Merck & Co. Buys Pandion, Building Out Capability In Autoimmune Disease
Executive Summary
Merck & Co. reached a deal to acquire the developer of targeted immune modulators for $1.85bn. Pandion CEO Kakkar talked to Scrip about the acquisition.
Merck & Co., Inc. is building out its autoimmune disease capability with the $1.85bn acquisition of Pandion Therapeutics, Inc. announced on 25 February. The bulk of Merck & Co.'s recent string of deals has been in oncology, but this acquisition appears to balance the scale in a different therapeutic area.
A newly public company focused on the development of precision immune modulators targeting key immune control nodes, Pandion has a discovery platform, several preclinical drug candidates and one clinical drug candidate in development for autoimmune diseases. The company's lead program is PT101, an engineered IL-2 mutein fused to a protein backbone to activate and expand regulatory T cells (T-regs) for the treatment of ulcerative colitis and other autoimmune diseases.
"Pandion was started to try to usher in a fully different way of addressing autoimmune disease," Pandion CEO Rahul Kakkar said in an interview. "Much of what is being developed these days or is in the clinic are really still in the realm of what I consider immunosuppression." Current drug development efforts has hit up consistently against an efficacy ceiling, he said.
"Pandion was really set up to move beyond that to what we like to consider true immunomodulation," he said. Much of the foundation for the company comes from learnings and experience with immuno-oncology, which is why Merck & Co. was such an attractive buyer for Pandion.
Merck & Co. is not considered a leader in autoimmune disease, but it is a leader in immuno-oncology, most notably as the developer of the immune checkpoint inhibitor Keytruda (pembrolizumab).
"I like to think of Pandion as really just the flip side of IO being applied to autoimmune disease," Kakkar said. Merck & Co.'s scientists, he said, "clearly understand the systems that we are talking about and the way these systems can be utilized for IO if you manipulate them in one direction but for autoimmunity if you manipulate them in another direction."
Pandion’s pipeline is in the very early stages of development, however. PT101 has just completed a Phase Ia clinical trial in healthy volunteers, demonstrating safety and tolerability, so there will be a lot of work ahead for Merck & Co. to realize the full potential of the deal. Behind PT101 is a PD-1 agonist in the investigational new drug (IND)-enabling phase of development. Pandion has been planning to move PT101 forward in development for ulcerative colitis first and then systemic lupus erythematosus, based on compelling early data from academia showing the potential of the IL-2 pathway in those indications.
Kakkar, who joined Pandion as CEO in 2019 as the company moved toward clinical development, said the decision to sell the company came as Pandion was about to embark on a potentially expensive clinical drug development program that could span a wide array of autoimmune indications.
"If you are targeting a mechanism which modulates the immune system, it is going to have potential applications in many autoimmune diseases," he said. "We really had to make a choice: Do we continue to build this organization narrowly focusing on clinical build as our discovery engine continues to make more molecules or do we think about engaging with an entity that has the profound R&D resources that are going to be required to fully realize the potential of these molecules for patients."
A Steep Premium
For Pandion, the deal represents a big return on investment and a quick turnaround. The Watertown, MA-based company went public through an initial public offering at $18 per share in July, raising $135m. The company, formed in 2017, previously raised $58m in a series A round in early 2018 and $80m in a series B round in early 2020. (Also see "Finance Watch: Pandion's $55m Series A Funds Localized Bispecifics For Autoimmune Diseases" - Scrip, 23 Jan, 2018.) and (Also see "Finance Watch: iTeos, Pandion And Aspen Show COVID-19 Hasn’t Slowed VC Deals Yet" - Scrip, 1 Apr, 2020.)
Merck has agreed to pay $60 per share in cash for Pandion, a healthy premium over the company's closing stock price of $25.63 on 25 February.
Steep premiums are expected to persist within biotech given the optionality for young startups when it comes to private investment and the welcoming public markets. Big pharma leaders recently lamented the high premiums – particularly for early-stage assets – during the BIOCOM Global Life Science Partnering Conference. (Also see "High Deal Valuations & Volumes Will Persist, Industry Dealmakers Predict" - Scrip, 24 Feb, 2021.)
SVB Leerink analyst Geoffrey Porges, in a same-day note, said the acquisition "validates the notion that investors in recently public and early-stage biopharma companies can still be tempted by the possibility of an early huge return from a large transaction at a high premium."
"This transaction seems likely to contribute to a sustained buoyancy in the appetite for emerging biopharma equity offerings in the public markets," he added.
Merck & Co. said the acquisition of Pandion builds on the company's goal to develop drug candidates with "potentially foundational characteristics."
"Pandion has applied its TALON technology to develop a robust pipeline of candidates designed to re-balance the immune response with potential applications across a wide array of autoimmune diseases," Merck Research Laboratories president Dean Li said in a statement.
The acquisition comes during a period of transition for Merck & Co. within its top leadership ranks and within the portfolio as the company looks to build out beyond Keytruda (pembrolizumab). CEO Ken Frazier recently announced his planned retirement later in 2021, to be succeeded by chief financial officer Robert Davis, while Li took over as head of R&D at Merck & Co. from Roger Perlmutter in January. (Also see "Davis To Shepherd Merck & Co. Toward The Post-Keytruda Era, As Frazier Exits" - Scrip, 4 Feb, 2021.)
Apart from this deal, Merck & Co.’s late-stage pipeline largely comprises candidates for cancer and infectious disease.
The company has been on a deal-making streak since 2019 as part of an effort to bolster the portfolio and pipeline but Merck & Co. remains focused on licensing deals and bolt-on acquisitions over large-scale mergers. The bulk of the deals have been in oncology, including the $2.75bn acquisition of antibody drug conjugate and bispecific antibody developer VelosBio Inc. , announced in November. (Also see "Merck Pays $2.75bn To Access VelosBio’s ROR1-Targeting ADCs" - Scrip, 5 Nov, 2020.)
The company also partnered with Seagen Inc. in two cancer deals last year, to develop and commercialize ladiratuzumab vedotin, a Phase II antibody drug conjugate, and to commercialize Tukysa (tucatinib) outside the US, Canada and Europe, in exchange for $725m up front plus $1bn in equity. (Also see "Twice As Nice: Seattle Genetics, Merck & Co. Partner On Two Cancer Drugs" - Scrip, 14 Sep, 2020.)