Merck acquisition of Moderna's mRNA-4157 to obtain full control of combination with Keytruda

Moderna's (“MRNA”, $45B market cap) mRNA-4157 (V940) combination with Merck's (“MRK”, $325B market cap) KEYTRUDA® (pembrolizumab) (the “Combination”) has demonstrated strong and durable clinical efficacy relative to that of Keytruda alone (Moderna & Merck Announce 3-Year Data For mRNA-4157 (V940) in Combination With KEYTRUDA(R) (pembrolizumab) Demonstrated Sustained Improvement in Recurrence-Free Survival & Distant Metastasis-Free Survival Versus KEYTRUDA in Patients With High-Risk Stage III/IV Melanoma Following Complete Resection (modernatx.com)).

In June 2016 MRK and MRNA entered into a strategic collaboration agreement combining MRK’s checkpoint inhibitor therapies with MRNA’s mRNA-based cancer vaccines encoding patients’ own neoantigens. In October 2022 MRK announced that they had exercised their option to jointly develop and commercialize the Combination with MRNA across a range of indications globally, noting that the parties would “share costs and any profits equally” (Merck and Moderna Announce Exercise of Option by Merck for Joint Development and Commercialization of Investigational Personalized Cancer Vaccine - Merck.com). Thus, unless MRK acquires MRNA's 50% stake in the Combination, MRK will only get half of the Combination profits.

Keytruda with $25B in 2023 sales (Merck Announces Fourth-Quarter and Full-Year 2023 Financial Results - Merck.com) and $30B estimated for 2024 is the world’s largest medicine today but is subject to looming patent expiration commencing in 2028 (Focus: Merck could keep its patent edge by shifting Keytruda cancer drug to a simple shot | Reuters). Biosimilars are therefore in development (Biosimilars of pembrolizumab (gabionline.net)), getting ready to tap into the large Keytruda market when it becomes possible. While MRK is exploring traditional means of extending Keytruda's patent life, it is being met with resistance by members of the US government (2023.02.22 Letter to USPTO re Keytruda patent1.pdf (senate.gov)).

MRK derives 40-45% of its sales from Keytruda so as much as $140B of the company's market cap is riding on Keytruda sales. Taking 100% control of the Combination may therefore be MRK’s best chance to rescue up to $70B of their market cap before generic competition enters.

MRNA’s $45B market cap covers not only their 50% of the Combination but also their large respiratory, latent, and rare disease franchises (COVID, flu, RSV, CMV, etc.) and over $10B in cash. At the current market cap MRNA is therefore grossly undervalued relative to MRK’s interest in MRNA’s 50% interest in the Combination.

For these reasons MRK and MRNA are strongly incentivized to negotiate transfer of MRNA"s 50% of the Combination to MRK, possibly more than doubling MRNA's market cap and simplifying their manufacturing operations while securing a clinically superior, long-term successor to Keytruda for MRK, all in a single transaction.