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Is an Acquisition of Acceleron a Smart Move for Merck?

By Keith Speights and Brian Orelli, PhD – Oct 8, 2021 at 6:05AM

Key Points

  • Merck will get promising pulmonary arterial hypertension drug sotatercept with its acquisition of Acceleron.
  • Acceleron already has one drug on the market that's licensed to Bristol Myers Squibb.
  • An acquisitions strategy helps Merck reduce its dependence on blockbuster cancer drug Keytruda.

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Merck will pick up a promising pipeline candidate with the deal.

First, there were rumors that Merck (MRK 0.69%) might acquire Acceleron Pharma (XLRN). Then those rumors were confirmed, with the big pharma company announcing plans to buy Acceleron for $11.5 billion. In this Motley Fool Live video recorded on Sept. 29, 2021 (one day before Merck's announcement of the deal), Motley Fool contributors Keith Speights and Brian Orelli discuss whether acquiring Acceleron would be a smart move for Merck.

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Keith Speights: Now speaking of Merck, there are reports that the big drugmaker could be in advanced discussions to acquire Acceleron Pharma. The ticker there for Acceleron is XLRN.

Brian, assuming this deal does indeed materialize, do you think an acquisition of Acceleron is a smart move for Merck?

Brian Orelli: Yeah. I mean, I guess whether it's a smart move, largely depends on what price it ends up paying.

Acceleron has three drugs, so sotatercept which is in Phase III development for pulmonary arterial hypertension. Then Reblozyl. There's a Z and a Y there at the end. Which is sold by Bristol Myers Squibb (BMY -0.06%) and is approved for anemia in patients with MDS. Then it has an early stage drug that so goes by the code-name ACE1344. It's going into a Phase 1B/2 study in systemic sclerosis.

I think Merck is probably after sotatercept. It won't have as much control over the Bristol-Myers drug. It will get a royalty of 20-25 percentish royalty. Merck is certainly factoring in that paycheck that it's going to get from Bristol Myers Squibb, but because it doesn't have any control over it, I think it's probably not that big of a factor in the potential for Acceleron.

Then AVE1344 is in early stage so I don't think it's really that important. I'm circling back to the main drug. Main Phase 3 clinical trials should read out by the end of next year. I believe the primary endpoint is the ability to walk further in time test based on the Phase 2 clinical trial data that seems like it should easily be able to hit that goal.

The bigger question is improved survival. If we can improve survival, that would be a huge benefit. It looks like it probably has blockbuster potential, but it'll depend a lot on where they price it and how much of the market they can take it. The pulmonary arterial hypertension, it's quite a few drugs in that market. It would have to take away market share from the current drugs.

To do that, it's going to have to post pretty strong Phase 3 on clinical trial data. Then the other issue, I think is there's different types of PAH. How many different types that can get approved for is probably going to determine what the overall value peak sales for the drug will actually end up being.

Speights: Brian, your first point was probably the most important of all and it's how smart is the move, assuming Merck does go forward with buying Acceleron, depends on the price.

I do think though, that it is a good move for Merck to do some acquisitions. The company is very dependent on Keytruda for sales right now it's blockbuster cancer immunotherapy. Expanding by making some deals, I think is a smart move for Merck over the long run, as long as it doesn't overpay. We will see what happens here.

Orelli: Yeah. They've even become more dependent on Keytruda since they spun off some of their slower-growing drugs.

Keith Speights owns shares of Bristol Myers Squibb. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.

Stocks Mentioned

Merck Stock Quote
$110.85 (0.69%) $0.76
Bristol-Myers Squibb Stock Quote
Bristol-Myers Squibb
$79.88 (-0.06%) $0.05
Acceleron Pharma Stock Quote
Acceleron Pharma

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