On Jan. 8, pharmaceutical giant Merck (NYSE: MRK) moved to acquire biotech Harpoon Therapeutics, (NASDAQ: HARP) for $680 million in cash. The point of the acquisition, which should close in the first half of this year, is to gain access to Harpoon's technology and its pipeline of early-stage therapy candidates for various solid tumor cancers, including a pair that aim to treat small cell lung cancer and multiple myeloma.
Overall, the move will bolster Merck's oncology pipeline directly, and it might also pave the way for many other opportunities to develop powerful new combination therapies not too far down the road. The financial benefits for shareholders could be quite significant.
This acquisition could become a major tailwind for a decade
The key thing to understand here is that Harpoon's technology platform may be especially versatile and effective at creating cancer-fighting therapies.
One common problem with cell therapies for cancer is that malignant cells are often quite adept at avoiding detection by the immune system. You can think of Harpoon's approach as creating drugs that handcuff tumor cells to the body's T-cells that specialize in killing tumors. Ideally, the T-cells do their job and move on to the next tumor cells afterward, dispatching as many hostiles as can be crammed around them at any given point in time (at least until the T-cells get tired). There isn't much public data about how well the system works in practice, but its potential is worth understanding in detail for a few reasons.
First, Harpoon's platform theoretically allows for arbitrary selection of the features of the cellular surface that mark the target. That means there could be dozens of different variations of each therapy, with each tailored to treat a different cancer, or even different genetically defined subsets of the same cancer. While separate clinical trials would need to be run to test each indication, investors should appreciate that Merck could be earning revenue from new medicines made with the platform for years and years, much as it did with its widely used cancer therapy Keytruda.
For reference, since its launch in 2014, Keytruda has secured regulatory approval as a treatment for more than a dozen different cancers, and as recently as Jan. 12, it was still chalking up even more. In Q3 2023 alone, it generated $6.3 billion in revenue, up 17% from the year prior. For a drug so far removed from its initial launch, such figures are incredibly impressive. Shareholders should be drooling about the chance of Merck producing anything nearly as valuable from Harpoon's technology.
Harpoon's approach is also likely to be compatible or even synergistic with other old and new cancer medicines like chemotherapies, cell therapies, antibody-drug conjugates, checkpoint inhibitors, or targeted therapies. Thus, it might not need to steal market share to gain traction. It also means that oncologists could be more willing to prescribe those medicines, driving adoption higher. Lots of research and development work will be needed to suss out the details, but the benefits for patients could be tremendous over the long term.
Finally, the drugs made using Harpoon's technology may be capable of infiltrating solid tumor tissue, theoretically bringing T-cells along to sites where they can inflict maximum damage on a cancer. Solid tumors are features of around 90% of cancers, so it is difficult to overstate the significance of being able to treat them effectively. But the vulnerable interior regions of solid tumors have been difficult to treat with T-cell-based therapies, as bioengineered anti-cancer cells, much like their natural brethren, are too big to weave their way through the dense exterior layers of tumor tissue in sufficient numbers to accomplish much (among other reasons).
Thus, if -- and this is a big if, but it's doubtlessly what Harpoon is going for and what Merck is interested in -- the tech works as advertised with regard to enabling the infiltration of T-cells into tumors, it could be one of the biggest breakthroughs to grace the cell therapy space. Biopharma businesses would be scrambling to get licenses to use the platform so as to give their cell therapies in development for cancer a chance at achieving superior levels of efficacy. Merck would be exploiting the tech as well, minting new cell therapy programs left and right with the knowledge that a previously intractable constraint was no longer as much of a problem. And investors would get a significant upside as well.
How to invest in light of this information
Does the Harpoon acquisition make Merck's stock a must-buy? Not exactly. It will be at least a few years before any of its innovations can be marketed, assuming they ever are. And given that Merck's trailing-12-month sales were in excess of $59 billion, it will likely take more than one new therapy launch to move the needle on its finances. Furthermore, major competitors like Amgen are pursuing similar approaches, and their twists on the concept could prove superior.
Nonetheless, it's difficult to overstate how much of an impact this acquisition could have on Merck's competitive positioning in the long run, especially if the full promise of Harpoon's technology can be unleashed. This bullish development means that Merck is more likely to be a leader in oncology for the foreseeable future. If you're on the fence and thinking about making an investment to hold for a decade or more, this is a sign to take the plunge. Just appreciate that its Harpoon acquisition is a long-term play, so it might take time for it to pay off.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
