Merck buys Prometheus Biosciences for almost $11bn

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

The all-cash transaction for Prometheus — a San Diego-based biotech focusing on diseases caused by abnormal activity of the body’s immune system — is the latest sign of a rebound in mergers and acquisitions in the sector following a dip 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-stage trial in December and is developing several other therapies using machine learning to identify drug targets.

Merck said the deal would strengthen the company’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 chair and chief executive.

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

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 its blockbuster cancer drug Keytruda. Key patents related to that drug, which generated almost $21bn in revenues in 2022, are due to expire towards the end of the decade enabling 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 for a total enterprise value of $43bn, which was 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, which was first reported by the Wall Street Journal, is subject to approval from Prometheus shareholders and regulators. The transaction is expected to close in the third quarter of 2023.

Evan Seigerman, 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 may signal a shift in activity in the pharmaceutical sector towards more aggressive deployment of cash to scoop up biotech companies.

“Prometheus takeout [is] likely a positive for Merck and broader Pharma sector, as M&A activity has begun to thaw,” he said.