Merck has announced a $10 billion agreement to acquire Verona Pharma, a biotech company renowned for its innovative first-in-class drug. This acquisition is pivotal as it comes at a crucial juncture for Merck, which is actively seeking to replenish its pipeline in the wake of an impending patent expiration for its flagship product, Keytruda, projected to account for a substantial revenue drop starting in 2028.

The acquisition terms, revealed on Wednesday, stipulate that Merck will pay $107 per share for Verona’s American depositary shares, marking a notable 23% premium over the stock’s closing price the previous day. With Verona’s shares priced at $13.50 when the company went public in 2017, this significant valuation highlights the market’s optimism regarding the biotech’s potential.

Central to this deal is Ohtuvayre, Verona’s prime asset and the first inhaled maintenance treatment approved by the FDA for chronic obstructive pulmonary disease (COPD) in a decade. The drug’s active ingredient, ensifentrine, operates through a dual mechanism—simultaneously inhibiting PDE4 enzymes to curtail inflammation and PDE3 enzymes to facilitate airway dilation. This unique approach not only positions Ohtuvayre as a game-changer for COPD patients but also opens avenues for addressing other respiratory conditions. Clinical trials are currently underway for asthma, cystic fibrosis, and non-cystic fibrosis bronchiectasis, with the latter being particularly noteworthy due to its rising prevalence and lack of FDA-approved treatments.

The bronchiectasis indication is gaining attention, especially with Insmed’s brensocatib currently under FDA review with a decision anticipated by August 12. Should it gain approval, it could usher in a new era in the treatment of this chronic lung disorder. Merck’s acquisition of Ohtuvayre ensures it will have a foothold in this emerging market.

Since receiving FDA approval in June 2024, Ohtuvayre has demonstrated promising market uptake, with 25,000 prescriptions filled and a revenue spike to $71.3 million within the first quarter of the year. Verona’s CEO, David Zaccardelli, anticipates that the validation of dual inhibition could catalyze further development in this therapeutic area.

With the acquisition, Merck is not only enhancing its respiratory portfolio but is also strategically positioning itself to hedge against the revenue shortfall projected from Keytruda’s patent expiration. The pharma giant had already made substantial investments in expanding its cardio-pulmonary offerings, as evidenced by the $11.5 billion acquisition of Acceleron Pharma in 2021, bringing Winrevair into its portfolio—a drug that is also on track to become a blockbuster.

Merck’s commitment to advancing treatments for cardio-pulmonary diseases is reaffirmed by CEO Robert Davis’s statements regarding Ohtuvayre. He emphasizes that the drug not only addresses significant unmet needs for COPD patients but also promises substantial long-term growth and value for shareholders.