Merck to buy Peloton for up to US$2.2 bil, day before IPO

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NEW YORK (May 21): Merck & Co will acquire Peloton Therapeutics Inc for as much as US$2.2 billion in cash and additional payments, making the deal just a single day before the closely held developer of cancer therapies was to begin trading on the stock market.

Merck will pay US$1.05 billion in cash, plus US$1.15 billion in additional payments, based on how the small company’s experimental drugs fare as they are developed further by Merck, the firms said in a statement announcing the deal Tuesday.

The deal offers an immediate payout for Peloton’s investors, including Dallas-based venture capital firm Remeditex Ventures and San Francisco’s The Column Group. At the US$17 high range of Peloton’s expected initial public offering, the market would have valued the company at US$756 million. If Peloton earns all of the future payouts in the deal, Merck will have paid the equivalent of almost US$50 a share.

Peloton is focused on development of treatments targeting a pathway that’s activated by low levels of oxygen, according to a statement from the companies, and its lead experimental drug is aimed at kidney cancer.

Drugmakers around the world are shopping for new treatments for cancer, one of the hottest markets in the pharma industry with about US$133 billion in global sales. Merck sells Keytruda, a mega-blockbuster drug that helps turn the immune system against cancer cells. It has been shopping for new therapies that will diversify its offerings, and Chief Executive Officer Ken Frazier said during an April conference call that the company would be looking for small to mid-size deals.

Peloton, which is based in Dallas, had said earlier this month that it was planning to raise up to US$159.4 million in an initial public offering. That offering was set to begin trading publicly on Wednesday.

The companies see the transaction closing in the third quarter of the year. Merck is represented by Credit Suisse as financial adviser, and Peloton is represented by Centerview Partners.

Merck shares were up 0.8% to US$79.49 at 10:38 a.m. in New York.