Dive Brief:

• Pandion Therapeutics, a small Massachusetts biotech, successfully resisted multiple overtures by pharmaceutical giant Merck & Co. to license or acquire its research, pushing the larger company to pay a sizable premium in the $1.85 billion buyout deal announced last month.

• Over the course of more than a year, Pandion turned down Merck’s offers to license its research, set up a 50-50 partnership and twice acquire the company, before agreeing to be bought for $60 per share. The ultimate proposal was more than double Pandion’s closing stock price a day before the deal, and three-and-a-half times higher than the biotech’s initial public offering price last July.

• The negotiations, revealed in a regulatory filing Thursday, highlight the degree to which Merck was interested in Pandion’s research, which is focused on developing more targeted medicines for autoimmune diseases like ulcerative colitis and lupus.

Dive Insight:

Merck, under outgoing CEO Ken Frazier and now retired research chief Roger Perlmutter, has stayed away from large-scale dealmaking. But the pharma has proven an enthusiastic acquirer of early-stage, smaller companies, buying up seven private and public biotechs over the past two years.

Merck’s paid a high price for several of those deals, too, agreeing to pay a more than 300% premium for Immune Design in 2019, a 107% premium for ArQule that same year and, last month, a 140% premium for Pandion.

At $1.85 billion, the acquisition of Pandion is one of the more expensive deals of the group, trailing only ArQule and VelosBio.

The documents made public Thursday show the price point was largely the result of Pandion’s negotiating for more money.

While about two dozen companies showed some interest in Pandion’s work between 2018 and 2020, only Merck and one other “global pharmaceutical company” made formal acquisition or partnership proposals.

Merck’s first attempt was in late January 2020, when the pharma offered Pandion $65 million upfront to acquire the biotech’s research, including its most advanced drug candidate at the time, PT-101.

Pandion refused and continued discussions with another company that showed interest, but never progressed to making an offer.

In late September, Pandion’s CEO, top scientist, board chairman and head of business development all sat down with Merck’s Perlmutter, who was eager to see early-stage data for PT-101. Perlmutter’s planned retirement was announced a few days later, on Oct. 2, but Merck moved forward with a revised proposal for a 50-50 partnership on the research work behind PT-101 and a nearly 20% stake in Pandion.

The biotech again refused and a few weeks later rejected a low-dollar offer from the “global pharmaceutical company” for rights to another area of Pandion’s research.

The turning point for Merck came in January, when Pandion shared Phase 1 study results for PT-101 with it and four other companies. The data showed PT-101 was well-tolerated and selectively activated the immune cells Pandion aimed to target.

In early February, Merck proposed a buyout at a price of $40 per share, which it revised two days later to $50 per share. That same day, Pandion made a counter-offer of $60 per share that Merck later agreed to following additional due diligence and inspections of contract manufacturers used by Pandion.

The deal was announced Feb. 25 and the companies expect it to be completed by June.