The Ratings Game: Merck’s $10.8 billion takeover of Prometheus is a good strategic move that gives it a foothold in immunology

by | Apr 17, 2023 | Stock Market

Merck & Co.’s $10.8 billion acquisition of Prometheus Biosciences Inc., which it announced Sunday, is a strategic positive that will help the drug company diversify its portfolio and reduce the risk of an overreliance on its cancer drug Keytruda, analysts said Monday. San Diego, Calif.-based Prometheus
is a clinical-stage biotechnology company focusing on autoimmune treatments, such as PRA023, a treatment under development for illnesses such as ulcerative colitis and Crohn’s disease.

“This transaction adds further diversity to our overall portfolio and is an important building block in strengthening the sustainable innovation engine that will drive our long-term success,” Merck Chief Executive Rob Davis told analysts on a call to discuss the deal, according to a FactSet transcript. BofA analysts said diversity is a key goal for Merck, given that Keytruda is expected to account for more than 45% of total revenue by 2025. “While we wouldn’t expect today’s proposed transaction to meaningfully move Merck’s shares on Monday given its relative size, we see the deal as a strategic positive and another step in the right direction to diversify Keytruda concentration risk,” analysts led by Geoff Meacham wrote in a note to clients. Also see: Moderna, Merck combo cancer-vaccine treatment shows ‘significant’ promise BofA has a buy rating on Merck
with a $130 price target that’s about 13% above its current price.   Prometheus had a market cap of about $5.42 billion as of Friday’s close. Its stock is up 3.7% year to date …

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