Merck battled 2 other Big Pharmas to the end in pursuit of $11B Prometheus deal

After releasing positive data for a bowel disease candidate in December, Prometheus Biosciences headed into the J.P. Morgan healthcare conference in January as the talk of San Francisco.

Sixteen parties that had been interested in a partnership with the precision medicine biotech even before the data release clamored for meetings. All that culminated in Merck & Co.’s $10.8 billion buyout on April 17.

The possibility of a deal began much earlier, in May 2022, as Prometheus’ board eyed the brutal market conditions plaguing biotech and engaged with experts to discuss its future, according to Securities and Exchange Commission (SEC) filings released Friday. Prometheus’ board authorized Goldman Sachs in September 2022 to begin looking for strategic partnering and financing opportunities.

The initial focus was a co-development partnership for PRA023, which is under development for various autoimmune conditions. The bank reached out to 17 large- and mid-cap pharmas including Merck and others. Bloomberg reported Monday that AbbVie and Bristol Myers Squibb were in the running from the beginning.

All but one of the parties reached were interested, according to the regulatory documents. 

But then on Dec. 7, 2022, everything changed for Prometheus. The company reported that PRA023 met the primary endpoint of two midphase trials in ulcerative colitis and Crohn’s disease. Prometheus’ stock went from $36 apiece to $103 at open on Dec. 8. The company moved to conduct a common stock offering that ultimately closed at $550 million, or $110 per share, on Dec. 13.

Then the board halted any remaining partnership talks. A virtual data room that had been opened during the due diligence process to provide a peek at Prometheus’ goods was shut down. Conversations continued with the previously interested parties, including Merck, culminating in meetings at J.P. Morgan with six parties. The parties said they were interested in a potential transaction, but none made an offer at that point. The virtual data room was restored.

Merck’s Sunil Patel, head of corporate development and licensing, told Prometheus CEO Mark McKenna in February that the pharma had “significant interest in a potential strategic transaction,” according to the SEC filing. In March, the big brass was brought in, with Merck CEO Rob Davis calling in an offer to acquire Prometheus for $150 per share with a closing target date of April 21. The offer was $50 per share less than where the deal would ultimately land.

Prometheus then turned to three other companies that had previously been engaged to gauge their level of interest in upping the ante. According to Bloomberg’s reporting, this included AbbVie and BMS, which both indicated a plan to submit an offer. The board informed Patel that Merck would have to “significantly increase” its bid.

AbbVie’s bid came in at $167.50 per share on April 12. The next day, Prometheus had a “productive” end-of-phase 2 meeting with the FDA to discuss the future development of PRA023. McKenna then pitched a sale price of $200 per share to Merck, which was agreed to on April 14. Patel informed Prometheus that this was Merck’s "best and final time-limited offer," according to the filing.

April 15 was when the deal negotiations reached their climax, with BMS reportedly indicating interest but not putting in a bid. A draft merger agreement went back and forth between Merck and Prometheus executives and advisers. The board deemed the deal fair to shareholders, and it was off to the races.

The deal was announced on April 16, at $200 per share for a total value of $10.8 billion.