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Merck keeps deal focus with Keytruda patent cliff on horizon

Merck & Co. plans to continue seeking out multibillion-dollar biotechnology deals to supplement its own drug research as it prepares for its dominant cancer immunotherapy Keytruda to lose patent protection later this decade.

Merck, which earns about half of its pharmaceutical sales from Keytruda, has struck several notable acquisitions in recent years, including an $11 billion buyout of Acceleron in 2021 and a $10.8 billion takeover of Prometheus Biosciences last year. The company in October also inked a cancer drug licensing deal with Daiichi Sankyo that could be worth up to $22 billion.

CEO Rob Davis, speaking on a fourth quarter earnings call Thursday, indicated Merck will remain an active dealmaker.

“We continue to believe we need more and we will continue to prioritize business development,” said Davis. “Our views of deals like Prometheus, like Acceleron — they’re still the size of deals we’re very interested in if we can find great assets.”

Acquisitions valued up to $15 billion would be in Merck’s range, he added.

Across the pharmaceutical industry, dealmaking has picked up in recent quarters, catalyzed in part by looming patent cliffs like what Merck faces with Keytruda. The drug, which topped $25 billion in sales last year, has patent protection into 2028, after which Merck will be pressed to replace lost revenues with newer drugs.

Currently, Merck predicts its pipeline of drugs for cancer, immune and cardiac diseases will earn more than $35 billion in sales by the middle of the next decade. That pipeline includes assets like sotatercept, a treatment for pulmonary arterial hypertension acquired via the Acceleron deal, and tulisokibart, an inflammatory bowel disease medicine developed by Prometheus.

Another key part of Merck’s strategy is developing a subcutaneous, or under-the-skin, formulation of Keytruda, which is currently given intravenously. Such a version could give Merck leverage to compete with any generic versions of IV Keytruda that emerge following patent expiry in 2028.

“The subcutaneous [Keytruda] is an innovation that is going to be demanded, and is being demanded, by the field,” said Merck research chief Dean Li.

Davis added that Merck is planning to price any subcutaneous formulation with an eye to generic competitors. “We will price our subcutaneous to drive for volume … which means we will be looking at prices really more in line with where you would see a generic version at a premium that history has shown is very manageable,” Davis said.

The company is also developing combination formulations that pair Keytruda with other immunotherapies aimed at different cellular targets.

Merck reported sales of $60.1 billion for 2023, an increase of 1% from the year prior. Overall growth was held back by declining sales of the company’s COVID-19 antiviral Lagevrio; excluding that drug, sales grew 9%.

The company is forecasting sales this year will fall between $62.7 billion and $64.2 billion.

Shares rose by 3% in Thursday morning trading, outpacing the broader market.