Dive Brief:

• Merck & Co. has agreed to acquire Pandion Therapeutics, a Watertown, Massachusetts-based biotech developing drugs for autoimmune diseases, for $1.85 billion in cash.

• The deal values Pandion shares at $60 apiece, which is more than double their $25.03 closing price on Wednesday and nearly 3.5-times what the stock debuted at last July. Pandion has one drug in early-stage testing for ulcerative colitis and lupus, and preclinical research that could yield drugs for other autoimmune conditions.

• Typical treatments for autoimmune diseases broadly suppress the immune system, an approach that, while effective, can leave the body vulnerable to infections and other health problems. Pandion aims to develop safer drugs that act more precisely, by dialing down an immune response associated with a specific site of inflammation.

Dive Insight:

The deal with Merck, which is expected to complete in the first half of this year, would bring an end to Pandion’s short run as an independent biotech.

Formed in 2016 under the original name Immunotolerance, Pandion quickly attracted a substantial amount of investments on its mission to develop new, immune-regulating drugs. The biotech raised $58 million in 2018 through a Series A financing round co-led by its founding investor, Polaris Partners, as well as Versant Ventures and Roche’s corporate venture fund.

By April 2020, Pandion had added another $80 million from a larger investor pool. And just a few months later, the biotech went public in an upsized offering that netted it $135 million more.

The funding has been directed at developing a pipeline of precision medicines for autoimmune conditions, the most advanced of which is a drug called PT101.

PT101 has two components: a protein backbone, and an engineered version of interleukin 2, a protein that helps regulate certain white blood cells. Pandion says it designed the drug to selectively activate and expand regulatory T cells, which keep the immune system from attacking the body.

Early this year, Pandion reported positive results from a Phase 1 clinical trial, showing PT101 was well-tolerated and triggered its intended targets, without doing the same for other, pro-inflammatory T cells. With those results in hand, Pandion said a Phase 1/2 study of PT101 for ulcerative colitis should start in mid-2021, while a Phase 2 trial for systemic lupus erythematosus is expected to begin in the second half of this year.

Behind PT101, Pandion is developing drugs meant to amplify another important regulatory protein known as PD-1. Notably, multiple blockbuster cancer immunotherapies, including Merck & Co.’s Keytruda, also target PD-1, though they work by inhibiting the protein instead.

Pandion’s PD-1 drugs are in preclinical testing for “numerous autoimmune diseases.” The biotech is also collaborating with Astellas Pharma to develop treatments for autoimmune diseases of the pancreas.

For Merck, the Pandion deal adds to a string of recent and relatively small acquisitions for the pharmaceutical giant. In November alone, Merck agreed to drop $425 million to buy OncoImmune, a Maryland-based biotech with an experimental COVID-19 treatment, and then almost $3 billion more to snag VelosBio, a San Diego-based maker of antibody cancer drugs.

Last year also saw Merck acquire Themis, a privately held developer of vaccines and therapies for infectious diseases and cancer. The coronavirus vaccine acquired through that deal disappointed in testing, however.

While Merck has favored these modest deals over the splashier ones made by many of its peers, the company is still under pressure to expand. Investors have expressed concerns that Merck is too reliant on Keytruda, a drug which last year accounted for about a third of its $43 billion in pharmaceutical sales.