December 9, 2019 / 11:59 AM / 6 months ago

Merck pushes deeper into targeted cancer therapy with $2.7 billion ArQule deal

(Reuters) - Merck & Co Inc (MRK.N) said on Monday it would buy ArQule Inc ARQL.O for $2.7 billion, as it looks to tap into the drug developer’s experimental blood cancer therapy that targets genetic mutations.

FILE PHOTO: The Merck logo is seen at a gate to the Merck & Co campus in Linden, New Jersey, U.S., July 12, 2018. REUTERS/Brendan McDermid

Big drugmakers have been spending heavily to scoop up targeted cancer therapies, seen as a potential alternative to chemotherapy that has many adverse side effects.

Earlier this year, Eli Lilly & Co (LLY.N) paid $8 billion for Loxo Oncology, and Pfizer Inc (PFE.N) agreed to a $10.6 billion deal for Array Biopharma.

Merck’s offer of $20 per share was more than double ArQule’s closing price on Friday, placing a high premium on its lead drug ARQ 531.

Cantor Fitzgerald analyst Louise Chen called the deal smart and strategic.

ArQule’s pipeline will bolster Merck’s oncology franchise at a time when Wall Street is very interested in its acquisition strategy and plans after its blockbuster cancer drug Keytruda loses market exclusivity in 2028, she said.

Roger Perlmutter, president of Merck Research Laboratories, noted ArQule’s focus on precision medicine has yielded multiple oral kinase inhibitors, drugs that work by inhibiting cancer-causing proteins, that have “novel and important properties”.

Kinase inhibitors have driven over $97 billion in acquisitions since 2010 - about 37% of the total value of cancer drug-focused deals - according to an analysis from brokerage SVB Leerink in August.

ArQule on Monday also reported positive data from an early-stage study testing ARQ 531 at the American Society of Hematology annual meeting in Florida..

The company’s shares rose to $19.69.

“We see this acquisition as unlocking value for investors as it places ARQ 531 in the hands of a larger player who can develop this asset more broadly and aggressively,” SVB Leerink analyst Jonathan Chang said.

The deal is expected to close early in the first quarter of 2020.

ARQ 531 sales are expected to grow to $508 million in 2028, according to brokerage H.C. Wainwright.

At present, Keytruda, which treats numerous types of cancer, is Merck’s most important growth driver.

Although sales of Keytruda have surged ahead of Opdivo, a rival medicine from Bristol-Myers Squibb (BMY.N), to top $3 billion in revenue in the latest quarter, analysts have warned Merck may be relying too heavily on it.

Merck in May announced a deal for Peloton Therapeutics Inc for $1.05 billion in cash and said it would buy Tilos Therapeutics for up to $773 million a month later.

Reporting by Tamara Mathias in Bengaluru; Editing by Anil D'Silva and Shinjini Ganguli

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