(Bloomberg) – Merck & Co. has agreed to buy Acceleron Pharma Inc. for approximately $ 11.5 billion to expand its portfolio of rare disease therapies.
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Acceleron shareholders will receive $ 180 per share in cash, a 34% premium over the price at the end of last month but below the stock’s intraday highs this week. Shares soared in mid-September, and Bloomberg reported on Sept. 24 that the company was in advanced sales pitches.
Merck has been under pressure to expand sales beyond Keytruda, a blockbuster cancer drug that accounts for more than a third of its sales. It is one of several companies looking for future blockbuster drugs through acquisitions, including Sanofi, Pfizer Inc., Amgen Inc., Gilead Sciences Inc., and Roche Holding AG. Earlier this year, AstraZeneca Plc acquired orphan disease specialist Alexion Pharmaceuticals Inc. in a mega-deal for $ 39 billion as the UK drug company ventures into a lucrative new area of medicine.
“We see this as an important step in diversifying our portfolio and our pipeline,” said Rob Davis, Merck’s Chief Executive Officer, in an interview. He sees the potential for billions in top sales “in this important timeframe that is approaching the end of this decade and well into the next decade.”
Davis took over from longtime Merck CEO Kenneth Frazier in July and is one of the new leaders to lead the company. Davis said he wanted to get the company on a new course through deals and investments in research and development.
The deal is expected to close in the fourth quarter and will be funded with a mix of cash and debt, the companies said in a statement on Thursday. At 11:06 a.m. in New York, Acceleron stock lost 0.3%, while Merck stock rose 1%.
Acceleron’s pipeline focuses on a specific type of protein that plays a key role in regulating cell growth, differentiation, and repair. The company’s lead candidate is a late-stage pulmonary arterial hypertension drug called sotatercept. Acceleron’s portfolio also includes Reblozyl, a drug approved in the US, Europe, Canada and Australia for the treatment of rare blood disease anemia, which is being sold with Bristol Myers Squibb Co.
Wall Street analysts said the deal should help reduce Merck’s reliance on Keytruda.
“This acquisition makes sense for Merck in many ways, including on a strategic and organizational level as well as from the perspective of the investment thesis,” says Daina Graybosch, analyst at SVB Leerink. The potential payout for Merck depends on Sotatercept’s success in pulmonary arterial hypertension, where the price could be around $ 180,000 a year in the US, Graybosch said. It has an “Outperform” rating for Merck shares.
Pulmonary arterial hypertension is projected to be a $ 7.5 billion market by 2026, and there is a significant need for new treatments, said Frank Clyburn, Merck executive vice president and president of human health, in a phone conversation with investors on Thursday morning.
Davis said Merck needs to expand its drug pipeline and will pursue businesses of “any size”. The company is particularly interested in oncology, among other things. He said he was willing to borrow more and consider a credit rating downgrade if the right opportunity arises.
“At the highest levels, we still have the capacity and the balance sheet to do deals of all sizes,” he said.
Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. acted as financial advisor to Merck and Covington & Burling LLP and Gibson, Dunn & Crutcher LLP served as their legal counsel. Centerview Partners LLC and JP Morgan Securities LLC served as financial advisor to Acceleron and Ropes & Gray LLP served as legal advisor.
(Adds the comment of the CEO of Merck in the fourth paragraph, the analyst in the ninth.)
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