Merck & Co. makes another move! Acquires Terns for $6.7 billion to bet on next-generation cancer therapies

Ask AI · How will Merck respond to the challenge of Keytruda patent expiration in this acquisition?

China Financial News (March 25) (Editor: Niu Zhanlin) On Wednesday, local time, U.S. pharmaceutical giant Merck announced that it has reached an all-cash deal worth $6.7 billion to acquire Terns Pharmaceuticals, a cancer biotech company, to obtain a promising leukemia treatment drug.

Following this news, in pre-market trading in the U.S., Terns shares rose 5.3%, while Merck’s shares were basically flat.

If this experimental drug is validated in terms of safety and efficacy, this move would provide Merck with new growth momentum, especially as its blockbuster core product, Keytruda, is about to lose patent protection.

Under the terms of the agreement, Merck will acquire Terns at a price of $53 per share. The total value of the transaction is approximately $6.7 billion, including the cash held on Terns’ balance sheet. After deducting the acquired company’s cash on its balance sheet, the net consideration is approximately $5.7 billion.

It is understood that Terns, headquartered in Foster City, California, has been committed to developing oral drugs to treat cancer, obesity, and metabolic liver disease. Its core product is an oral drug called TERN-701 for the treatment of chronic myeloid leukemia. Last year, Terns released encouraging clinical research results for this drug.

In an early study, TERN-701 achieved a 75% major molecular response (MMR) rate among leukemia patients who had previously been treated. Analysts believe this result could make it a potential competitor to Novartis’ leukemia drug Scemblix.

In March 2024, the U.S. Food and Drug Administration (FDA) granted orphan drug designation for TERN-701 for the treatment of chronic myeloid leukemia.

Driven by investors’ growing enthusiasm for this experimental drug, Terns’ share price has surged over the past few months, with a year-to-date gain of 24%.

Wall Street analysts said the drug is expected to grow into a “blockbuster.” Truist Securities estimates that its adjusted annual sales peak could be as high as $2.3 billion.

Meanwhile, Merck, headquartered in Raritan, New Jersey, is a cancer drug powerhouse with a market capitalization of more than $285 billion. Its immunotherapy drug Keytruda generated sales of about $31.7 billion last year, making it one of the world’s best-selling drugs.

However, Keytruda’s core patent expires in 2028, which could deliver a significant blow to the company’s revenue.

Merck CEO Robert Davis said at the JPMorgan Healthcare Conference in January this year that the company is currently mainly focused on M&A deals with a scale of no more than $15 billion.

Since 2021, through internal R&D and large-scale acquisitions (including the $11.5 billion acquisition of Acceleron to obtain the pulmonary arterial hypertension drug Winrevair), the size of Merck’s late-stage R&D pipeline has expanded by nearly threefold.

(China Financial News · Niu Zhanlin)