CNBC's Angelica Peebles reports on themes emerging in the pharma space.

Merck has agreed to acquire Verona Pharma for approximately $10 billion, as the company seeks to address the anticipated revenue gap from the upcoming patent expiration of its leading drug, Keytruda. Verona's lead product, a treatment for COPD, is already on the market and generated $70 million in first-quarter sales, with potential for further growth through additional indications such as bronchiectasis.

This acquisition is part of a broader trend in the pharmaceutical sector, where major firms are increasingly purchasing commercial-stage companies rather than earlier-stage assets. The move is intended to provide immediate revenue streams and reduce uncertainty, as companies like Merck prepare for significant financial impacts from expiring patents on blockbuster drugs.

Merck to buy Verona for $10B ahead of Keytruda patent expiration

We've been talking about Merck all morning long, we were just talking about M&A, in fact, as well. So the company is buying Verona Pharma for about $10 billion. As it looks to diversify its portfolio beyond Keytruda, that's a tough one to be facing patent expirations. That's a huge drug and a great drug. Angelica Peoples joins us on set with a look at the big M&A theme emerging from the industry. Good morning. Good morning, Joe. That's right. And like you mentioned for Merck, they have about a $30 billion hole that they're going to need to fill when Keytruda loses that patent expiration. Is that the biggest ever? The biggest, yeah, for them especially. It's the best-selling drug, yeah, $30 billion cliff. I mean, AbbVie had a pretty big hole to fill with Humira, but this is certainly a big one. And so that's why you've seen them do these deals. They've talked about that they have an appetite, but I think this one is particularly interesting because they're going out and buying a commercial stage company. So this is already a drug that's on the market. It launched last year for COPD. And it's this trend that we've been seeing in pharma. We saw it with J&J, Sanofi, all buying commercial stage companies, which is a little bit unusual because previously you would see them go in and buy those companies before they actually reached the market. Yeah. So this drug has already been on the market. First quarter sales of $70 million. We had Evan David Segerman from BMO earlier, and he made the same point in terms of buying the commercial drug. It can plug the hole, start plugging the hole right away, which is very interesting. And this particular drug actually could be studied for other indications, which could even boost the estimates, right, for peak sales. Exactly. So right now I've seen about $4 billion in peak sales estimates, but it could be even more than that because they have these other indications that they're going after, like another lung disease called bronchiectasis. That's a really hot area. You have another company called Insmed that they're expecting approval on their competing drug later this summer. And it's interesting because it used to be that, oh, the company didn't get bought before it launched, therefore it's dead. But that's not the case anymore, and I think it's shifting a little bit, especially how investors should think about some of these companies. And when you talk to the different CEOs or you talk to different people in the industry, it does feel like companies are willing to be patient, and they're willing to pay a little bit more if they know what they're getting, and they can also then see how the launch does, right? Is this a new market where they don't really know if there's going to be appetite or do they want to see if the launch fizzles, maybe the price goes down? So there's these new dynamics out there.

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