Merck To Buy Private Cancer Drugmaker Peloton Therapeutics

Merck & Co., Inc. (NYSE:MRK) announced a definitive agreement to buy small private cancer biotech, Peloton Therapeutics for an upfront payment of $1.05 billion in cash. The acquisition will add Peloton’s novel late-stage renal cell carcinoma (RCC) candidate, PT2977 to Merck’s oncology pipeline, which is currently riding on the success of its blockbuster PD-L1 inhibitor Keytruda.

PT2977, an oral HIF-2α inhibitor, is currently being evaluated in multiple cancer studies including phase II studies in von Hippel-Lindau (VHL) disease-associated RCC and in combination with Exelixis, Inc.’s (NASDAQ:EXEL) Cabometyx (cabozantinib) , a VEGFR-targeting agent, in metastatic RCC and a phase I/II study in metastatic RCC.

In addition to the upfront payment, Merck will also be entitled to pay a further $1.15 billion of potential milestones payments. The transaction is expected to close in the third quarter of 2019.

This is Merck’s second acquisition of cancer-focused biotech this year. In April, Merck closed its previously announced acquisition of small cancer focused biotech, Immune Designfor an approximate value of $300 million.

Merck’s stock has risen 4% this year so far against the industry’s decline of 1.3%.

This year has been good as far as M&A activity in the pharmaceuticals/biotech industry is concerned. Oncology and immuno-oncology are key areas of focus. Bristol-Myers Squibb Co. (NYSE:BMY) , one of the largest pharma giants, announced that it will acquire leading biotech company Celgene (NASDAQ:CELG) for a whopping $74 billion. This will be one of the largest acquisitions in recent times.

Another large-cap pharma company Eli Lilly (NYSE:LLY) bought Loxo Oncology in February for $8.0 billion to broaden its oncology portfolio. Roche also announced an agreement to acquire Spark Therapeutics in February 2019 for $4.8 billion. Post completion of the buyout, Roche will get access to Spark Therapeutics’ novel gene therapy, SPK-8011 for the treatment of hemophilia A, which is expected to enter phase III in 2019

A surge in M&A activity during 2019 is expected in the overall drug/biotech sector on the lines of Bristol-Myers and Eli Lilly as companies look to use huge cash reserve and combat rivalry woes.

Merck currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>