Merck KGaA to Acquire SpringWorks for $3.9 Billion

Germany’s Merck KGaA has agreed to purchase U.S.-based biotech company SpringWorks Therapeutics in a $3.9 billion equity deal, as the pharmaceutical giant looks to bolster its rare cancer treatment portfolio ahead of looming revenue hits from expiring patents, according to Reuters.

The acquisition price came in roughly 20% below initial analyst expectations, reflecting broader market pressures and a dearth of competing bids, per Reuters. CEO Belen Garijo acknowledged that the complexities facing the U.S. healthcare market contributed to the final valuation. Factors including major layoffs at the U.S. Food and Drug Administration and evolving regulatory policies have dampened the environment for large-scale life sciences mergers, stalling what had been projected as a strong year for healthcare dealmaking.

The downturn in the biotech sector has been notable, with the XBI index—which tracks U.S. biotech stocks—falling 12% so far this year, according to Reuters. Analyst Anupam Rama from JP Morgan remarked that SpringWorks was likely “between ‘a rock and a hard place'” during negotiations, explaining why the deal closed lower than many on Wall Street had anticipated.

Initially, analysts had projected a buyout offer around $60 per share after Merck confirmed advanced discussions earlier this year, as reported by Reuters on February 10. However, following a Wall Street Journal report, Merck adjusted expectations last week, announcing it was nearing an acquisition priced at approximately $47 per share. The agreed amount values SpringWorks at an enterprise value of about $3.4 billion (or 3 billion euros) after accounting for the company’s cash reserves.

Merck’s motivation for the acquisition is partly rooted in a need to revitalize its drug development pipeline after several recent disappointments. Last year, Merck halted development of Xevinapant, a head and neck cancer drug, and in December 2023, it reported a major failure in a clinical trial for evobrutinib, an experimental treatment for multiple sclerosis.

The agreement between the two companies was finalized following key regulatory milestones. SpringWorks announced on Sunday that it anticipates European Union approval this quarter for its oral desmoid tumor therapy, Ogsiveo, expanding its market reach beyond the United States.

Merck’s shares showed a modest 1.2% rise by 1659 GMT after an initial dip when trading opened earlier in the day at 0700 GMT, according to Reuters.

Source: Reuters