(This April 28 story has been refiled to clarify that SpringWorks expects an ‘opinion’ on drug sales, not final sales approval in Q2, in paragraph 12)
By Sabrina Valle and Ludwig Burger
NEW YORK/FRANKFURT (Reuters) – Germany’s Merck KGaA has struck a deal to buy U.S. biotech company SpringWorks Therapeutics for an equity value of $3.9 billion to add rare cancer therapies ahead of expected revenue losses linked to expiring patents.
The deal came at a price tag about 20% lower than what analysts expected due to lack of other serious bidders and the overall devaluation of the U.S. biotech sector. CEO Belen Garijo said the challenges emerging in the United States were reflected in the final bid price.
Policy and regulatory changes for the healthcare sector in the United States, including massive layoffs at the U.S. Food and Drug Administration that approves new drugs, have been stalling large life science deals in what had been expected to be a stellar year for mergers and acquisitions.
The XBI index that tracks U.S. biotech stocks has fallen 12% this year amid the market uncertainties.
“We do believe that SpringWorks was likely between ‘a rock and a hard place’ in discussions,” said JP Morgan analyst Anupam Rama about the deal coming “lower than we and many on the Street had discussed.”
Analysts were expecting $60 per share after Merck confirmed a Feb. 10 Reuters report saying the two companies were in advanced talks. Merck reduced expectations last Thursday saying it was near a potential takeover for about $47 per share, following a Wall Street Journal report.
The per share price in cash represents an equity value of about $3.9 billion, or an enterprise value of $3.4 billion (3 billion euros), when SpringWorks’ cash holdings are deducted.
Merck is particularly keen to strengthen its drug development pipeline after high-profile setbacks in late-stage drug trials, including a decision last year to halt development of head and neck cancer drug Xevinapant.
A major trial testing multiple sclerosis drug evobrutinib failed in December 2023.
Merck’s shares were up 1.2% at 1659 GMT, after initially slipping at the 0700 GMT market open.
The deal was only signed after SpringWorks received drug approvals in Europe and in the U.S.
SpringWorks stated on Sunday that it expects to receive a Committee for Medicinal Products for Human Use (CHMP) opinion this quarter, a key step toward full European Union approval to extend sales of Ogsiveo, its oral treatment for rare desmoid tumors, to the bloc.
In February, before the layoffs at the FDA, the agency had approved in the U.S. SpringWorks’ drug Gomekli, which treats a type of rare genetic disorder that causes tumors to grow in the tissue that covers nerves throughout the body.
STILL REPRESENTS A PREMIUM
The deal is the largest for Merck’s pharmaceutical unit since the 2007 takeover of Serono for more than $13 billion.
Merck said the bid represented a premium of 26% to SpringWorks’ unaffected 20-day average price of $37.38 on February 7, before Reuters disclosed potential for a transaction.
The deal will be funded with available cash and new debt. It is expected to be accretive to Merck’s earnings per share, adjusted for special items, in 2027, said a statement from the German group, based in Darmstadt, near Frankfurt.
It added it would be able to pursue larger transactions and that deal was expected to close during the second half of 2025, subject to approval by SpringWorks’ shareholders and regulatory clearance.
Springworks said it would pay Merck a termination fee of $145.6 million if the deal falls through under certain circumstances.
Stamford, Connecticut-based SpringWorks, which listed its shares in New York in 2019, develops drugs to treat cancer and rare types of tumour.
J.P. Morgan acted as financial adviser to Merck. Centerview Partners and Goldman Sachs acted as joint financial advisers to SpringWorks.
(Reporting by Sabrina Valle in New York, Ludwig Burger, Emma-Victoria Farr in Frankfurt; Editing by Kirsten Donovan, Barbara Lewis and Nick Zieminski)
