Merck Is Paying Up for Flu Biotech as M&A Spree Continues

Merck will purchase Cidara Therapeutics in an all-cash deal worth $9.2 billion. (Courtesy Merck)

Key Points

• Merck will acquire Cidara Therapeutics for $9.2 billion, or $221.50 per share, more than double its recent closing price.
• Cidara’s flu prevention drug, CD388, showed 76.1% efficacy in a Phase 2b trial and could generate over $3.5 billion in sales by 2035.
• The acquisition helps Merck address the 2028 patent expiration of Keytruda, which accounted for 46% of its 2024 revenue.

Merck has agreed to pay a hefty premium for a biotech making a new flu prevention drug**,** as it braces for the expiration of the patents protecting its top-selling cancer treatment Keytruda. It is the latest signal that competition is intense as the biggest pharmaceutical companies scramble to pad their drug pipelines.

Merck said Friday it will pay $9.2 billion for Cidara Therapeutics , or $221.50 per share in cash, more than double the share price before the news. The stock closed at $105.99 on Thursday, and was trading at $21.02 in late June, before the company reported startlingly positive results from a trial of its flu drug.

Merck shares were up 1.2% on Friday, while Cidara shares had doubled.

The 109% premium over Thursday’s closing price, and the nearly 1,000% premium over Cidara’s share price five months ago, are additional positive signs for biotech, which has been on an unaccustomed run this fall. The State Street SPDR S&P Biotech ETF is up roughly 25% since the start of September, and was up another 2.5% on Friday.

Analysts were surprised by the price. “The deal size and premium are notably larger than we anticipated, but ultimately Merck needed to deploy its balance sheet – and this appears to be one of the better uses we saw,” Cantor analyst Carter Gould wrote.

That is a strong indication that biotechs have the upper hand in negotiating with potential acquirers. This fall has brought a spate of acquisitions by companies including Novo Nordisk, Pfizer, and Genmab.

Last week, Novo and Pfizer faced off in an unusual public bidding over an obesity biotech called Metsera. Pfizer ultimately won, agreeing to pay up to $10 billion for the company.

The long list of big pharma companies approaching patent expirations are hungry for acquisitions. But no company has a patent cliff quite like Merck’s.

The patents protecting Keytruda, which accounted for 46% of Merck’s revenue last year, will expire in 2028. The company has been bracing for the loss of sales for years. In July, it announced a $10 billion deal for Verona Pharma, which is developing a lung-disease drug. In 2021, it paid $11.5 billion for Acceleron Pharma, which was developing the drug known as Winrevair, now an important Merck product.

The Cidara acquisition adds another medicine to the Merck quiver. Analysts expect Cidara’s drug to bring in billions of dollars in annual sales within a decade.

That drug, called CD388, is designed to prevent influenza, but is not a vaccine. Instead, it combines zanamivir, a generic flu antiviral, with a human antibody fragment. The goal is to provide season-long protection against flu without relying on a patient’s own immune system.

Standard vaccines are often less effective in older people or in the immunocompromised because they work through the immune system.

In a Phase 2b trial**,** Cidara administered a single dose of CD388 to thousands of patients at the beginning of last year’s flu season and tracked them over 24 weeks to see if they developed influenza. The company said in June that the prevention efficacy of CD388 was 76.1% in the highest dose group, and 57.7% in the lowest dose group, after 24 weeks.

That appears to be better than the flu vaccine. Its effectiveness varies by year, but is usually in the 40% range.

In a note in June, Cantor analyst Eric Schmidt called the results “game-changing for CD388, Cidara, and the field of influenza prophylaxis.” A Phase 3 trial is under way.

CD388 could reach the market in 2028, if all goes well. In late September, Schmidt wrote that he expects 2035 sales of CD388 to be above $3.5 billion.

There are questions around the drug, including whether insurers will foot the bill. One other worry is that influenza could evolve to be resistant to zanamivir, though that doesn’t appear to have been an issue yet.

Still, because CD388 offers influenza prevention without being a vaccine, analysts noted Friday that it could be attractive to vaccine skeptics.

For Cidara shareholders, the deal represents a significant win. But its longest-term holders may not be satisfied. Adjusted for a reverse stock split last year, the price is well below the $320 per share the stock fetched at its initial public offering in April 2015.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com and Nate Wolf at nate.wolf@barrons.com