Genmab, on Monday, announced its plan to buy cancer-focused biotech company Merus for about $8 billion. The news sent Merus stock into the stratosphere.
Merus is working on a drug called petosemtamab, which can simultaneously block two drivers of cancer. Its most advanced program is in head-and-neck cancer, but Merus is also testing the drug in patients with metastatic colorectal cancer.
Petosemtamab could generate $3 billion to $4 billion in peak sales in head-and-neck cancer alone, William Blair analyst Matt Phipps said in a report.
"While the deal is larger than we expected for Genmab, we view the opportunistic acquisition positively, as it adds to several other late-stage or approved programs that can drive significant revenue growth in the 2030s, surpassing the revenue peaks from royalties of Darzalex," he said. Darzalex is a multiple myeloma treatment that Genmab developed with Johnson & Johnson.
In early trades on today's stock market, Merus stock catapulted 36% to 93.67. The deal values Merus at $97 per share, a massive 41% premium to its closing price on Friday. Genmab stock reversed early losses and climbed almost 1% to 29.33.
Could The Premium Have Been Higher?
The premium is among the highest this year for cancer-tied biotechs, Needham analyst Ami Fadia said in a client note. Sanofi's takeover of Blueprint Medicines was at a 27% premium.
"We believe the high premium appropriately values petosemtamab in pivotal trials for development" as a first and second option for patients with head-and-neck cancer, with the potential to expand into advanced colon cancer. Investors expected Merus to unveil the first clinical data for colon cancer later this year.
The timing is odd, however, William Blair's Phipps said. He expected an acquisition to follow Phase 3 results in head-and-neck cancer patients in 2026.
"A key question for investors will be how the pending Phase II CDC results played into the decision to sell the company today, as strong data in that indication could have warranted a higher takeout premium," he said. "That being said, the takeout comes at a roughly 100% premium to where the stock was one year ago, and at a nearly 400% premium since the start of 2024."
Genmab expects the deal to be accretive to its earnings before interest, taxes, depreciation and amortization with at least $1 billion in annual sales by 2029.
"This supports Genmab's strategy to shift to a wholly owned model, diversifying its current royalty based revenues," RBC Capital Markets analyst Natalia Webster said in a client note.
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