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Merck & Co. pays 134% premium in $1.85B purchase of Pandion Therapeutics

Merck & Co. Inc. has agreed to acquire autoimmune drugmaker Pandion Therapeutics Inc. for $1.85 billion, or $60 per share, amounting to a 134% premium on Pandion's Feb. 24 closing price of $25.63 per share.

Pandion's treatment pipeline is still in early clinical stages, with its most advanced drug PT101 in a class of therapies called IL-2 muteins in the first of three stages of human testing for autoimmune diseases ulcerative colitis and systemic lupus erythematosus. The company also has autoimmune drugs in preclinical testing, including two in a class called PD-1 agonists.

The deal is valued at $1.65 billion including equity, assumed current liabilities and net of current assets, according to data from S&P Global Market Intelligence.

The announcement of the acquisition, which is expected to close in the first half of the year, follows the news that Merck's Ken Frazier plans to step down as CEO at the end of June to be replaced by CFO Rob Davis. On a fourth-quarter earnings call, Frazier vowed to pass along the mantle of M&A that keeps new technology flowing into the U.S. pharmaceutical giant.

Merck is best known as the maker of cancer blockbuster Keytruda, which brought in $14.38 billion for the company in 2020. The M&A announcement marks Kenilworth, N.J.-based Merck's first acquisition of 2021; the company completed five such deals in 2020, according to S&P Global Market Intelligence data.

Watertown, Mass.-based Pandion priced an IPO in July 2020 with expected proceeds of $135 million, or $18 per share. Beyond its therapies in the clinic, Pandion comes with a drug discovery platform called TALON, which uses the mechanisms in the natural immune system to design drugs to treat autoimmune diseases.

"This acquisition builds upon Merck's strategy to identify and secure candidates with differentiated and potentially foundational characteristics," Merck Research Laboratories President Dean Li said. "Pandion has applied its TALON technology to develop a robust pipeline of candidates designed to rebalance the immune response with potential applications across a wide array of autoimmune diseases."

Credit Suisse Securities (USA) LLC acted as financial adviser to Merck, while Covington & Burling LLP acted as legal adviser. Centerview Partners LLC was financial adviser to Pandion, with Skadden Arps Slate Meagher & Flom LLP as its legal adviser.

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