Acceleron Investor Avoro Says Merck Deal Undervalues Biotech

(Bloomberg) -- Merck & Co.’s agreement to buy Acceleron Pharma Inc. for about $11.5 billion “drastically undervalues” the biotechnology firm, one of its largest investors contends.

Avoro Capital, which invests in life sciences and biotech companies and said it holds about 7% of Acceleron’s stock, says the company’s top drug candidate, sotatercept, commands a better deal.

“While we believe Merck is a tremendous company and ultimately could be a good partner to maximize the value of sotatercept and the rest of Acceleron’s pipeline for both patients and shareholders, we do not believe a transaction makes sense right now at the current valuation proposed by Merck,” Avoro said in a statement Thursday.

Representatives for Acceleron, based in Cambridge, Massachusetts, and Merck didn’t respond to phone and email requests for comment.

Merck said Thursday it had agreed to buy Acceleron for $180 a share, a 34% premium over the price at the end of last month but below the stock’s intraday highs this week. 

Avoro, Acceleron’s fifth-largest investor according to data compiled by Bloomberg, said that premium ranks below the average of 89% for comparable deals in the sector since the beginning of 2020 and that the biotech could fetch more in a sale if it waited. 

Acceleron’s drug development pipeline focuses on a type of protein that plays a central role in the regulation of cell growth, differentiation and repair. Sotatercept, a pulmonary arterial hypertension, or PAH, drug, is one of those and is in late-stage development. The PAH market is projected to reach $7.5 billion by 2026.

Acceleron has yet to release late-stage data for Sotatercept and while expectations are good, there’s no guarantee it will be approved.

Even with the relatively low premium, Merck’s offer of $11.5 billion is one of the biggest checks written by big pharma for a biotech with no profit.

It’s rare to see biotech deals opposed and competing bids only occur in about 1% of situations, according to a report Friday from UBS AG’s special situations team. 

One recent example came last year. Principia Biopharma Inc.’s largest shareholder opposed the company’s $3.4 billion sale to Sanofi on the grounds that the offer was too low. Sanofi was dealt a setback last month when a Principia drug for treating a rare skin disease failed its first major, late-stage test. 

Still, Acceleron’s drug could be the “first disease-modifying agent available to patients suffering from PAH,” Avoro said. “We believe there should be no urgency to sell at a low price now since the value of the company will only increase as additional clinical trial data is released.”

Avoro said it will engage with Acceleron management and other investors “to further articulate our rationale in the hope that we can be part of identifying a better path forward.” 

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