Merck Is Buying Lung-Disease Biotech in $10 Billion Deal

The deal for Verona Pharma is expected to close in the fourth quarter. (Dreamstime)

Merck said Wednesday it would pay $10 billion to buy the biotech Verona Pharma, which sells a new lung-disease drug that analysts expect to be a blockbuster.

The deal is Merck’s biggest acquisition since 2021, and comes amid a persistent stock slide. The company’s share price has fallen by 36% over the past 12 months.

Investors are increasingly worried about what happens after the U.S. patents protecting Keytruda, Merck’s top-selling cancer drug, expire in 2028. Keytruda sales accounted for 46% of Merck revenue last year. The Verona deal is the latest of Merck’s many efforts to answer that question.

The U.K.-based biotech’s sole product, Ohtuvayre, is an inhaled treatment for chronic obstructive pulmonary disease, or COPD, a common and serious lung condition. The Food and Drug Administration approved Ohtuvayre in June 2024; sales were $71.3 million in the first quarter of this year.

“Ohtuvayre also provides us with another important building block as we transition to a more diversified future,” Merck CEO Rob Davis said on an investor call early Wednesday. “The addition of Ohtuvayre is another step in positioning us to successfully navigate the Keytruda [loss of exclusivity] over time.”

Later in the call, the president of Merck’s Human Health U.S. business, Jannie Oosthuizen, said that Ohtuvayre “has the potential to become a multibillion-dollar therapy into the mid-2030s.”

Analysts covering Verona currently expect Ohtuvayre’s U.S. sales to hit $2.6 billion in 2030, according to FactSet. One question is whether Merck’s scale will push those estimates higher.

Merck shares were up 3% on Wednesday, while Verona’s American depositary receipt was up 21%.

Merck said it had agreed to pay $107 per American depositary share for Verona, for a total transaction value of roughly $10 billion. The Verona ADR closed Tuesday at $86.86, and was trading at $104.87 on Wednesday.

The deal will mean a hit of 16 cents a share to Merck’s adjusted earnings over the first 12 months after it closes, CFO Caroline Litchfield said on the investor call.

Patients with COPD have difficulty breathing and shortness of breath, and may cough or wheeze. While the condition isn’t reversible, a number of treatments are available. Merck says Verona’s Ohtuvayre was the first new type of inhaled COPD treatment approved in more than two decades.

“We are very confident in the opportunity of this being at least a multibillion-dollar product,” Merck CEO Davis said on the call. “We really believe this has the potential of being the preferred drug for maintenance therapy for COPD patients.”

The company has made a series of major acquisitions over the past few years as the Keytruda patent expiration has drawn nearer. In 2021, it made a big bet on the biotech Acceleron Pharma, paying $11.5 billion even though the company’s lead drug, sotatercept, was still in late-stage trials.

That bet paid off: A Phase 3 trial of sotatercept in patients with pulmonary arterial hypertension yielded strong results in 2022. The drug, now marketed under the name Winrevair, has become an important element of Merck’s growth plans. Analysts expect Winrevair sales to climb to $5.1 billion in 2029, making it one of Merck’s top-selling medicines.

The question now is whether the bet on Verona will turn out as nicely. The deal is expected to close in the fourth quarter.

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