Merck Buys Terns for $6.7B, Analyst Sees Rival Bid Risk
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Merck's acquisition of Terns is a strategic move to address its looming patent cliff, but analysts suggest the offer may undervalue the asset and invite competing bids.
The Deal: Merck's Latest Biotech Bet
Merck & Co. has agreed to acquire Terns Pharmaceuticals for approximately $6.7 billion, or $53 per share. The deal centers on Terns' early-stage drug, TERN-701, a treatment for chronic myeloid leukemia (CML).
This acquisition is part of a broader, aggressive deal-making spree by Merck. In recent months, the company has also acquired Verona Pharma for about $10 billion and Cidara Therapeutics for roughly $9.2 billion.
The primary driver behind this flurry of activity is the impending patent expiry of Merck's blockbuster cancer drug, Keytruda, which could begin as early as 2028. Keytruda generates about $30 billion in annual revenue, making its loss a significant threat to Merck's future growth.
Analysts at William Blair have suggested that Merck's offer for Terns may not fully capture the potential of TERN-701. They note the drug is well-positioned to disrupt the CML treatment market, implying the deal could attract interest from other potential bidders.
The transaction is expected to close in the second quarter of 2026 and will result in a one-time charge of approximately $5.8 billion, or $2.35 per share, to Merck's earnings that year.
Why This Acquisition Is a High-Stakes Move
For Merck, this deal is a critical piece of its strategy to rebuild its drug pipeline. With Keytruda's dominance set to wane, the company must find new sources of revenue, and oncology remains its core strength. TERN-701 represents a longer-term opportunity, with late-stage trials expected to begin in late 2026 or early 2027.
The competitive landscape adds intrigue. TERN-701 targets a market currently served by drugs like Novartis's Scemblix. Early Phase 1 data showed a promising 64% major molecular response rate in refractory patients, suggesting it could capture significant market share if successful.
For Terns shareholders, the $53 per share offer provides a clear exit. However, the analyst commentary about a potential undervaluation introduces the possibility of a bidding war, which could drive the final acquisition price higher.
This deal also highlights the intense pressure on big pharma. The industry faces an estimated $320 billion in revenue losses from patent expirations through 2030, forcing companies like Merck to spend heavily on acquisitions to sustain growth.
Bobby Insight
The Terns deal is a necessary strategic step for Merck, but investors should watch for a potential competing bid that could change the calculus.
Merck is doing what it must to prepare for life after Keytruda, and oncology is the right focus. However, paying a fair price is crucial, and analyst skepticism suggests Merck may have gotten a bargain, which could benefit shareholders if no rival emerges but hurt Terns investors.
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