Merck & Co. chairman and CEO Robert M. Davis

Merck & Co. has agreed to acquire Prometheus Biosciences for about $10.8 billion, the companies said Sunday, in a deal intended to bolster the buyer’s immunology drug pipeline as it faces loss of exclusivity for some of its best-selling products over the next few years.

Based in San Diego, Prometheus develops precision drugs and companion diagnostics for immune-mediated diseases. The company’s lead candidate, PRA023, is a humanized monoclonal antibody indicated for autoimmune conditions that include ulcerative colitis (UC), Crohn’s disease (CD), and Systemic Sclerosis-associated Interstitial Lung Disease (SSc-ILD).

Prometheus is also developing companion diagnostics designed to help predict patient responses to PRA023, with the goal of identifying patients most likely to respond best to PRA023, which targets tumor necrosis factor (TNF)-like ligand 1A (TL1A), a target associated with both intestinal inflammation and fibrosis.

In December 2022, the company announced positive results for PRA023 from two clinical trials: The Phase II ARTEMIS-UC trial (NCT04996797), a placebo-controlled study designed to assess the drug’s safety and efficacy in patients with moderate to severely active UC; and APOLLO-CD (NCT05013905), a Phase IIA, open-label study designed to evaluate the safety and efficacy of PRA023 in patients with moderate to severe CD. Findings from both trials were recently presented at the 18th Congress of the European Crohn’s and Colitis Organisation (ECCO).

Among Prometheus’ assets is the Prometheus360 discovery engine platform for novel precision therapeutics and diagnostics, which according to the company includes one of the world’s largest collections of biospecimens from patients suffering from inflammatory bowel disease (IBD) and other gastrointestinal disorders.

The platform consists of a clinical database and associated biobank, exclusively licensed from Cedars-Sinai Medical Center, and includes more than 200,000 samples linked to extensive clinical data from 20,000+ patients collected over more than 20 years.

“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,” Merck chairman and CEO Robert M. Davis said in a statement.

The deal is the latest billion-dollar deal driven by buyers looking to add successful immunology drugs to their pipelines. In February, Takeda Pharmaceutical completed a deal in which it committed up to a staggering $6 billion—including $4 billion upfront—to acquire from Nimbus Therapeutics NDI-034858, an oral, selective allosteric inhibitor of tyrosine kinase 2 (TYK2), which Takeda has renamed TAK-279.

And last year, Pfizer completed a $6.7 billion acquisition of Arena Pharmaceuticals, a deal that expanded the buyer’s immuno-inflammatory disease pipeline to include etrasimod. The oral, once daily, selective sphingosine-1-phosphate (S1P) receptor modulator is now under review by the FDA and European Medicines Agency, with decisions expected in the second half of 2023 and first half of 2024, respectively.

“Attractive and rewarding”

“Inflammation and immunology (I&I) has been an attractive and rewarding therapeutic area over the last 12 months with multiple positive industry readouts from mid- to late-stage studies and has drawn significant investor interest—and big pharma interest—given pot’l to be blockbuster drugs,” Jefferies analyst Michael J. Yee wrote Sunday in a research note. “Pharma continues to closely watch the I&I space and has been active in M&A [mergers and acquisitions].”

Davis in recent months has led Merck’s M&A efforts, designed to help the pharma giant recoup revenue it expects to lose as its patent portfolios for key products face expiration.

Those key products include its best-selling drug, the blockbuster cancer immunotherapy Keytruda® (pembrolizumab), and its best-selling vaccines, Gardasil® 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) and its predecessor Gardasil® (Human Papillomavirus Quadrivalent [Types 6, 11, 16, 18] Vaccine, Recombinant, which is no longer sold in the United States. The U.S. patent portfolios for both Keytruda and the Gardasil vaccines are set to expire in 2028, according to Merck’s Form 10-K annual report for 2022.

Keytruda generated $20.937 billion in revenue last year, accounting for more than one-third (35%) of Merck’s total pharmaceutical sales. The Gardasil vaccines (whose sales are reported as a group) racked up a combined $6.897 billion, making them Merck’s second-best-selling products. Both Keytruda and the Gardasil vaccines saw their sales jump 22% over 2021.

Merck is set to report first-quarter sales figures and other results on April 27.

Prometheus was formed in 2016 as Precision IBD after Stephan Targan, MD, of Cedars-Sinai Medical Center, a pioneer in IBD research, began building a biobank that paired IBD patient biosamples with longitudinal clinical data. The research led to the discovery of TL1A.

The company was founded to commercialize a precision medicine approach to treating IBD. Targan’s research expertise was combined with the genetics and computational know-how of Dermot P. McGovern, MD, PhD, the biotech and industry background of Janine Bilsborough, PhD, as well as investment and support from Cedars-Sinai’s Technology Transfer Office led by Jim Laur, and serial entrepreneur Scott Glenn.

Making biotech history

The company took on its current name in 2019 after it acquired Prometheus Laboratories from Nestlé Health Science. Prometheus Laboratories made biotech history in 2012  when the U.S. Supreme Court invalidated two of its patents covering its dosage calibration methods for thiopurine drugs for gastrointestinal and nongastrointestinal autoimmune diseases, in a case called Mayo Collaborative Services v. Prometheus Laboratories.

The high court overturned a Federal Circuit decision upholding the patents, which covered methods designed to take into account the context of a treatment regimen based on the individual patient’s metabolism.

Prometheus Biosciences spun off Prometheus Laboratories in December 2020. Three months later in March 2021, shortly before the initial public offering (IPO) market began to turn bearish, Prometheus Biosciences went public through an IPO that generated $199.8 million in net proceeds.

Merck agreed to acquire Prometheus for $200 a share, a 75% premium to Prometheus’ stock price of $114.01 at the close of trading Friday.

The deal is subject to Prometheus shareholder approval and customary conditions that include the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The acquisition is expected to close in the third quarter.

“Prometheus was established to revolutionize the treatment of immune-mediated diseases through the application of a powerful precision medicine approach,” stated Mark McKenna, Prometheus Biosciences’ chairman and CEO. “This agreement with Merck, a leader in biopharmaceutical research and development, allows Prometheus to maximize the potential for PRA023, while continuing to apply our technology and expertise to fuel further discoveries to address the needs of patients with immune disorders.”

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