Roche pays 3.4% in year one for Chinese ADC options; Merck KGaA pays cash for one siRNA drug
Roche commits $510m in year one against a $15bn milestone ceiling. Merck KGaA pays about $1.3bn cash for Silence at an 82% premium to the 30 day average.
Roche and Merck KGaA signed two very different deals on Monday 19 October. Roche pays little now and leaves the early risk with China's Hansoh. Merck KGaA pays everything now for a drug that is ready for Phase 3.
Roche committed 510 million dollars in the first year of a new collaboration with Hansoh of China on antibody drug conjugates, or ADCs. An ADC is an antibody that carries a cancer drug straight to tumour cells. Merck KGaA, the Darmstadt company, agreed to buy Silence Therapeutics for cash at an equity value of about 1.3 billion dollars.
Large pharma now pays for early, unproven Chinese platforms with option style contracts that push almost all the money into milestones. Pharma pays for late stage Western biotechs with everything up front.
In both deals, the headline and the premium flatter the price. The first year cash share and the premium to the 30 day average show what each buyer actually put at risk.
Hansoh will receive 400 million dollars upfront and 110 million on the first anniversary. It could also earn more than 15 billion in milestones, which are payments tied to development, approval and sales, plus tiered royalties.
The two payments add up to 510 million dollars of first year cash. Set against the 15 billion ceiling, that is 3.4%. Because the milestone figure is described as "more than" that, the true share is lower. Roche has committed at most 3.4% of the headline.
Hansoh carries the earliest and riskiest stage. The deal covers two preclinical Hansoh ADC programmes and multiple programmes built on targets Roche proposed. Hansoh leads early development up to the completion of global Phase Ia trials, the first tests in people. The Chinese company runs the earliest stage, where most drugs fail.
The rights are split by geography. Hansoh keeps the rights in mainland China, Hong Kong, Macau and Taiwan, while Roche develops everywhere else. Hansoh also has an option to select up to two programmes. It could then contribute to their development outside its home territories and share in their United States upside.
Roche's 15 billion is a ceiling spread across programmes the release does not separate. No per programme figure exists to set beside Merck KGaA's price for one asset. Roche pays the rest only if Hansoh's programmes clear the early trials, while the 510 million is certain.
Silence is a different purchase, because its drug is much further along. The drug, divesiran, is a small interfering RNA, called siRNA, which turns down one gene. It targets TMPRSS6. It is ready for Phase 3 in polycythemia vera, a rare blood disorder, for patients who depend on phlebotomy, the regular removal of blood.
Merck KGaA's release reports Phase 2 results from the 48 patient SANRECO study. It says 88% of patients responded against 19% on placebo.
The same release says the mean number of phlebotomies fell to 0.2 against 2.1.
The 88% blends two dose arms, so it hides a gap between doses. The every 12 week arm is the one that goes into Phase 3 in the first half of 2027.
That arm responded at 81.3%. Dosing every 6 weeks reached 93.8%. Two cases of Grade 1 anaemia, the mildest grade of low red blood cell counts, were judged treatment related.
Kai Beckmann ties the purchase to Merck KGaA's entry into haematology. That entry followed last year's acquisition of SpringWorks Therapeutics.
The 130% premium is measured against a price that had already fallen. Silence announced it against the 16 October close, which was near 8.68 dollars.
The company's site showed 19.57 dollars in Monday morning trading, up 10.89, and 19.57 minus 10.89 is 8.68.
Merck KGaA's own release uses a different yardstick. It quotes 82% over the 30 day volume weighted average of 10.99 dollars, an average that gives busier trading days more weight.
Silence stock had slipped below its own monthly average before the bid. So the 130% mostly measures how far the shares had dropped in the days before. Even a normal take out premium sits on a falling price.
The share count changes the headline too. The offer is 20 dollars per ADS, short for American depositary share, and each ADS stands for three ordinary shares. That is 6.67 dollars a share.
The merger agreement exhibit lists 186,609,072 ordinary shares in issue at 15 October. At the offer price that comes to about 1.24 billion dollars before options.
Silence's June quarter results showed 141,739,180 shares at 30 June. So the count is up 31.7% in under four months, and part of the larger equity value comes from those added shares.
Deal protection is thin on the seller's side. The same exhibit sets a break fee of 13 million dollars, a penalty payable by Silence in specified circumstances, including a superior proposal. That is 1.0% of the equity value, so a rival bidder faces a low hurdle. Silence also pays a small cost for walking away from a better offer.
Holders of about 14% of voting power have already signed a support agreement, a promise to back the deal. The scheme of arrangement, the UK court process for this UK incorporated company, needs 75% in value of the class present and voting. Some of those holders may have bought below 10 dollars.
There is no financing condition, meaning the deal does not hinge on Merck KGaA raising money. Even so, Merck KGaA says it will fund the purchase through proceeds from new debt. Silence's chairman, Iain Ross, calls the outcome the result of a competitive sale process.
Merck KGaA pays full price for a drug in a rare disease, and the market already has a first drug. Takeda's rusfertide, a weekly injection, won FDA approval, the clearance of the US regulator, on 28 August as Mimrylo for polycythemia vera.
That makes divesiran the second drug into this market. Its advantage is dosing every 12 weeks instead of a weekly injection.
The two contracts frame a choice for a platform company or a holder of one late stage asset. The Roche route preserves upside and home territory rights, and the company runs early development. But nearly all of the headline sits in milestones that may never be paid.
The Merck KGaA route is certain and ends independence. Silence reported its Phase 2 data on 10 August and received a bid 70 days later. That suggests a Phase 2 win is when the cash buyers appear.
The market has priced the deal as done. Investing.com reported that Silence shares were trading near 19.58 dollars, about 2% under the offer. It also said Chardan cut its rating to Neutral with a 20 dollar target. That small spread leaves little room for a rival bid.
Merck KGaA expects to close in the first quarter of 2027, subject to regulatory and shareholder approval. Silence's scheme documents are due about late November, within 25 business days of signing under the agreement.
Those documents will show how many bidders there were. The first anniversary payment of 110 million dollars, due a year after signing, is the first cash Roche pays after the 400 million.