Merck’s latest purchase was a masterstroke; but it has a downside as well!

We have seen various kinds of M&A strategies out there in the Wall Street. But Merck’s purchase of Sydney-based Viralytics may rather be dubbed a clinical trial strategy rather than M&A strategy.

Through this deal, which is comparatively inexpensive with a total value of $394 million, Merck hopes to make a breakthrough in the cancer immunotherapy space. Immunotherapy is a medical field that focuses on destroying tumors by injecting certain types of viruses into the patient’s body. Numerous pharma companies are already in the fray to harness the scope of this treatment; Amgen won an approval around three years back.

What prompted Merck to strike this deal is probably a study that was conducted earlier, which discovered that Viralytics’ product Cavatak produces better results when combined with Merck’s own Keytruda, in early phase trials.

As per the study, the combination had triggered positive response in approx. 61% of the patients tested. Given this information, it is not surprising that Merck was generous enough to offer a 160% premium to clinch this deal.

What prompted Merck to strike this deal is probably a study that was conducted earlier, which discovered that Viralytics’ product Cavatak produces better results when combined with Merck’s own Keytruda, in early phase trials.

However, the point of concern here is that the deal also highlights Merck’s strategy to double down on its flagship product, Keytruda. The drug currently accounts for around 10% of Merck’s total revenue, and by 2022, it is expected to increase to 25%, according to Bloomberg. The pharma giant’s recent discontinuation of an Alzheimer’s drug, as well as extensive dependency on Keytruda make the company a risky bet to a section of investors.

Once the transaction is complete, Viralytics will act as a unit of Merck. Merck will also get exclusive access to Cavatak.