in cells... it was just fortuitous that we found something that had some benefits and some direct effects in cancer cells that we probably didn’t expect”.

Associate Professor Shafren’s studies soon moved from laboratory cultures to small animals. Viralytics was formed and the first dose administered to a patient in 2004. 

“There’s a great debt to patients who started off taking these experimental drugs and it’s important we do highlight their input has been paramount,” he said.

The US Food and Drug Administration’s approval of Viralytics’ investigational new drug application for Cavatak in 2010 was a “pivotal moment” and “gave us a degree of credibility”, making way for a study of 60 people with melanoma.

The Herald reported in 2014 the world’s most powerful healthcare investment analysts had thrown their weight behind the drug, which had unlocked $27 million worth of global institutional investment to be spent on one UK and two US clinical trials.

Cavatak is currently being evaluated in multiple phase one and phase two clinical trials. Associate Professor Shafren said the combination of Cavatak and MSD’s immune boosting drug Keytruda was also being investigated in treating melanoma, prostate, lung and bladder cancers.

“The combinations with the immunotherapies seem to be synergistic, so it’s early days, but some of our studies are indicating at least the activity in the tumours seems to be enhanced when we use a combination of the virus plus immunotherapies versus the immunotherapies alone,” he said. 

“Some of these immunotherapies are in the 20 to 50 per cent response rate and hopefully with the combination with the virus we can increase that but also potentially increase the quality of life at the same time.

“We’re trying for hopefully the near future to try to get this to a situation where if the results warrant it is has the chance of being approved.”


GLOBAL pharmaceutical giant Merck and Co has entered into a $502 million agreement to acquire homegrown Viralytics and gain access to its game-changing oncolytic immunotherapy cancer treatments.

MSD, the trade name for Merck outside the US, has bid $1.75 cash per Viralytics share.

Under the proposed agreement, MSD will gain full rights to Viralytics’ Cavatak, which uses viruses to preferentially infect and kill cancer cells.

Viralytics chief scientific officer and founder of the company’s technology Darren Shafren said the deal was “exciting for all the people who have been involved”.

“I'm excited for the patients that there's the best chance of moving this drug forward,” he told the Herald.

“It's great for Newcastle and for all the support we've had with all the staff in the Hunter Medical Research Institute and the University of Newcastle.”

Viralytics managing director and chief executive officer Malcolm McColl said the proposed acquisition was the result of “years of dedicated work by the Viralytics team and represents an opportunity for significant value creation for our shareholders”.

The combination of Cavatak and MSD’s Keytruda is currently being studied in melanoma, prostate, lung and bladder cancers.

Merck Research Laboratories’ chief medical officer, senior vice president and head of global clinicial development Roy Baynes said Viralytics’ approach of engaging the innate immune system to target and kill cancer cells complemented MSD’s immuno-oncology strategy.

“We are eager to further build on Viralytcis’ science as we continue our efforts to harness the immune system to improve long-term disease control and survival outcomes for people with cancer,” Dr Baynes said.