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Merck adds to precision medicine pipeline with $2.7B ArQule deal

Merck & Co. Inc. will acquire ArQule Inc. in a $2.7 billion cash deal, eyeing the experimental cancer treatment called ARQ 531 developed by the biopharmaceutical company.

Kenilworth, N.J.-based Merck will acquire ArQule's shares for $20 each, with a total deal value of about $2.7 billion. The companies said in a Dec. 9 press release that the deal is expected to close in the first quarter of 2020.

The acquisition will give Merck access to ArQule's lead pipeline product ARQ 531, a BTK inhibitor that targets B cell cancers such as non-Hodgkin lymphomas and chronic lymphocytic leukemia. The therapy specifically blocks two enzyme mutations that are associated with resistance to other medicines in this drug class.

ARQ 531, an oral treatment, is being tested in a mid-stage study for the B cell cancers and has previously been shown as safe when evaluated in certain patients with chronic lymphocytic leukemia and Richter's Transformation, Merck said.

Merck Research Laboratories President Roger Perlmutter said ArQule's focus on precision medicine will strengthen the pharmaceutical giant's pipeline, specifically ARQ 531.

Analysts from Evercore ISI said in a note issued following the deal announcement that BTK inhibitors are a competitive space, with results from others in the class expected at the ongoing American Society of Hematology's annual meeting being held Dec. 7-10.

The lead product on the market is Imbruvica, a drug developed by units of Johnson & Johnson and AbbVie Inc., which collects more than $4 billion in the U.S. market annually. ARQ 531's demonstrated ability to dodge resistance could mean an important niche market for Merck. Evercore's Umer Raffat said ArQule's therapy is competing with Eli Lilly and Co.'s BTK inhibitor Loxo-305, which the company nabbed in its acquisition of Loxo Oncology early in 2019.

Evercore called the ArQule deal a "nice tuck-in" for Merck, but more data is needed on ARQ 531 vs. the Loxo drug, as well as more clarity on the niche market opportunity.

SVB Leerink said the deal unlocks value for ArQule's investors, and places ARQ 531 in the hands of a much larger pharma company that can "develop this asset more broadly and aggressively." The terms of the deal are favorable to ArQule's investors, Leerink said.

BofA Securities served as Merck's financial adviser for the deal, and Covington & Burling LLP was the legal adviser. Centerview Partners acted as exclusive financial adviser to ArQule, and Skadden Arps Slate Meagher & Flom LLP provided legal advice.