Industry insiders love to say biotechs are bought, not sold.
That appears to be the case with autoimmune drug developer Morphic Therapeutic, which is trying to create a next-generation, oral medicine to compete with Takeda’s blockbuster IBD drug Entyvio.
Eli Lilly’s proposed $3.2 billion purchase of Morphic came after months of discussions between the two companies, according to a new SEC document filed Friday morning. Over the past few years, the publicly traded Boston biotech had entered into confidentiality agreements with Lilly and at least two other “large pharmaceutical” companies for business development discussions, according to another Friday morning regulatory filing. Talks with those companies, referred to as A and B, didn’t ultimately result in bids.
Endpoints News reported on the day of the deal announcement, July 8, that Morphic wasn’t seeking a buyer.
“Lilly’s bid was unexpected. The company was not put up for sale,” Morphic founder Tim Springer, a Harvard professor and biotech entrepreneur behind Entyvio, told Endpoints via email at the time of the deal announcement.
Lilly wasn’t the first large pharma to have been involved with Morphic. The company’s 2016 Series A included support from the venture arms of AbbVie, Pfizer and GSK. It forged partnerships with Johnson & Johnson and AbbVie, but lost both of those in the past few years.
An $11 increase
Morphic went public in June 2019 at $15 per share $MORF and is being bought in cash for $57 per share.
Lilly’s initial offer came in at $46 per share on April 29. Morphic wanted more.
On May 3, Morphic’s board directed its financial advisor Centerview to contact the two large pharma companies that it had previously entered into confidentiality agreements with, referred to simply as Companies A and B. Company A said it “was not prepared to make an acquisition proposal at this time” and had a “preference” for a commercial partnership. Meanwhile, Company B “did not respond substantively to Centerview’s outreach at this time,” according to the SEC filing. Morphic continued speaking with A and B over the following weeks.
It got a $50 per share offer from Lilly on May 28. Centerview, which has been involved in the majority of biopharma M&A deals in recent years, told Lilly’s representatives at Citi that they wanted at least $60 per share. Lilly budged by $3 on June 21, but it wouldn’t add a contingent value right like Morphic wanted, meaning its stockholders could get additional payouts based on future clinical readouts.
Three days later, Lilly upped to $57.
On July 8, Lilly and Morphic announced the $57 per share deal, about three and a half years after they entered into their confidentiality agreement.
Competing with Takeda
Through the deal — Lilly’s first disclosed biotech acquisition of 2024 after a steady string of tuck-in deals last year — the pharma giant is tapping what could become a next-generation competitor to Takeda’s blockbuster IBD drug Entyvio.
Like Takeda’s drug, Morphic’s MORF-057 is an α4β7 integrin inhibitor. Whereas Entyvio is an injectable and under-the-skin medicine, Morphic hopes to open the doors to the “dawn of oral therapy” with its Phase 2 asset in ulcerative colitis and Crohn’s disease.
Lilly’s takeover, which is expected to close this quarter, would come well in advance of Morphic’s next major data event. Analysts expect the biotech to release more Phase 2 data in the first half of 2025. Data readouts last year contributed “lots of volatility” to Morphic’s stock after the initial Phase 2a “had strong clinical remission data but the endoscopic improvement data later was less compelling and more head-scratching,” Jefferies analyst Michael Yee wrote in a July 8 note. Jefferies estimates more than $2 billion in peak sales for Morphic’s drug candidate.
The Boston biotech has multiple preclinical programs for UC, Crohn’s and other autoimmune indications, plus other disease areas like solid tumors, blood disorders and pulmonary hypertension. Morphic’s R&D engine also includes a TL1A, a corner of the I&I space that has attracted big bucks from Roche, Merck and Sanofi.
But “Lilly only wanted the α4β7 program,” Springer told Endpoints earlier this month. Lilly had gained access to a discovery-stage α4β7 asset through its $2.4 billion Dice acquisition last year.
While investors and industry insiders have focused attention on Lilly’s obesity franchise and Alzheimer’s work lately, the company has had a few I&I headlines, including an FDA nod for its ulcerative colitis treatment Omvoh, an IL-23 antagonist.
Editor’s note: This story was updated to correct that Morphic had gauged the interest of at least two other companies, referred to as A and B, during the discussions, according to a separate SEC filing also disclosed on Friday.