Merck buys Prometheus Biosciences for nearly $11 billion

Merck has agreed to buy Prometheus Biosciences for $10.8 billion as the US drugmaker strengthens its pipeline ahead of the possible loss of exclusivity over its best-selling cancer drug later this decade.

The cash transaction for Prometheus — a San Diego-based biotech that focuses 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 sector after a slowdown in activity last year.

Prometheus is developing a monoclonal antibody treatment for ulcerative colitis, a type of inflammatory bowel disease. It announced positive trial results for its lead drug candidate targeting the disease from a mid-phase trial in December and is developing several other therapies that use machine learning to identify drug targets.

Merck said the deal will strengthen the company̵[ads1]7;s position in the fast-growing field of immunology, where there is significant unmet patient need.

“This transaction adds diversity to our overall portfolio and is an important building block as we strengthen the sustainable innovation engine that will drive our growth well into the next decade,” said Robert Davis, Merck’s chairman and CEO.

Merck has agreed to pay $200 per share for Prometheus, a 75 percent premium to Friday’s closing price for the company’s Nasdaq-listed shares.

Merck has been on the hunt for acquisitions over the past year as it seeks to diversify its pipeline ahead of the potential loss of exclusivity on major cancer drug Keytruda. Key patents related to this drug, which generated nearly $21 billion in revenue in 2022, are due to expire at the end of the decade, allowing rivals to launch similar products.

The US drugmaker was reportedly in talks with oncology-focused Seagen about a potential deal last year, but did not move forward with a transaction. In March, Pfizer swooped on Seagen, announcing a deal worth a total of $43 billion, the largest pharmaceutical transaction announced since AbbVie agreed to buy Allergan in 2019.

Under the terms of the transaction, Merck is acquiring Prometheus through a subsidiary. The deal, first reported by the Wall Street Journal, is subject to approval by Prometheus shareholders and regulators. The transaction is expected to close in the third quarter of 2023.

Evan Seigerman, an analyst at BMO Capital Markets, said the deal was a meaningful step for Merck in addressing the looming loss of exclusivity on Keytruda and would expand the company’s relatively small immunology division.

He said the acquisition could signal a shift in activity in the pharmaceutical sector toward more aggressive use of cash to acquire biotech companies.

‚ÄúPrometheus’ takeaway [is] likely positive for Merck and the broader Pharma sector, as M&A activity has begun to thaw, he said.

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