Merck Acquires Peloton For $2.2 Billion Prior To Drugmaker's IPO

Merck & Co Acquisition
The Merck logo is seen at a gate to the Merck & Co campus in Linden, New Jersey (Photo: Reuters / Brendan McDermid)

Just a day prior to its stock market debut, Peloton Therapeutics announced that it had come to an agreement with Merck & Co. The New Jersey-based pharmaceutical giant reportedly agreed to acquire Peloton Therapeutics for around $2.2 billion in cash and additional payments.  

As part of their deal, Merck & Co agreed to pay the cancer drug maker $1.05 billion in cash and $1.15 billion in additional payments. The amount of the additional payments may still change depending on the performance of Peloton's slew of experimental drugs.

Merck will also be working to further developer Peloton's products. Peloton's major investors, which include Remeditex Ventures and Column Group, will get an immediate payout from the deal.

Based on the amount Merck is willing to pay for the company, it would essentially be paying around $50 per share if Peloton earns all of the future additional payments. The figure is significantly higher than the drug maker's initial public offering (IPO) price, even at the top of the range of $17 a share. Peloton's IPO price currently values the company at around $756 million.

Merck likely sees big revenue potential in the company, which is working on a number of drugs to treat different kinds of cancers. Peloton is currently developing a treatment for kidney cancer that involved manipulating pathways activated by low levels of oxygen.

The cancer treatment market within the pharmaceutical industry is one of the hottest and most profitable markets to date. According to reports, global sales in the particular sector are estimated to be worth more than $133 billion.

Merck currently has its own set of cancer treatments, with the most popular one being its Keytruda wonder drug. The FDA-approved drug has been shown to effectively help the immune system fight against cancer cells.

The drug utilizes humanized antibodies to block the cancer cell's protective mechanism, which then allows the immune system to destroy them. The drug is currently approved by the FDA to treat metastatic melanoma.

Despite its success with its own products, Merck has been busy shopping for new treatments that will help it diversify its offerings. According to the company's CEO, Ken Frazier, they are currently looking for small to mid-size firms with promising products to acquire.

Even with the deal now in place, Peloton still plans to raise up to $159.4 million in its IPO this week. The acquisition is expected to be completed by the end of the third quarter of this year. Following the news of the acquisition, Merck shares rose slightly by around 0.8 percent to $79.49 per share. 

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