Darwin Global Management Limited (“Darwin Global”), a long-term investor in the biotechnology and pharmaceutical sector and beneficial owner of 2,345,620 shares of common stock of Acceleron Pharma Inc. (Nasdaq: XLRN) (“Acceleron” or the “Company”), representing approximately 3.84% of the total outstanding shares of the Company’s common stock, today issued the following letter to Acceleron shareholders. In the letter, Darwin Global urges shareholders not to tender their shares to Merck (NYSE: MRK) (“Merck”) in connection with its planned acquisition of Acceleron.
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October 20, 2021
Dear Fellow Acceleron Shareholders:
Darwin Global recognizes the phenomenal work of Acceleron’s management team and employees in becoming one of the few biotechnology companies that has developed two disease-transforming drugs – Reblozyl and sotatercept – whose peak annual sales will each exceed several billion dollars. Of note, we believe that the decision made by Acceleron’s management team to regain rights to sotatercept from Celgene in order to develop it in Pulmonary Arterial Hypertension (PAH) created significant value for patients and shareholders alike.
That being said, we are incredibly disappointed with the decision by Acceleron’s Board of Directors (the “Board”) to sell the Company for a price that we believe to be substantially less than its intrinsic value. This decision is particularly perplexing given (a) Acceleron has several key value-creating events in the near- to medium-term (following which both the Company’s valuation and strategic interest from other potential suitors would be considerably greater), and (b) the acquisition premium of roughly 34%1 is significantly less than previous deals within the biotechnology sector. Indeed, the most recent acquisition of a PAH-focused company was Johnson & Johnson’s acquisition of Actelion in 2017 at an acquisition premium of 82%2, representing an enterprise value of approximately $30 billion for a portfolio of PAH drugs that lacked sotatercept’s transformative disease-modifying potential.
Merck’s offer implies an enterprise value of $10.9 billion, which we believe significantly undervalues Reblozyl and sotatercept. For Reblozyl, Bristol Myers Squibb has provided guidance of $4 billion in non-risk adjusted 2029 sales3. Given Reblozyl’s extensive clinical data in hematological disorders, we have confidence in this guidance, which lends itself to the net present value of Acceleron’s Reblozyl royalty alone being approximately $4 to $6 billion. Based on this, Merck’s offer appears to value sotatercept at roughly $5 to $7 billion; however, we believe that sotatercept will garner in excess of $5 billion in annual peak sales in PAH alone, which is supportive of a net present value of $17 to $21 billion. Including cash, we therefore calculate Acceleron’s equity value to be $22 to $28 billion. This translates to a share price of $353 to $451, which is roughly 2-2.5x the Merck offer price of $180.
This valuation is, of course, dependent on regulatory approval for sotatercept, which we are confident Acceleron will achieve, as no drug tested in PAH before has ever generated both the consistency and magnitude of benefit on the multiplicity of endpoints measured in PULSAR and SPECTRA, reflecting the fact that sotatercept is the first treatment for this fatal condition with the potential to reverse the underlying disease pathology unlike every vasodilatory drug that came before it. Our confidence in sotatercept’s peak sales exceeding $5 billion stems from (a) the fact that PAH affects roughly 70,000 patients in the USA and EU; (b) views from leading physicians who treat the disease and believe that the vast majority of PAH patients will be treated with sotatercept; (c) the well-defined reimbursement landscape in PAH; and (d) the lack of any other potentially disease modifying PAH drugs in late-stage clinical trials. There is also the potential for significant additional upside to this peak sales estimate should sotatercept prove efficacious in Group 2 pulmonary hypertension in the ongoing CADENCE trial. This would, in turn, pave the way for investigation in other forms of pulmonary hypertension, potentially expanding sotatercept’s market opportunity and hence Acceleron’s valuation by multiples above what we calculated above.
Thus, it is apparent that sotatercept has the potential to be one of the biotechnology and pharmaceutical industries’ top-selling drugs for many years to come. Reflecting this, Merck quite rightly spoke of its “confidence” in sotatercept’s data, eventual approval and market opportunity no less than 22 times in its deal announcement call4. The 34% premium paid by Merck certainly does not reflect this enormous potential. Indeed, just as Merck is “very confident [that sotatercept] is a multibillion-dollar peak sales potential drug,”5 we are very confident that Merck is underpaying to acquire it.
We understand the Merck management team’s interest in acquiring Acceleron for considerably less than it is worth and in the process creating tens of billions of dollars of value for their own shareholders in what would potentially be one of the most value-accretive acquisitions by a pharmaceutical company in history. That said, we believe that the proposed offer price represents an extraordinarily poor deal for Acceleron shareholders and should be rejected.
Therefore, we implore other shareholders to not tender their shares unless Merck offers very substantially more than $180/share. Indeed, we are confident that the value of Acceleron as a standalone company will exceed this offer price by multiples in the coming years and would rather capture this long-term value than sell to Merck at an inappropriately low price.
Dr. Abhishek Trehan
About Darwin Global
Darwin Global Management Limited is an investment advisor which makes long-term investments in public biotechnology and pharmaceutical companies. Chief Investment Officer Dr. Abhishek Trehan was previously head of biotechnology and pharmaceutical investments at D. E. Shaw & Co. and prior to this worked as a physician. Dr. Trehan holds a BA and MA with a major in Pharmacology from the University of Cambridge, a medical degree from the University of Oxford, and an MBA from Harvard Business School.
The statements included above that are not a description of historical facts are forward-looking statements. Words or phrases such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements regarding the planned completion of the transactions contemplated by the Merger Agreement, dated September 30, 2021, by and between Merck, a wholly –owned subsidiary of Merck, and Acceleron (the “Merger Agreement”).
Although Darwin Global believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Darwin Global, Merck or Acceleron, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Risks and uncertainties that could cause results to differ from expectations include: uncertainties as to the timing and completion of the tender offer contemplated by the Merger Agreement (the “Offer”) and the merger following the completion of (the “Merger”); the possibility that competing offers may be made; the possibility that various closing conditions for the Offer or the Merger may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; and risks and uncertainties pertaining to the Company’s business, including the risks and uncertainties detailed in the Company’s public periodic filings with the SEC, as well as the tender offer materials and the transaction statement filed by Merger Sub and Merck on October 12, 2021 and the Solicitation/Recommendation Statement filed by the Company in connection with the Offer on October 12, 2021. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement and Darwin Global undertakes no obligation to revise or update these statements to reflect events or circumstances after the date hereof, except as required by law.
1 Calculated using the Common Stock’s closing price of $133.88 per share on August 31, 2021.
2 Calculated using a deal price of 280.08 CHF/share vs. closing price of 153.56 CHF/share on November 24, 2016.
3 See Bristol-Myers Squibb Presentation, J.P. Morgan Healthcare Conference, Jan. 11, 2021.
4 See Bloomberg transcript, Acceleron Investor Call, September 30, 2021.
Gasthalter & Co.