Merck Takes $450 Million Gamble On ‘Old School’ Biotech NGM

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    After making a bold move last month by spending $100 million on messenger RNA Therapies, Merck & Co., Inc. (NYSE:MRK) is making another huge bet by committing $450 million to a joint-venture with NGM Biopharmaceuticals.

    The focus of the venture is to develop drugs that address chronic ailments such as diabetes, obesity and nonalcoholic steatohepatitis. The investment is spread out over five years. MRK will give NGM $94 million upfront along with a $106 million payment that gives Merck & Co., Inc. (NYSE:MRK) a 15% stake. MRK will also put up $50 million a year for the five-year period to support critical R&D developments.

    Small Company, Huge Investment

    NGM has only 80 employees and it is unusual for a company the size of MRK to make this kind of huge investment in a company so small. NGM’s flagship product, NGM282, is not included in the deal either as NGM will retain 100% ownership of the product. The programs that MRK gets rights to are not in the clinical trial stage yet but they were involved in a bidding war as other big pharma’s were finding value in NGM’s model.

    NGM has already received a large amount of private investments and the company has done its best to fly under everyone’s radar. It is from the mold of old school biotech’s as it identifies issues, then targets developments to specifically address those issues.

    Why Not Buy?

    The big question is why would MRK spend so much cash and investment on such a small company? All things considered, it could have just bought a company outright to address its concerns. But the officers at NGM were not interested in selling and that put MRK in a strange position. The company wants the R&D the company offers and the only way to attain it is to lay out the cash without receiving ownership.

    It could be a win for both companies but only the future will tell if that plays out. NGM wanted to retain its autonomy and MRK wanted to have access to NNGM’s R&D. At this point they both got what they wanted. The big question is will MRK get $450 million worth of what it wants over the next five years.

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