MRNA - Prometheus soars 70% Merck dips after ~$11B buyout deal

2023-04-17 06:39:02 ET

Prometheus Biosciences ( NASDAQ: RXDX ) jumped ~70% in the pre-market Monday after Merck ( NYSE: MRK ) agreed to acquire the clinical-stage biotech for $10.8B in cash to expand the pharma giant's focus on immunology.

However, Merck ( MRK ) shares have slipped ~1% while Wall Street issued mostly favorable remarks on the deal and even after the company reported full Phase 2 data for its cancer therapy Keytruda in combination with Moderna's ( MRNA ) personalized cancer vaccine on Sunday.

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.

Meanwhile, 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.

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.

Read: Seeking Alpha contributor Harold Goldmeier issued a Strong Buy on MRK in March, citing its deal-making prowess, among other points.

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