- Merck & Co. is dropping just over $1 billion to acquire Peloton Therapeutics, a privately-held biotech working on small molecule medicines that target a protein which, when mutated, can foster tumor development.
- Peloton's most advanced drug is under investigation as a treatment for kidney cancer. An ongoing mid-stage trial is evaluating it in renal cell carcinoma associated with a rare condition known as von Hippel-Lindau disease. Additionally, a Phase 3 study of previously treated patients with metastatic renal cell carcinoma is scheduled to begin in the second half of this year.
- Per deal terms, Peloton will receive upfront $1.05 billion in cash from Merck, and is eligible for another $1.15 billion upon the achievement of certain milestones. The companies expect the acquisition to close in the third quarter.
Merck's immunotherapy Keytruda (pembrolizumab) remains a tremendous success. Since its initial approval in 2014, the drug has racked up more than a dozen indications — including most recently an approval in renal cell carcinoma — and grown into a franchise with sales topping $2 billion per quarter.
While that performance has helped prop up Merck's stock value, it is now beginning to fuel investor concerns that the company relies too heavily on a single asset. For the first three months of 2019, Keytruda was responsible for nearly a quarter of Merck's pharmaceutical sales.
Perhaps sensing the unrest, Merck made several small plays over the last couple years to build out its pipeline, particularly in oncology. Interested in the role vaccines and immunization can play in treating cancer, the big pharma has linked up with Moderna Therapeutics and acquired Viralytics and Immune Design in deals worth between $125 million and $400 million.
Merck is shelling out a little more money on Peloton, which focuses its research on a protein called HIF-2 alpha, or hypoxia inducible factor 2 alpha. As the name suggests, HIF-2 alpha plays a part in transcribing genes that are regulated by oxygen levels. But in some circumstances, the protein can support tumor growth and angiogenesis.
Peloton's lead candidate, PT2977, is an oral HIF-2 alpha inhibitor that has been assessed as a treatment for kidney or brain disease across several early- to mid-stage studies. In a Phase 1/2 trial of PT2977 geared toward metastatic renal cell carcinoma patients, investigators observed a 22% confirmed partial response rate. They also found 56% of patients had stable disease, according to Peloton.
Roger Perlmutter, head of Merck Research Laboratories, said in a statement that advancing PT2977 is now part of his company's "broad oncology R&D program."
Merck's pipeline targets a wide range of cancers, from breast and cervical to liver and lung. So far, kidney cancer has arguably taken a backseat — though that may be changing, and not just because of the Peloton deal. Last month, Keytruda in combination with Pfizer's Inlyta (axitinib) gained Food and Drug Administraiton approval as a first-line therapy for patients with advanced renal cell carcinoma.
Such developments might help alleviate the diversity concerns facing Merck's pipeline and portfolio.
"While maybe not the size of deal that some have been hoping Merck to pursue, Peloton’s initial focus on [renal cell carcinoma] is complementary to where Merck is already finding success with the recent approval," Credit Suisse analyst Vamil Divan wrote in a May 21 note to clients.
Peloton's acquisition also falls into larger themes seen across the industry. Big pharmas are thirsty for new products, and have been willing to shell out billions on the promising technology or candidates biotechs can offer.
Merck's latest buy adds to the trend, and could bode well for other small, cancer-focused drugmakers.
"The deal announced today should also underscore the opportunity for other small and mid cap biotech names in the cancer biology space," wrote Cantor Fitzgerald analyst Louise Chen in a note, adding that "this is yet another example of a recent step-up in M&A activity by large cap pharma companies which started early this year."