Merck acquires Prometheus Biosciences, a company that produces biotechnology products for around $11bn

After a slump last year, pharmaceutical and biotech deals have rebounded.

Merck agreed to purchase Prometheus for $10.8bn, as it bolsters its pipeline in anticipation of losing exclusivity on its top-selling cancer drug by the end of this decade.

The cash-only transaction for Prometheus, a San Diego biotech that focuses on diseases caused abnormal activity in the body’s immunity system, is the latest indication of a recovery in mergers-and-acquisitions activity in the sector after a dip last year.

Prometheus has developed a monoclonal anti-body treatment for ulcerative bowel disease, which is a form of inflammatory colitis. In December, it announced positive results from its mid-stage clinical trial for its lead drug. It is also developing other therapies by using machine learning.

Merck stated that the acquisition would help the company to strengthen its position in immunology, a rapidly-growing field where patients have significant unmet needs.

Robert Davis, Merck’s chairman and chief executive said: “This transaction diversifies our portfolio and is a key building block in strengthening the sustainable innovation engine which will drive our growth for the next decade.”

Merck agreed to pay $200 for each share of Prometheus. This is a premium of 75 percent over the closing price on Friday for the Nasdaq-listed company’s stock.

Merck has been looking for acquisitions in the last year to diversify their pipeline before losing exclusivity over its blockbuster cancer medication Keytruda. The patents for that drug which is expected to generate almost $21bn of revenue in 2022 are set to expire at the end. This will allow rivals to release similar products.

US drugmaker reported to have been in talks about a possible deal with oncology focused Seagen last year, but didn’t move forward. Pfizer announced a $43bn deal in March, the largest pharmaceutical deal since AbbVie bought Allergan.

Merck acquires Prometheus via a subsidiary. The Wall Street Journal was the first to report on this deal. It is still subject to shareholder and regulatory approval. The deal is expected to be completed in the third quarter 2023.

Evan Seigerman of BMO Capital Markets said that the deal would allow Merck to address the imminent loss of exclusivity for Keytruda, and expand its relatively small immunology unit.

He said that the acquisition could signal a change in the activity of the pharmaceutical industry towards a more aggressive use of cash in order to acquire biotech companies.

He said that the takeover of Prometheus would be a positive move for Merck, and also for the broader Pharma industry. M&A has started to warm up.