Merck Seeks Deals As It Expands Its Cancer Treatments -- WSJ

By Jared S. Hopkins 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 20, 2019).

Merck & Co. is searching for small and midsize deals, including more transactions aimed at expanding its portfolio of cancer treatments beyond the company's top-selling product Keytruda, according to people familiar with the matter.

Merck has been buying cancer drugmakers with promising therapies and technologies. This month, Merck bought Tilos Therapeutics Inc. for $773 million. In May, it agreed to acquire Peloton Therapeutics Inc. for $1.1 billion.

The goal of the deal making is to both capitalize on the strength of Keytruda and further broaden the company's non-oncology products, the people said. Merck is also interested in similarly sized deals that would add to its offerings of vaccines and animal-health medicines, the people said.

Keytruda, which unleashes a patient's own immune system to fight tumors, was once an afterthought buried in Merck's research-and-development pipeline but has in the past few years become a commercial juggernaut for the company.

The immunotherapy, whose approvals include treating 12 different types of tumors, rang up $7 billion in global sales last year and is projected to be the world's top-selling drug by 2024, according to research firm EvaluatePharma.

Keytruda's success has lifted Merck's market capitalization to a record $219.77 billion. Since the company released positive study results for Keytruda in April 2018, Merck shares are up about 45%, compared with the S&P 500's 9.3% gain.

Now some investors and analysts are starting to worry that Merck may be too dependent on Keytruda for growth. By 2024, Merck's $20 billion in cancer-drug sales will be nearly 40% of company revenue, JPMorgan Chase & Co. projects. Merck also sells other prescription drugs, in addition to its vaccines and animal-health medicines.

"There is an emerging view, 'Are they too tied to'" Keytruda, Credit Suisse AG analyst Vamil Divan said in an interview.

Merck is expected to address the concerns and outline its strategy Thursday, when Chief Executive Kenneth Frazier leads the company's first investor day in five years and discusses its pipeline of experimental drugs.

Among the likely topics is the company's vaccines in development, including a potential competitor to Pfizer Inc.'s big-selling Prevnar vaccine, which protects against infections such as pneumonia and meningitis. JPMorgan analysts project Merck's drug could reach sales of $1.5 billion.

Merck is also developing treatments for HIV/AIDS, chronic cough and heart failure.

The company is investing in its animal-health unit, which sells products for pets and livestock animals. In December, it acquired animal-tech company Antelliq Group for $2.4 billion. Merck is exploring Keytruda as a treatment for pets with cancer, according to a person familiar with the matter.

Yet outside of the company's pipeline of cancer drugs, analysts haven't been impressed with Merck's drugs in development. Dr. Divan of Credit Suisse said the experimental drugs and vaccines target markets that other companies have struggled to succeed in or that are highly competitive.

"It's up to them to show why they can do better than other companies have in these areas before," Dr. Divan said.

Cancer, too, is a highly competitive market, which analysts and industry officials expect will get only more competitive as big drugmakers such as GlaxoSmithKline PLC try to build up a presence after staying away.

The intense interest has driven deal making in the sector -- and raised premiums for cancer-drug startups. The latest deal came Monday, when Pfizer agreed to pay a 62% premium to buy Array BioPharma Inc. for $10.6 billion.

Write to Jared S. Hopkins at [e-mail]

(END) Dow Jones Newswires

June 20, 2019 02:47 ET (06:47 GMT)

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