Merck Snaps Up VelosBio In $2.75B Oncology Deal; Shares Rise

Merck & Co has entered into a definitive agreement to snap up all outstanding shares of VelosBio for $2.75 billion in cash, in a move to bolster its oncology pipeline. Shares are up 2.2% in Thursday’s morning trading.

The move to broaden its cancer drug pipeline builds on the success of Merck’s (MRK) blockbuster oncology therapy Keytruda, which has generated over 29% of the company’s sales in the first nine months of 2020.

VelosBio is a privately held clinical-stage biopharma company, which develops first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). The company’s lead investigational candidate is VLS-101, an antibody-drug conjugate (ADC) targeting ROR1 that is currently being evaluated in a Phase 1 and a Phase 2 clinical trial for the treatment of patients with hematologic malignancies and solid tumors, respectively. The transaction, which is subject to regulatory approval, is expected to close by the end of 2020.

“At Merck, we continue to bolster our growing oncology pipeline with strategic acquisitions that both complement our current portfolio and strengthen our long-term growth potential,” said Merck’s Roger M. Perlmutter. “Pioneering work by VelosBio scientists has yielded VLS-101, which in early studies has provided notable evidence of activity in heavily pretreated patients with refractory hematological malignancies, including mantel cell lymphoma and diffuse large B-cell lymphoma.”

As part of its efforts to further strengthen its position in the oncology space, Merck in September inked a deal with Seagen under which it will acquire a $1 billion equity stake in Seagen stock and make certain upfront payments to develop cancer therapies.

Merck shares have gained almost 6% over the past 5 days, trimming their year-to-date decline to 11%. The stock scores a Moderate Buy analyst consensus with 7 Buys and 3 Holds. Meanwhile, the average analyst price target of $95.30 implies 16% upside potential over the coming year.

Mizuho Securities analyst Mara Goldstein on Oct. 27 reiterated a Buy rating on the stock with a price target of $100 (25% upside potential).

“The growth in Keytruda continues to drive transformation in the P&L and is supportive of our investment thesis, particularly as we see the Organon & Co. spin-off (anticipated 2Q21) creating a more nimble, oncology-focused company,” Goldstein wrote in a note to investors. (See MRK stock analysis on TipRanks).

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