How Merck's desire for more 'control' became a $2.7B ArQule buy

It’s not uncommon for partnership talks focused on one drug to escalate into a full-on buyout. And that's just what happened with Merck & Co.’s $2.7 billion deal for ArQule.

ArQule started looking for a co-development, profit-sharing partnership for its BTK inhibitor ARQ 531 around 2018. But after Merck decided it wanted "greater control," the industrious New Jersey pharma instead negotiated an acquisition deal in 20 days.

Initially, it wasn’t just Merck interested in ARQ 531. At least six companies—and we have a few guesses who—were intrigued enough to dig into due diligence at some point between 2018 and 2019, according to a securities filing. 

One, for instance, reached the stage of negotiating a definitive agreement, only to back out at the J.P. Morgan Healthcare Conference in January, due to an "anticipated transaction with another industry participant."

Ring any bells? That company might be Eli Lilly, which went public with its $8 billion buyout of Loxo Oncology at the annual industry event. Among key pipeline drugs Lilly highlighted at the time, Loxo's own BTK inhibitor LOXO-305 was only one of two drugs Lilly didn't transfer to Bayer later. That drug recently turned up positive phase 1/2 results in blood cancer.

For what’s its worth, Merck wasn’t the first to put forward a buyout option, either. But that party—which ArQule first met at JPM and later showed an interest in a takeover—also went quiet during the summer after a separate tie-up. To take a not-so-wild guess, Pfizer agreed to buy oncology specialist Array BioPharma in mid-June.

Things finally turned to Merck’s direction around that time. On June 27, via an ArQule director's introduction, representatives from both companies spoke by phone about a potential partnership on ARQ 531.

After its own investigation, on Nov. 20, Merck had a message for ArQule’s President and Chief Operating Officer Peter Lawrence and CEO Paolo Pucci: We want to have "greater control" of ARQ 531 than just a co-development deal.

No dilly-dallying from there. Just four days after ArQule shared more information about its business and other pipeline information, Merck immediately came up with a written buyout offer: $15.75 per share, in cash, for all of ArQule. The pharma giant wanted exclusive talks. And it wanted to announce the transaction by Dec. 9.

It was officially game-on between the two, as each tried to play the right card for a better deal. ArQule’s board had a request for Merck, too; the would-be buyer needed to "substantially improve" its offer. So, how much do you think is fair? Merck asked back.

After considering the possible road ahead for ArQule as a standalone company, the need for additional financing to develop and launch ARQ 531, and perhaps most importantly, the fact that Merck was the sole suitor still in the hunt, ArQule’s board came back with a number on Dec. 1: $20 per share.

Merck counteroffered at $19, but ArQule didn’t budge. The biotech said it would offer an expanded look at its data and meet the Dec. 9 announcement deadline Merck had in mind, but only if the New Jersey drugmaker raised the offer to $20. Merck agreed.

The two companies officially shook hands on Dec. 6 and announced the deal on Dec. 9. That same day, at the American Society of Hematology annual meeting, ArQule presented full phase 1 data for ARQ 531, showing eight of nine evaluable chronic lymphocytic leukemia patients who got a dose of at least 65 mg experienced a partial response.

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