'We need to do more': Merck CEO Rob Davis highlights M&A, deals strategy ahead of '28 Keytruda patent cliff
With megablockbuster Keytruda’s patent cliff looming in 2028, Merck has made some bold M&A moves in an attempt to find its next big moneymaker, including last year’s $11.5 billion acquisition of Acceleron. According to CEO Robert Davis, there’s plenty more of that coming in 2022.
The chief executive highlighted the Acceleron deal — in which the pharma giant snapped up the potential blockbuster pulmonary arterial hypertension (PAH) drug sotatercept — and last year’s Pandion Therapeutics acquisition as examples of the company’s approach going into the new year.
“We will continue to be appropriately aggressive in pursuing compelling external innovation and we will supplement our pipeline with an approach that is science-led but portfolio-informed,” Davis said. “While we have a strong track record of business development, we know we need to do more.”
He also emphasized molnupiravir as a key driver of sales, forecasting $5 billion to $6 billion in revenue this year. By the end of this week, the company will have delivered 3.1 million courses of the treatment to distribution hubs, Davis said on the call.
“We do see the potential for molnupiravir beyond the current situation with Covid-19 and the pandemic, given the fact that it does have such good activity more broadly,” Davis said on the call.
Despite reporting a 17% growth in full-year sales — $48.7 billion, about $952 million of which was from molnupiravir alone — Merck’s stock $MRK slipped just over 3% on Thursday, pricing in at $78.41 per share.
As always, the pharma giant will continue its push to expand Keytruda’s label to include earlier lines of therapy and new combinations for cancer patients, including in the adjuvant space where it was approved last quarter in renal cell carcinoma.
“We’re looking at movement into the earlier spaces driving approximately 50% of the growth for the drug, for Keytruda, through 2025,” Davis said. “And we think by 2025, it’ll be about 30% of our total revenue coming from the adjuvant indications we have. So this is an area where we’re starting to put runs on the board, and I think we’re going to show the breadth of what Keytruda can do both in maintenance as well as in the metastatic space.”
The cash cow PD-1 immunotherapy raked in $17.2 billion last year, up 20% from the year before. Merck hopes the drug will guide the company in becoming the leader in oncology by 2025, according to Dean Li, executive VP and president of Merck Research Laboratories. The challenge, however, will be maintaining that status after the patent cliff in 2028.
“We have an expanding portfolio of commercial and developmental oncology assets beyond Keytruda, which offer meaningful growth opportunities beyond 2028,” Davis promised on the call.
M&A appears to be a large part of that plan, as all signs point toward a Big Pharma M&A hunt this year. Merck’s Acceleron deal was the industry’s second-largest takeover last year, just behind CSL’s $11.7 billion acquisition of Vifor Pharma.
“We are seeing in the biotech space, valuations have pulled back quite a bit,” Davis said. “I think it’s too early to see whether or not this is a permanent rebasing in the market or, or if it is just a temporary change in the marketplace. We need to see how that plays out.”
He noted that with IPOs starting to slow, he’ll be interested to see if cash investments do as well.
“Whether or not that drives to sellers being willing to see the restatement of values that will allow us to do deals at different levels we’ll have to see,” Davis continued. “But it doesn’t change the importance we see of doing business development for the company.”
The CEO pointed to the company’s other franchises beyond oncology, including its HPV vaccine Gardasil, which saw a 44% sales growth last year and could double sales by 2030, according to Davis. There’s also their next-gen, 15-valent pneumococcal vaccine Vaxneuvance, which got the OK back in July — however, Pfizer beat it to the punch with its own 20-strain shot. The FDA is expected to decide on a supplemental BLA for Vaxneuvance in children 6 weeks through 17 years old by April 1.
Li also gave brief updates on islatravir and gefapixant, which were recently hit with a partial hold and a CRL, respectively.
Islatravir is one of the two centerpieces of Merck and Gilead’s joint effort to develop a long-acting HIV therapy, alongside Gilead’s capsid inhibitor lenacapavir. Back in December, FDA placed clinical holds on the INDs for oral and implant formulations of islatravir for HIV-1 pre-exposure prophylaxis (PrEP); the injectable formulation of islatravir for HIV-1 treatment and prophylaxis; and the oral doravirine/islatravir (DOR/ISL) HIV-1 once-daily treatment. The holds were put in place after scientists flagged a drop in immune cell counts in patients receiving the treatment.
“We are working to understand the data and the principles of the finding,” Li said. “We believe in the potential of the nucleoside reverse transcriptase and translocation inhibitor mechanism for both the prevention and treatment of HIV, and we intend to share updates in the future.”
Gefapixant, on the other hand, was once touted as a “pipeline in a product.” But while the drug dramatically reduced chronic cough in a Phase III trial, so did placebo, leaving the research team with a marginal success on the p-value side of the equation. There were also some concerning side effects in late-stage work, including a taste-altering effect called dysgeusia. The FDA handed Merck a CRL for the drug just last month.
However, Li maintained on the Q4 call that “there were no safety concerns for gefapixant,” and that the FDA had requested more information “related to the measurement of efficacy.”