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Merck CEO Robert Davis sees “a multi-billion dollar opportunity” with the acquisition of Acceleron. Merck’s Keytruda will lose the exclusivity of its patents in seven years.
Courtesy of Merck
Merck
has a problem. In just seven years, its cancer mega-rockbuster Keytruda, which is expected to account for over a third of Merck’s revenue this year, will come to the end of its exclusivity period.
Investors are already counting the looming patent cliff against Merck (ticker: MRK). The stock is trading at 12.1 times expected earnings over the next 12 months, according to FactSet, below its five-year average of 14.6 times earnings, and well below shares of competitors such as
Eli lilly
(LLY), which is trading at 27.6 times earnings, and
Johnson & johnson
(JNJ), which trades at 16 times earnings.
On Thursday, the company’s new CEO, Robert M. Davis, took a big step towards consolidating the company’s revenue when Keytruda begins to falter. Merck announced that it has reached an agreement to buy the biotechnology
Acceleron Pharma
(XLRN) for around $ 11.5 billion.
This is the biggest biotech acquisition to date in a year that missed large biotech acquisitions.
“We ultimately see it as a multi-billion dollar opportunity and revenue potential, and most importantly, we expect it to develop well over the next decade,” said Davis. Barron, describing sotatercept, the main drug in Acceleron’s pipeline. “This provides very good revenue and revenue streams at the end of this decade, in an important time as we see the loss of Keytruda exclusivity.”
Sotatercept is currently being tested in Phase 3 trials as a treatment for pulmonary arterial hypertension, a rare cardiovascular disease that can be fatal. The drug is not yet approved for any indication, but if and when it is, analysts expect it to be a real blockbuster.
Christopher Raymond of Piper Sandler wrote on Thursday that he expects the drug to launch in 2024 and reach global sales of $ 1.4 billion by 2027. Sales could increase even more so if the company pursues additional indications for the drug.
Of course, that’s only if sotatercept is working well in the ongoing Phase 3 trials. Merck has placed a very big bet that it will.
“We are confident that we will be able to bring this to market,” says Davis. “It was part of the bet.
Davis notes that Reblozyl, a drug to treat certain forms of anemia currently sold by
Bristol Myers Squibb
(BMY), on which Acceleron collects a significant royalty.
Dr Dean Li, president of Merck Research Laboratories, said the phase 2 trials of sotatercept showed great promise. “The best indication of our confidence is, for us, that we look at the design of phase 3, but we also look at every part of the trial of phase 2, and that’s what gives us confidence,” says- he.
Acquiring Acceleron is just one piece of the puzzle for Merck as it seeks to rebuild itself beyond Keytruda. “You will see us continue to seek opportunities both in oncology and outside of oncology,” said Davis. “We have some exciting things internally that are obviously starting to help.”
Davis lists a number of promising pipeline assets within Merck, as well as Gardasil, the company’s vaccine to prevent cancers caused by the human papillomavirus, which he says can continue to grow for a long time. “A multibillion dollar growth opportunity still lies ahead,” he says.
None of these individual acquisitions or pipeline products will fill the void left by Keytruda. “You start to add them all up and we have a significant opportunity for sustainable growth over the next decade,” says Davis.
Davis took over from longtime Merck CEO Kenneth Frazier in July, having served as the company’s chief financial officer since 2014. The company’s preparation for Keytruda’s patent cliff is one of its most important tasks.
Merck pays $ 180 per share in cash to Acceleron. As of noon, Acceleron stock was trading at $ 174.02, while Merck stock was up 0.5% to $ 75.44.
Analysts covering Acceleron were mixed on the deal. Raymond of Piper Sandler wrote that the valuation, at 15 times his 2025 revenue estimate, “seems like a fair valuation for us.” SVB Leerink’s Dr Geoffrey Porges, on the other hand, wrote that the price “is fair value” in his model assuming that sotatercept is approved in pulmonary arterial hypertension, but that it does not include not the value for other indications, or for the company’s pipeline.
“The announcement is not surprising given multiple leaks from the negotiation process, but suggests that further offers have not been received,” Porges wrote.
Rumors of the deal had been circulating for days, with Acceleron shares starting to climb in mid-September. Bloomberg reported on Friday that biotech was in acquisition talks with an unidentified large pharmaceutical company, and the Wall Street Journal followed up on Monday evening, indicating that Merck was the buyer.
Write to Josh Nathan-Kazis at [email protected]
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