Benzinga | Oct 20, 2021 08:07AM EDT

Acceleron Pharma Shareholder Darwin Global Urges Co. Shareholders Not To Tender Shares To Merck

Believes proposed $180/share offer price is too low and that Acceleron's share price as a standalone company will exceed offer price by at least 2-2.5x

JERSEY, Channel Islands--(BUSINESS WIRE)-- 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.

Sincerely,

Dr. Abhishek Trehan