Should Merck Buy Out Moderna on Keytruda–Cancer Vaccine Partnership?

In an encrypted email sent last week to the chief financial officers at both Merck and Moderna and shared with BioSpace by its anonymous author, a longtime biopharma executive laid out the business case for Moderna selling its half of the companies’ shared investigational personalized cancer vaccine—mRNA-4157 (V940)—to Merck. He argued that the companies have a fiduciary responsibility to their shareholders to make the deal—sooner rather than later.

Jointly developed by Merck and Moderna, mRNA-4157 (V940) is a novel mRNA-based individualized neoantigen therapy that is combined with Merck’s blockbuster cancer drug Keytruda. Under the current collaboration, the two companies share the costs and any potential profits equally under the collaboration—a true 50/50 partnership.

However, Moderna’s stake “is grossly undervalued relative to Merck’s interest in the Moderna’s half of the Combination,” the email states to Merck CFO Caroline Litchfield and Moderna CFO James Mock, with Moderna CEO Stéphane Bancel cc’ed. “This tremendous mismatch requires immediate actions on your parts.” (See full email below.)

The proposal comes as Merck is facing an enormous patent cliff for Keytruda, which will lose exclusivity in 2028. The email’s author argues that this cancer combo treatment should allow Merck to recoup the future losses it can expect to see from Keytruda. From Moderna’s perspective, he said, the sale of its half of the combo would likely be large enough to double the biotech’s market cap overnight, while still leaving it with plenty of pipeline programs to sustain future business.

“It’s a screaming opportunity,” he told BioSpace, “and I think there is a fiduciary responsibility on these CFOs to do something.”

Analysts agree such a transaction could happen and may benefit both companies but stopped short of saying such a move is clear cut. With many factors influencing the value of this hypothetical deal to each party, it remains to be seen whether it will materialize.

“I think this is a very logical and reasonable request from the writer of the letter,” Hartaj Singh, a longtime industry analyst, wrote to BioSpace in an email. “Could be a win/win . . . just depends on what [Merck] is willing to offer [Moderna].”

Both Merck and Moderna declined to comment on the anonymous email or on a potential deal regarding the current partnership.

Keytruda brought in sales of $25 million in 2023, marking the highest annual revenue for any drug in history. It accounted for around 40% of Merck’s sales last year, a 19% bump from 2022, and already in the first quarter of 2024 earned 20% more compared to the same period last year. When the drug loses its patent exclusivity in 2028, it could see a 19% drop in sales in the first year as biosimilars come online, according to a report from Pharmaceutical Today.

Moderna and Merck began work on their combo therapy, mRNA-4157 (V940), in 2016. Merck paid $200 million upfront to enter into a strategic collaboration and license agreement with Moderna to create an individually tailored vaccine. Given in tandem with Keytruda, the vaccine carries synthetic mRNAs encoding up to 34 antigens specific to a patient’s cancer—a so-called individualized neoantigen therapy (INT).

The original agreement saw Moderna leading the R&D efforts through the proof-of-concept stage, with Merck then having the right to enter into a 50/50 partnership. In 2022, Merck paid $250 million to exercise this option, and the two companies are now jointly developing mRNA-4157 (V940), sharing costs and potential profits equally.

The letter’s author told BioSpace he took an interest in the combination treatment late last year and purchased stock in Moderna leading up to a presentation of breakout Phase II data in melanoma at the American Society of Clinical Oncology (ASCO) annual meeting in early June. When he looked into the details of the companies’ collaboration, however, he said he was shocked to learn that a 50/50 partnership was in place.

Not only is the arrangement unusual in the biopharma industry but it will also greatly complicate commercialization of the therapy, according to the email’s author. More importantly, he continued, both companies stand to greatly benefit from transferring full ownership to Merck.

The email’s author argued that this product has a potential market as large as Keytruda’s and could rescue the up to $140 billion in lost market cap that Merck faces with the blockbuster’s impending patent cliff. “Merck already has that $70 billion, if you will, but $70 billion is stilling on Moderna’s side,” he told BioSpace. He wrote an anonymous blog entry dated July 11 outlining his arguments.

Singh contended that the details of the email writer’s financial analysis are “a bit too simplistic,” however, and noted that the uptake of the personalized therapy is expected to be “slow and steady.” The projections for its potential market are far less than the revenue the company stands to lose as Keytruda biosimilars come online, analysts agree.

On the basis of the data shared at ASCO, which showed clinically meaningful and durable improvement in melanoma patients and a 49% reduced risk of death compared to Keytruda alone, the vaccine is moving into Phase III for melanoma, and Bancel told Barron’s last year that it could be launched under accelerated approval for this indication by 2025. The companies are also testing mRNA-4157 (V940) in a Phase III trial in non-small cell lung cancer and “plan to expand the development program to additional tumor types,” according to a December 2023 press release.

“Currently Bloomberg consensus projects $500-$700M in 2028/29 sales. This is probably only for the initial high-risk adjuvant melanoma setting for INT,” Singh said. Longer term, Singh predicted peak sales in melanoma could hit $1 billion, while lung cancer and others may bring in two to three times that.

Myles Minter, a research analyst at William Blair, projected that peak sales for the vaccine in melanoma alone could reach even higher—an estimated $1.3 billion. Nevertheless, the companies are still looking at total revenues in the handful of billions, not dozens.

“I am not sure that INT is the ‘savior’ to [Merck] that the writer below is assuming,” Singh told BioSpace. “It should definitely help Keytruda, but maybe not as dramatically as the writer is assuming.”

Minter agreed that while a deal to acquire the vaccine is “absolutely possible,” he doesn’t see a “real commercial incentive” for Merck.

“In terms of the number that Moderna would probably want to command to sell it out, they would want reward assuming that it would work in non-small cell lung cancer, squamous cell head and neck, they want value for all those opportunities,” Minter said. “And I’m just not exactly sure whether Merck at the current stage would be willing to risk adjust without seeing data there.”

The email author’s personal interest, of course, is in Moderna. He invested in the company in May after he’d learned about mRNA-4157 (V940). While Moderna’s stock price hit a high late that month at $167 a share, it then tumbled to below $120 in just one month’s time. During the same time frame, Moderna posted a net loss of $1.2 billion for the first quarter of 2024, compared with net income of $79 million in the prior year period.

Although Moderna’s COVID-19 franchise topped estimates in Q1, the biotech overall continues to lose money, Singh explained. “So basically COVID-19 is funding everything else.” And because Moderna is loss-making, he continued, “there is concern among investors that if COVID-19 sales don’t stay flat/up going forward, [Moderna] will have to do a cash raise (non-trivial, maybe in $Billion(s) range)…this will result in dilution and could negatively affect the share price.”

When it comes to Moderna’s 50/50 partnership with Merck, it’s looking at potentially having “to invest billion(s) in the run-up to- and post-approval for INT,” Singh said, raising the question of whether the company “might just be better [off] selling the asset to MRK for significant upfront and royalties.”

In terms of what a deal could run, Singh speculated that it might be in “a similar area code” to what AstraZeneca paid Daiichi Sankyo for a HER2-targeting antibody-drug conjugate (ADC): $1.35 billion up front and a total value of up to $5.55 billion.

“Such a deal would shore up [Moderna’s] balance sheet (removing any fear of a capital raise),” Singh said. “Such a deal could also provide royalties (10% to 15% of INT sales…?) that basically don’t have any R&D or S&M attached to them and are highly lucrative to [Moderna] margins going forward.”

The email’s author argued that the combo is but one product in its INT pillar, which is but one pillar of the four that support its business. Singh agreed that “They might be happy to give MRK INT V1.0 for a good value to both companies…and then go back to working on Version 2.0 and beyond.”

But Minter noted that just how those other pillars are doing will affect Moderna’s calculation. “If RSV underperforms, if the numbers from its COVID-19 products get closer to zero, and if the flu vaccine also doesn’t post the numbers it should, Moderna may be looking for a way to “bridge that gap,” he said. “It just depends on the underlying business of Moderna, which we’re going to see over the next two years.”

The author of the email argued first and foremost that both Merck and Moderna have a fiduciary duty to their shareholders to convert their 50/50 partnership into full ownership for Merck. “The opportunity’s actually staring them right in the face,” he argued to BioSpace. “That second half of the combo is worth far more to Merck.”

In addition, the author said that the complete sale of mRNA-4157 (V940) to Merck would benefit patients—because the 50/50 partnership currently in place is not the most efficient for bringing the product to market. “Once you hit the marketplace, it’s too complicated,” he told BioSpace. A deal is thus “a win-win-win all around.”

According to Minter, the details of a 50/50 partnership such as this one are always deal-specific. One issue that needs to be worked out is who controls the decision-making process, he said. “You each get a vote, but someone’s got to tip the scales.” Minter added that Merck is now in charge of everything from pivotal development to commercialization and will decide on aspects such as the work sites running Phase III or whether a filing for accelerated approval will go forward. Moderna would have some say in the matter, but the “communication” would come from Merck, Minter said.

Time is of the essence, according to the email’s author. The closer the combo therapy gets to market and the closer Merck gets to Keytruda’s patent cliff, the more expensive such a deal will become, he said. “The time is now for them to do a meaningful deal.”

The situation speaks for itself, he told BioSpace. “It’s just screaming: Do a deal. Do it for Merck’s shareholders, do it for Moderna’s shareholders, do it for patients. Do the deal.”