Reply To: Traders Market Weekly: The Meaning of Market Volatility (or Lack of) Risk


Prometheus Biosciences to be acquired by Merck for $200.00 per share

$RXDX 192.96 ▲ +78.94 (+69.24%)
$MRK 115.05 ▼ -0.26 (-0.23%)

$10.8 billion deal appears to be the largest dollar price of any company that is only out of a Phase 2 – CNBC

Morgan Stanley analyst Terence Flynn who has an Equal Weight rating on Merck (MRK), argued that the transaction supports Merck’s (MRK) strategy to add external pipeline assets to its portfolio in the face of the upcoming patent cliff for its blockbuster cancer drug Keytruda.

Wells Fargo’s Derek Archila thinks there is little regulatory risk from the views of the Federal Trade Commission to close the deal, given the lack of overlap between business areas. Archila, who has an Overweight rating on Prometheus (RXDX), expects the transaction to expand Merck’s (MRK) nascent inflammation and immunology ((I&I)) franchise.

According to the analyst, the deal will have a positive read-through to other companies in the I&I space, such as Immunovant (IMVT), Morphic Holding (MORF), and Ventyx Biosciences (VTYX).

Archila expects all those stocks to trade higher on the news and Argenx (ARGX) to come under pressure as Pfizer (PFE) and Merck (MRK), “two potential buyers with enough firepower to acquire ARGX, may be out of the mix.”

RBC Capital Markets analyst Gregory Renza thinks the deal marks “both victory and validation” for RXDX’s ambitious but investigational precision-based approach to immunological conditions.

Renza, who has an Outperform rating on RXDX, considers Merck (MRK) an “unexpected suitor” for the company and argues that its platform and lead candidate PRA023 will complement the cancer drugmaker’s drug portfolio.