Two of the world’s biggest drugmakers struck multibillion-dollar deals on Monday aimed at bolstering their lineups in the fiercely competitive cancer-drugs market.
Merck & Co. said it would acquire ArQule Inc. for about $2.7 billion, paying a 107% premium in a bid to diversify its cancer treatments beyond top-selling drug Keytruda. Meanwhile, Sanofi SA said it would spend $2.5 billion, a 172% premium, to acquire Synthorx Inc. in the French drugmaker’s own effort to catch up with oncology rivals.
Both deals reflect the industry’s intense pursuit of new products to sell in one of the world’s biggest and fastest-growing prescription-drug segments. The $123 billion world-wide cancer-drugs market is expected to almost double by 2024, according to a market-research firm, EvaluatePharma.
Bristol-Myers Squibb Co. recently closed on its $74 billion acquisition of rival Celgene Corp. to create a cancer-drugs powerhouse. Pfizer Inc., which has positioned itself to focus on cancer, bought Array BioPharma for $10.6 billion this summer. And Eli Lilly & Co. acquired Loxo Oncology for about $8 billion earlier this year.
The promise of new sales in a lucrative market appeals to pharmaceutical companies, which are counting on cancer treatments to provide new revenues as older products lose patent protection.
Making the segment even more attractive is the U.S. Food and Drug Administration’s willingness to approve new cancer drugs with smaller, faster and less-expensive clinical trials. And companies have found that health plans will pay for cancer drugs, even at prices that often top $100,000 for a year’s treatment.
Scientific breakthroughs, including the ability to target specific mutations and combine medicines, are also helping drive the industry’s interest, said Roy Baynes, Merck’s senior vice president of global clinical development and chief medical officer.
“The science is evolving very rapidly,” Dr. Baynes said in an interview. “The good news is that we are now focused on drugs which really do have big effect.”
But the interest in finding the next big new product has driven up the prices that big drugmakers have had to pay. Companies have paid mean premiums of 114% this year for small- to midsize deals such as Sanofi’s and Merck’s, up from 67% during the previous five years, according to analysts at Evercore ISI. The data are for drugs of all stripes, not just cancer treatments.
And the commercial market for cancer treatments has become hard-fought, forcing companies to race to be the first or second to market to secure a position before rivals.
Merck agreed to pay $20 a share in cash for ArQule, of Burlington, Mass. The deal is expected to close early in the first quarter of 2020.
It would increase Merck’s offerings of therapies that treat blood-related cancers. ArQule’s lead experimental treatment, called ARQ 531, is being tested in patients with blood cancers who carry a specific genetic mutation that prevented them from responding to previous treatments.
“It’s early, but it looks like it has a lot of potential,” Dr. Baynes said of the therapy.
Dr. Baynes acknowledged that other companies are developing therapies similar to ArQule’s, but such contests drive innovation.
Merck has been looking for deals to expand its portfolio of cancer treatments beyond Keytruda, as some investors and analysts have worried that Merck has become too dependent on the product. Keytruda’s global sales totaled nearly $7.2 billion last year.
Earlier this year, Merck, of Kenilworth, N.J., bought Tilos Therapeutics Inc. and Peloton Therapeutics Inc., both of which are developing cancer therapies.
Citigroup analysts said Merck’s expansion in hematology makes sense because it hasn’t been very active in that field, and expects the deal “to be the beginning rather than the end of similar moves.”
Many of the therapies that big drugmakers are acquiring are immunotherapies such as Keytruda or complement the drugs, a relatively new class of treatment that unleashes a patient’s own immune system in the fight against cancer.
Keytruda was once an afterthought buried in Merck’s research-and-development pipeline, but it has become a commercial juggernaut for the company during the past few years. It is now approved to treat a wide range of different types of tumors, including two types of blood cancers.
Companies adding cancer therapies to their pipelines are also doing so because those with multiple drugs for the same types of cancer can bundle the treatments in their contracts with pharmacy-benefit managers, insurers and hospitals. That has become crucial as health insurers look to what is known as outcome-based contracting, where costs are tied to whether patients respond to drugs.
For Sanofi, acquiring Synthorx, of La Jolla, Calif., is an attempt by the French pharmaceutical company to erase the gap with rivals that already sell the drugs. Synthorx’s lead agent is in the early phase of patient testing in a range of cancers, both on its own and in combination with existing cancer immunotherapies.
The deal is the first big move by Sanofi Chief Executive Paul Hudson, who began leading the company in September, and suggests that cancer treatment will be one of the company’s new priorities.
Sanofi said it would pay $68 a share in cash for Synthorx.
“This acquisition fits perfectly with our strategy to build a portfolio of high-quality assets and to lead with innovation,” Mr. Hudson said.
Sanofi is one of the most diversified companies in the industry, spanning branded prescription drugs, vaccines and over-the-counter treatments. Within branded drugs, it produces medicines ranging from insulin for diabetes to specialty medicines for rare diseases.
