Merck said on Wednesday it will acquire UK-based Verona Pharma for about $10 billion, gaining a promising respiratory treatment as it faces pressure to diversify beyond its blockbuster cancer drug Keytruda. Merck is set to lose revenue from Keytruda, the world's top-selling drug with nearly $30 billion in annual sales, as key patents begin to expire in 2028. The acquisition, the first this year, eases pressure on Merck to replace that revenue but does not eliminate the need for further deals. Chief Executive Rob Davis said, adding he still considers going beyond his $1 billion to $15 billion preferred target range for future deals. Merck projects peak multibillion-dollar annual revenue by the mid-2030s from Verona's Ohtuvayre, a newly approved treatment for chronic obstructive pulmonary disease, commonly known as "smoker's lung." The acquisition is seen as a positive step for Merck amid concerns over Keytruda's looming patent cliff and slowing demand for its HPV vaccine Gardasil. Shares of Merck closed nearly 3% higher at $83.71 on Wednesday, while U.S.-listed shares of Verona were up about 21% at $104.77. "We expect more deals like this from Merck as it continues to position the company for growth post-Keytruda," Harlow added. Since 2021, the company has nearly tripled its late-stage pipeline, combining in-house development with acquisitions such as the $11.5 billion purchase of Acceleron in 2021, which netted the pulmonary arterial hypertension drug Winrevair. As its blockbuster cancer therapy Keytruda faces patent expiry, Merck is looking for new growth drivers. Wednesday's acquisition is Merck's largest since its $10.8 billion buyout of Prometheus Biosciences in 2023. The inhaled drug has generated sales of $42.3 million in 2024 and analysts have estimated it could exceed $3 billion in annual revenue. Jefferies analyst Andrew Tsai projects peak annual sales from Ohtuvayre of $3 billion to 4 billion by the 2030s. The drug is on track to surpass $400 million in its first full year, he said. Merck will pay $107 per American depository share for Verona, a premium of 23% to the London-based company's last close on the Nasdaq. "Merck deal looks good at first glance. Given their home run with Prometheus and Winrevair, this (Ohtuvayre) looks like a potential complementary therapy," said Kevin Gade, chief operating officer at Bahl & Gaynor. His sentiment was shared by others including BMO Capital Markets analyst Evan Seigerman. However, Seigerman added a note of caution, saying more is needed to assure investors of a smooth transition of revenue without a strong decline after Keytruda expiry.

Merck shells out $10 billion for Verona in bid to diversify beyond Keytruda

Merck announced a $10 billion acquisition of UK-based Verona Pharma to diversify beyond its blockbuster cancer drug Keytruda, which faces patent expiry in 2028. The deal includes Verona's drug Ohtuvayre, a treatment for chronic obstructive pulmonary disease, expected to generate $3 billion in annual revenue by the 2030s. The acquisition follows Merck's previous deals and aims to mitigate revenue risks from Keytruda's declining sales.