Merck has agreed to buy Prometheus Biosciences for $10.8 billion as the US drugmaker strengthens its pipeline ahead of the potential loss of exclusivity for its top-selling cancer drug later this decade.
The cash transaction for Prometheus — a San Diego-based biotech focused on diseases caused by abnormal activity in the body’s immune system — is the latest sign of a rebound in mergers and acquisitions in the industry following a slowdown in activity in the US last year.
Prometheus is developing a monoclonal antibody treatment for ulcerative colitis, a type of inflammatory bowel disease. The company announced positive study results for its lead drug candidate targeting the disease from a mid-stage study in December and is developing several other therapies that use machine learning to identify drug targets.
Merck said the deal would strengthen the company’s position in the fast-growing area of immunology, where there is significant unmet patient need.
“This transaction adds diversity to our overall portfolio and is a key building block in strengthening the sustainable innovation engine that will drive our growth well into the next decade,” said Robert Davis, Merck’s Chairman and Chief Executive.
Merck has agreed to pay $200 per share for Prometheus, a premium of 75 percent over Friday’s closing price of the company’s Nasdaq-listed shares.
Merck has been on the lookout for acquisitions over the past year to diversify its pipeline ahead of the potential loss of exclusivity for its blockbuster cancer drug Keytruda. Key patents related to this drug, which generated nearly $21 billion in sales in 2022, will expire later in the decade to allow competitors to bring similar products to market.
The US drugmaker was reportedly in talks with oncology specialist Seagen last year about a potential deal, but hasn’t made any progress on a transaction. In March, Pfizer pounced on Seagen, announcing a deal with an enterprise value of $43 billion.
As part of the transaction, Merck will acquire Prometheus through a subsidiary. The transaction, first reported by The Wall Street Journal, is subject to Prometheus shareholder and regulatory approvals. The transaction is expected to close in the third quarter of 2023.
Evan Seigerman, an analyst at BMO Capital Markets, said the transaction is a significant step for Merck to counter the threat of losing Keytruda’s exclusivity and would expand the company’s relatively small immunology division.
He said the acquisition could signal a shift in activity in the pharma sector toward a more aggressive use of cash to acquire biotech companies.
“Prometheus to take away [is] probably positive for Merck and the entire pharma sector as M&A activity starts to slow down,” he said.