More activist pressure for Merck's $11.5B Acceleron deal as another hedge fund balks—but BMS appears ready to deal

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Darwin Global Management, similar to Avoro Capital and Holocene Advisors, argues Merck is underpaying to acquire Acceleron Pharma. (Merck)

Merck & Co.’s proposed $11.5 billion acquisition of Acceleron Pharma is getting more pushback from another vocal opponent. This time, the activist investor is asking for what seems to be the impossible.

Merck should pay at least twice its current $180-per-share offer price to justify Acceleron’s value, Darwin Global Management said Wednesday. The hedge fund recently built a 3.84% stake in the Massachusetts biotech.

Darwin’s opposition follows similar opinions from Avoro Capital—which owns about 7% Acceleron shares—and Holocene Advisors. However, Bristol Myers Squibb, which is Acceleron’s biggest shareholder with a 11.5% stake, intends to tender its shares, Bloomberg reported, citing people with knowledge of the matter. The news service previously reported that the New York pharma had engaged in deal talks to buy out Acceleron but backed down.

Merck didn’t reply to a request for comment by publication time, and BMS declined to comment. But Merck doesn’t seem likely to up its offer—certainly not to the level Darwin’s asking. Merck CEO Rob Davis had rejected Acceleron CEO Habib Dable’s request to increase its offer during the deal discussion after media reports of the sale in late September, a securities filing shows.

RELATED: Trouble builds for Merck's $11.5B Acceleron buy as activist investor behind Gilead's Immunomedics deal says too early, too cheap

BMS’ decision to not pursue Acceleron at a higher price at least suggests the Big Pharma company doesn’t believe topping Merck’s bid is worthwhile. But the dissidents argue that Acceleron, and specifically its pulmonary arterial hypertension (PAH) candidate sotatercept, is worth a lot more than Merck’s offer.

The acquisition premium of about 34%, calculated against Acceleron’s closing price Aug. 31, is far less than previous biotech transactions, Darwin said. The investment firm pointed to Johnson & Johnson’s 2017 buyout of PAH-focused Actelion, noting its premium was 82%.

The Actelion deal established J&J as the leader in PAH with a portfolio of drugs including Opsumi, Tracleer and Uptravi. But those meds “lacked sotatercept’s transformative disease-modifying potential,” Abhishek Trehan, Darwin’s chief investment officer, said in an open letter to Acceleron shareholders asking them not to tender their shares to Merck. Trehan previously headed biopharma investments at D.E. Shaw, a known activist, before launching Darwin last year.

Merck started the tender offer process last week, and it needs to collect at least a majority of outstanding Acceleron shares as a condition for the deal to go through.

RELATED: Merck started its Acceleron pursuit at $160 per share, but CEO Davis balked at paying more than $180

In sotatercept, Merck is buying a modulator of TGF-beta signaling that could potentially address the underlying disease of PAH. Existing treatment options ameliorate symptoms by dilating blood vessels.

The current deal price suggests Merck is valuing sotatercept at about $5 billion to $7 billion, Darwin said; it reached that number after calculating the value of Acceleron’s royalty share from BMS-partnered blood disorder drug Reblozyl at about $4 billion to $6 billion based on BMS’ sales projection. However, Darwin said sotatercept’s net present value should be around $17 billion to $21 billion. The company thinks the drug could hit $5 billion in annual peak sales in PAH alone, not to mention potential upside in other forms of pulmonary hypertension.

That estimate is far more bullish than Wall Street analysts’ expectations. Piper Sandler’s Christopher Raymond, for example, has put sotatercept’s 2027 sales at $1.4 billion for PAH. SVB Leerink’s Geoffrey Porges had said the drug could reach $2 billion at peak. By comparison, J&J’s entire pulmonary hypertension portfolio brought in $3.15 billion in 2020 sales.

All told, Darwin believes Acceleron’s equity value should be $22 billion to $28 billion, which translates to a per-share price of $353 to $451, way higher than the current $180 offer.

Citing from a recent Merck investor call, Trehan said, “just as Merck is ‘very confident [that sotatercept] is a multibillion-dollar peak sales potential drug,’ we are very confident that Merck is underpaying to acquire it.”