Pharma giant Merck is buying U.S. biotech firm Terns Pharmaceuticals for $6.7 billion to boost its oncology pipeline, the company said Wednesday.
This is the third multibillion-dollar acquisition for Merck over the past year as the company looks to bulk up its portfolio before its best-selling cancer drug Keytruda loses key patent protection in 2028.
Merck will acquire Terns for $53 per share in cash for an equity value of about $6.7 billion. The shares were worth $50 at Tuesday’s close. The deal is expected to close in the second quarter.
Terns is developing a medicine for a type of leukemia that analysts see as a multibillion-dollar drug that could eventually rival Novartis‘ Scemblix. Since the early 2000s, new drugs have turned chronic myeloid leukemia into a condition that can be managed over time.
Novartis has been a longtime leader in the field with its drugs Scemblix and Gleevec. But Merck said as many as 40% of patients treated with a class of drugs known as tyrosine kinase inhibitors, which includes the Novartis treatments, switch within five years and people don’t see durable responses as they try more drugs. The company said that creates an opportunity for new entrants that can deliver more consistent effects and better tolerability.
Merck CEO Robert Davis told analyst and investors that Terns’ experimental pill will be a “significant driver of growth in the next decade.” The drug is still in the early stages of clinical studies, so Merck is betting that initial data will prove out in larger studies.
“This transaction reflects our commitment to acting decisively when compelling science and value align and our confidence in the benefits TERN-701 will bring to patients while generating value for our shareholders over time,” Davis said.
Terns’ stock has skyrocketed in recent months as investor excitement built over the experimental drug, which showed promising results in an early trial late last year.
Terns shares rose more than 5% while Merck’s stock was up 1% in early trading on Wednesday. Shares of Terns were up as much as 15% in premarket trading after media reports said the companies were nearing a deal.
Terns stock has skyrocketed over the past year.
The deal is “strategically sound and incrementally positive as MRK prepares for Keytruda’s patent cliff and demonstrates its willingness to pursue differentiated oncology assets early,” said analysts at RBC.
Merck has been on a dealmaking spree as its cancer drug Keytruda, the best-selling prescription drug in the world, is set to face generic competition from 2028. With more than $30 billion in annual sales, Keytruda accounts for nearly half of Merck’s sales.
The company snapped up Cidara Therapeutics and its experimental flu drug for $9.2 billion as well as respiratory drugmaker Verona Pharma for $10 billion last year, in an attempt to reduce dependence on its blockbuster cancer treatment.
Merck is still on the lookout for more deals, Davis said, calling the company “opportunistic” and pointing to the company’s interest in oncology, immunology, cardiometabolic health, vaccines and ophthalmology.
Merck shares have risen 32% over the past 12 months as investors have become increasingly optimistic that the company will be able to bridge the loss of revenue expected after Keytruda’s exclusivity expires.