Merck Pays $10 Billion for Verona in Effort to Diversify Beyond Keytruda
Merck & Co. unveiled a $10 billion takeover of U.K.-based Verona Pharma as a strategic move to diversify its respiratory medicine pipeline and counterbalance its heavy dependence on the blockbuster cancer medicine Keytruda. The deal points to the U.S. pharma giant's relentless effort to restructure its product pipeline as Keytruda approaches an impending patent cliff.
Keytruda, the world's top-selling medication, raked in almost $30 billion in 2024. Yet, with significant patent declines that will start in 2028, Merck needs to make a transition smooth and prevent a precipitous fall in profits. Verona's acquisition is a testament to the company's aggressive approach to boost other promising therapeutic areas.
Under the terms of the agreement, Merck will pay $107 for each American Depository Share of Verona Pharma, which is a 23% premium to the company's closing price on the Nasdaq. Verona's shares jumped over 20% in premarket trading after the news, and Merck's stock also recorded a minor increase.
The buyout provides Merck with access to Ohtuvayre, Verona's newly approved inhaled medication for chronic obstructive pulmonary disease (COPD), a disease that is common with long-term smoking. COPD is a major cause of death around the world, and the demand for new, successful treatments is rising. Ohtuvayre has already made $42.3 million in revenue in 2024, and analysts are predicting that it could reach more than $3 billion in sales annually at its peak.
This transaction appears to be good on the surface. Considering their success with Prometheus and Winrevair, this appears to be a possible complementary treatment," said Kevin Gade, chief operating officer at investment firm Bahl & Gaynor.
Merck has been on a tear in building its pipeline since 2021, almost tripling its late-stage development programs. That effort combines internal R&D and high-value acquisitions. In 2021, it bought Acceleron for $11.5 billion, acquiring the pulmonary arterial hypertension drug Winrevair. In 2023, it bought Prometheus Biosciences for $10.8 billion, adding immunology assets to its portfolio.
Ohtuvayre is a good fit with Merck's strategic shift into respiratory and immunology therapeutics. It has the potential for long-term growth and is a buffer against the revenue pit that Keytruda's patent expiration could create.
"Although buying Verona is a solid move in the right direction, Merck still requires additional assets to ensure a seamless revenue transition after Keytruda," said Evan Seigerman, a BMO Capital Markets analyst.
The deal is Merck's first of 2025 and comes as a sign that the company is nowhere near done in its search for assets of the future. Merck executives highlighted that this buy not only deepens their footing in the respiratory franchise but also reinforces the company's strategy of targeting innovative therapies with high unmet needs.
The Financial Times broke the story of the possible deal earlier this week, reporting that negotiations were almost complete. Now confirmed, the takeover will be subject to regulatory approval and is expected to complete by the end of the year.
For Verona, the transaction represents a chance to expand Ohtuvayre's span with Merck's worldwide commercial network and expertise in respiratory markets. For Merck, it's yet another measured move to construct a diversified portfolio less exposed to the fate of any one drug's lifecycle.
As the pharma sector grapples with mounting patent trouble and escalating R&D expenses, Merck's action highlights the need for smart and timely acquisitions to remain competitive. The company's well-thought-out $10 billion wager on Verona is a glaring message: the battle to reframe Merck beyond Keytruda is in full swing.