Biogen, mRNA players on Merck's M&A radar as CEO still hungry for deals after $11.5B Acceleron buy: FT

Merck & Co. remains in a deal-hunting mode despite its recent $11.5 billion acquisition for Acceleron. Merck CEO Rob Davis is actively piecing together a plan for life after Keytruda, and the company seems to already have a list of potential targets.

Davis, who recently rose to the top job after overseeing Merck’s business development efforts as chief financial officer, told the Financial Times he's still looking for deals to diversify the company’s portfolio beyond Keytruda before the immuno-oncology megablockbuster’s patent cliff around 2028.

“I’m confident we have the firepower, the capability, the focus and urgency to do that,” Davis said, as quoted by the newspaper. “This is the first step on a journey to continue to build out our pipeline so that we have the ability to grow sustainably well into the next decade … We won’t be limited by the balance sheet.”

The comment followed the same tone from Davis during an investors’ call about the Acceleron deal last week when he said Merck is “well-positioned financially to complete this transaction or maintaining our ability to pursue additional opportunities” and that “business development remains an important priority for Merck.”

It begs the question: Where is Merck looking next?

Mirati Therapeutics is one target on Merck’s M&A shortlist, FT reported, citing people briefed on the matter. The California biotech is a frontrunner in the hot KRAS race; its adagrasib is close behind Amgen’s first-in-class Lumakras. At the recent ESMO 2021 event, Mirati reported encouraging data in non-small cell lung cancer and colorectal cancer that look competitive.

With a potential FDA filing for adagrasib expected later this year, SVB Leerink analyst Andrew Berens has projected combined peak U.S. and EU sales for the KRAS inhibitor in the two tumor types at $3.84 billion.

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In addition, Merck could also go after Strand Therapeutics and Arcturus Therapeutics, the sources told FT. Both biotechs are working on mRNA-based products, a hot area fueled by the success of mRNA vaccines for COVID-19.

Strand recently raised $52 million to advance its mRNA therapeutics for cancer. Arcturus has a proprietary lipid nanoparticle delivery system for genetic materials, with a pipeline covering vaccines for COVID and influenza, as well as drugs for cystic fibrosis and liver disease. Merck had in January nixed two internal COVID vaccine programs—which were part of its acquisition of Themis—on the back of lackluster immune response data.

All those three biotechs could be good fits for Merck as the company boasts industry-leading positions in cancer and vaccines.

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But heavy is the head that wears the immuno-oncology crown. As Keytruda is projected to reach $27 billion in 2026 sales according to Evaluate Pharma, it will likely take multiple new products to fill its revenue gap after the patent cliff.

Before Acceleron, Merck had already made several M&A moves. These include the $1.1 billion Peloton Therapeutics buy, the $2.7 billion purchase of ArQule and a $2.75 billion deal for VelosBio.

Some of the companies Merck is targeting may be too early—and therefore risky—in their drug development work. And for Acceleron, Merck is buying a potential first-in-class pulmonary arterial hypertension med, sotatercept, which bears peak sales expectations of around $2 billion, with a potential FDA approval in 2024.

Biogen, which is struggling with the U.S. launch of its Alzheimer’s disease drug Aduhelm, could also become a potential target for Merck, FT reported, citing people close to Merck.

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The addition of the Big Biotech could offer an immediate, huge revenue boost, but SVB Leerink analyst Daina Graybosch told the newspaper that Merck probably won’t shoot for such a large transaction.

“They don’t do things to make a big splash and in terms of doing deals like Acceleron they won’t overpay … That is the culture at Merck and I don’t see the new leadership changing that,” Graybosch said, as quoted by FT.

But first, Merck needs to close the Acceleron deal, which is facing some investor pushback on the Acceleron side.

In the meantime, the recent readout for Ridgeback Biotherapeutics-partnered oral COVID-19 drug molnupiravir could open up a government order flow of at least $10 billion by 2025, plus potential longer-term revenues from stockpiling, Graybosch said in a note Friday. A potential CDC recommendation for pneumococcal vaccine Vaxneuvance could also give Merck an additional revenue source.