Merck Is Buying Cidara Therapeutics for $9.2 Billion. Is This the Boost the Lagging Drugmaker Needs?

Over the past two years, Merck (NYSE: MRK) has faced several challenges, resulting in a decline in the company's share price. Even worse, the pharmaceutical giant could face more issues ahead, including the loss of patent exclusivity for its biggest cash cow, cancer medicine Keytruda, in about two years.

However, the company has been looking to turn things around, and a recent acquisition is its latest move in that direction. Does this news make Merck a buy?

An important addition to Merck's portfolio

On Nov. 14, Merck announced that it would acquire Cidara Therapeutics (NASDAQ: CDTX), a clinical-stage biotech company, for about $9.2 billion in cash. For larger drugmakers, acquiring smaller ones with promising candidates in the mid- or late stages of development is often easier than developing brand-new products in-house, a process that is expensive and risky. Considering the numerous clinical failures involved, a single massive commercial success may incur several billion dollars in expenses by the time it reaches the market.

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But how promising is Cidara's leading asset? The candidate in question is called CD388, a potential long-acting antiviral drug designed to confer protection against the flu. Currently, numerous influenza vaccines are available on the market, with even more in development. But they have several problems.

First, vaccine makers have to project which strains of the flu will be most dominant during the season, and then manufacture the vaccine based on that prediction. However, sometimes circulating strains don't match what was predicted, leading to subpar protection against the virus. Second, even when that's not a problem, efficacy tends to wane over time as the season goes by. Third, some people, particularly older adults and those who are immunocompromised, don't respond well to traditional flu vaccines.

CD388 could address all three of these issues. It's designed to target the two main influenza types (including many strains within those) that affect humans and can cause serious illnesses. It's also being developed to confer protection throughout the entire flu season, while being effective even among the elderly and the immunocompromised.

That's all well and good, but can CD388 back that up with actual results from clinical trials? The answer is yes. In a phase 2 study, the medicine showed statistically significant protection against the flu (at three dose levels) compared to a placebo over 24 weeks (CD388's efficacy was maintained through week 28).

Although this study was conducted in healthy adults between the ages of 18 and 64 (a group that does not include some of those most at risk of hospitalization and death), the results are still encouraging. The U.S. Food and Drug Administration granted CD388 a fast track designation, which is designed to accelerate the development of medicines for serious diseases. The candidate must typically show the potential for greater efficacy than approved products. That says something about CD388.

One rock, two stones

Merck's financial results haven't been strong this year for at least one major reason. One of the company's main growth drivers, the HPV vaccine franchise Gardasil and Gardasil 9, has seen decreased demand, particularly in China and Japan. In the third quarter, Merck's total worldwide sales increased by 4% year over year to $17.3 billion, which is not a particularly impressive top-line growth rate for a pharmaceutical giant. Sales of Gardasil and Gardasil 9 dropped by 24% year over year to $1.7 billion. The company needs a solution for this problem.

Furthermore, Merck will face not only a patent cliff for Keytruda by 2028 but also increased competition (non-biosimilar) to its most valuable asset; several exciting therapies in phase 3 studies are looking to challenge it in key markets, such as lung cancer. With the addition of CD388, Merck can address both issues, while also diversifying its product lineup.

Is Merck still an attractive stock?

There is a lot more going on with Merck. The company earned approval for a subcutaneous formulation of Keytruda, which significantly reduced preparation and administration time for physicians while maintaining efficacy in clinical studies. The patent on this version won't expire soon, so it will help fend off some of the increased competition from biosimilars.

Merck also has other newer products that contribute. Winrevair, a medicine for pulmonary arterial hypertension, generated $360 million in sales in Q3 after being approved just last year. Capvaxive, a pneumonia vaccine also approved last year, generated $244 million in revenue for the period. Merck should have numerous additional clinical-trial wins, given its extensive pipeline with dozens of candidates.

With its forward yield at 3.5% and an increase in dividend payouts of 85% over the past decade, Merck stock remains a buy for patient, income-seeking investors.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.