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Merck to Acquire Pandion Therapeutics for $1.85 Billion. Here’s Why!

26 Feb Merck to Acquire Pandion Therapeutics for $1.85 Billion. Here’s Why!

Pandion Therapeutics, Inc. (NASDAQ: PAND), a clinical-stage biotechnology company developing modular biologics for autoimmune regulation, has entered into a definitive agreement with Merck (NYSE: MRK) to be acquired for $60 per share in cash, for an approximate total equity value of $1.85 billion. The acquisition will be carried out through a subsidiary of Merck, which will initiate a tender offer to obtain all outstanding shares of Pandion, subject to fulfillment of certain customary conditions. The transaction is expected to be completed in the first half of 2021.

Dr. Rahul Kakkar, chief executive officer, Pandion Therapeutics, Commented,

“Pandion grew out of our founders’ personal and scientific mission to change the way patients living with autoimmune diseases are treated. In just a few years, we have taken that mission from idea to clinical proof of mechanism with PT101, our lead IL-2 mutein. We are proud that Merck has recognized our team’s innovation and drive in creating a pipeline of diverse candidates that activate natural immune regulatory mechanisms and thereby have the potential to achieve better clinical responses for patients. We believe Merck is well positioned to bring our novel approach to the millions of those living with autoimmune diseases, and we look forward to seeing these molecules progress in the clinic.”

Pandion’s proprietary Therapeutic Autoimmune reguLatOry proteiN (TALON) is a novel drug design platform that is focused on targeting autoimmune disease and inflammatory diseases. The platform can engineer immune effector modules to imitate the working of immune control nodes that can be combined with a protein backbone to focus on a target organ. The platform can be used to design both systemic and tissue-targeted therapeutic candidates that can leverage natural immune mechanisms to re-balance the immune response.

Pandion Therapeutics (NASDAQ: PAND)

Market Cap: $1.77B; Current Share Price: 59.81 USDChart
Data by YCharts

What’s in it for Merck?
Merck stands to gain a pipeline of immune modulators that can compete against those under development by its competitors such as Eli Lilly (NYSE: LLY), Roche (OTC: RHHBY) and Amgen (NASDAQ: AMGN). Eli Lilly, though its partnership with Nektar therapeutics for the development of LY3471851, is a leader in the space. Other competing candidates are Roche’s RG7835 and Amgen’s efavaleukin alfa. The preclinical and phase I data from PT101 demonstrated very little expansion of NK cells and a comparable Treg activation.

The deal follows in line with other similar acquisitions by Merck such as the $425 million deal to buy OncoImmune in November 2020 and a $2.75 billion acquisition of VelosBio in the same month.

Dr. Dean Y. Li, president, Merck Research Laboratories, commented,

“This acquisition builds upon Merck’s strategy to identify and secure candidates with differentiated and potentially foundational characteristics. Pandion has applied its TALON technology to develop a robust pipeline of candidates designed to re-balance the immune response with potential applications across a wide array of autoimmune diseases.”

Ulcerative Colitis (UC) is an inflammatory bowel disease that causes ulcers, abdominal cramps, bleeding, diarrhea and irritation in the innermost lining of the colon and rectum. Patients with UC are at an increased risk of developing colon cancer. According to an estimate 1 million people in the U.S suffer from this painful condition. The global ulcerative colitis therapeutics market is projected to reach USD 10.25 Billion by 2027, growing at a CAGR of  4.6% from USD 6.79 Billion in 2018 according to Reports and Data.

Systemic lupus erythematosus (SLE) is an autoimmune disease that causes the body’s immune system to attack healthy tissue causing inflammation, photosensitivity, oral ulcers, pleuritis, joint pain, arthritis, fever and a butterfly rash. In the long-run it can affect the kidneys, brain and heart as well. The disease is asymptomatic and has no identified cause or cure. The current treatment options aim at alleviating the symptoms and improving the quality of life of those affected and includes the use of glucocorticoids, antimalarial agents, topical steroids and NSAIDS for pain management.

It takes an average of 6 years from developing the symptoms of Lupus to being diagnosed according to data made available by the lupus foundation of America. This chronic condition which affects an estimated 1.5 million people in America each year costs over $21,000 in annual financial costs. Another report by the Centres for Disease Control and Prevention estimates that 16,000 new diagnoses of Lupus are made each year.

According to a report by Grand View Research the lupus treatment market is set to reach USD 3.08 billion by 2025 growing at a CAGR of 7%. GSK’s Benlysta (belimumab), is currently the only biologic therapy approved by the FDA for the treatment of lupus. It was recently approved for use in children and adolescents as well. The development of new therapies ranging from biologics, JAK inhibitors to stem cell transplantation will be a key driver of growth in the market. The prohibitive cost of treatment and the lack of insurance coverage might act as hurdles to growth.

Pandion is aiming to create modular precision therapeutics that provide lasting outcomes in autoimmune and inflammatory diseases. TALON relies on immunomodulatory effector modules that are known to affect regulatory control nodes in the immune system, and lend easily to being combined with a tissue-targeted tether module, in a bifunctional format, for efficient delivery to a targeted tissue.

Image Source: Company

The Company engineers its own effector modules and is currently developing effectors that work on regulatory T cells (Tregs), inhibit overactive conventional T cells (Tconv), and modulate the immune microenvironment. In addition, the modular approach can also accommodate tissue-selective tethers, to be combined with immunomodulators, capable of delivering potent immunomodulators to the site of immune attack. The Company’s extensive library of immune effectors and tissue-selective tethers will enable it to create a wide range of bifunctional molecules.

Furthermore, the Company uses a combination of functional screening, structural modeling, extensive molecular characterization and manufacturability assessments to arrive at the right candidate.

Image Source: Company

The Company’s lead drug candidate is PT101, an IL-2 Mutein that is undergoing clinical assessment of its efficacy in the treatment of Ulcerative Colitis and Systemic Lupus erythematosus. Pandion intends to initiate a Phase 1b/2a clinical trial for UC in mid-2021 and a Phase 2 clinical trial in SLE in H2,2021. PT-002 is an IL-2 mutein with a MAdCAM tether intended for the treatment of gut-restricted autoimmune diseases and is currently engaged in preclinical studies. Pandion’s pipeline also consists of PD-1 agonists namely PT627 and PT001.

Key Takeaways

  • The Company sees huge potential for its IL-2 Mechanism in Autoimmune Disease with an addressable market of more than 2 million patients for of Ulcerative Colitis (UC) and Systemic Lupus Erythematosus (SLE) and expansion to other therapeutics areas such as Type 1 diabetes, Rheumatoid arthritis, Crohn’s disease, Alopecia areata, Takayasu’s arteritis and other indications with a potential to serve over 11 million patients.
  • Pandion intends to initiate a phase 1 b/2a trial in Ulcreative Colitis in mid-2021, followed by a phase 2 trial in Systemic Lupus erythematosus in the second half of 2021. In addition, the Company wants to file an investigational new drug application for PT627 (systemic) in 2022 and initiate IND-enabling studies for PT001 (GI/liver-tethered) in the first half of 2021.
  • In October 2019, the Company entered into a License and Collaboration Agreement with Astellas Pharma Inc. for development of locally acting immunomodulators for autoimmune diseases of the pancreas, with the potential to receive $45 million upfront and an additional $750 million in future development and commercial milestone payments. Additionally, the Company also received an investment from JDRF T1D, a venture philanthropy fund, enabling it to launch its type 1 diabetes (T1D)-focused program.
  • Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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