Lilly to acquire Morphic for $3B in inflammation drug deal

Eli Lilly announced plans to acquire Morphic Therapeutics, a Massachusetts-based biotechnology firm, for $3.2 billion. This all-cash transaction prices Morphic's outstanding shares at $57 each, representing nearly an 80% premium compared to its closing price last Friday. Both companies anticipate finalizing the deal by the end of September.

Morphic was established in 2015, based on pioneering research from Timothy Springer, an immunologist and Harvard University professor who also invested in Moderna. The company's mission has been to develop oral drugs that inhibit integrins, proteins involved in various critical bodily functions, including inflammation. Morphic was initially funded by Springer, the software developer Schrödinger, and life science investors Polaris Partners and ShangPharma Investment Group. By mid-2016, Morphic had successfully completed a $52 million fundraising round that saw contributions from venture firms like SR One and Omega Funds, along with the venture arms of Pfizer and AbbVie. The company went public three years later, raising an additional $90 million.

Morphic's leading drug candidate, known as MORF-057, is currently undergoing human clinical trials. Three mid-stage studies are evaluating its potential to treat inflammatory bowel disease (IBD), specifically ulcerative colitis and Crohn's disease. The two largest studies aim to enroll between 200 and 300 participants, with results expected in 2025 or 2026. A smaller trial has already shown promising results, particularly in patients with moderate-to-severe ulcerative colitis.

MORF-057 operates similarly to Entyvio, a successful drug from Japan-based Takeda Pharmaceutical. Entyvio generated sales of approximately $5 billion in Takeda's last fiscal year. Both drugs target an integrin that plays a key role in intestinal inflammation. However, while Entyvio is administered via intravenous infusion or subcutaneous injection, MORF-057 is taken orally. Analysts argue that the oral administration of MORF-057 could offer greater convenience for patients, potentially allowing it to capture market share from Entyvio if it receives regulatory approval.

Michael Yee, a Jefferies analyst, noted that MORF-057 demonstrated a strong clinical remission rate of about 26% in the smaller ulcerative colitis trial, albeit the trial was not placebo-controlled. Yee described Lilly's acquisition of Morphic as a favorable outcome for the latter's investors, as it frees the company from the financial burden of conducting large-scale trials needed for regulatory approval. Yee also speculated that other pharmaceutical companies might have been interested in Morphic, given the recent focus on immunology assets within the industry.

Lilly has been actively pursuing acquisitions in recent years, targeting biotechs focused on cancer, immune system, and rare disease research. The company's $2.4 billion acquisition of Dice Therapeutics bears some similarities to the Morphic deal, as Dice had just reported early-stage clinical data for its oral psoriasis drug.

Although Lilly recently gained approval for another ulcerative colitis medication, analysts from Jefferies and Stifel do not foresee any regulatory hurdles from the Federal Trade Commission for the Morphic acquisition. They point out that Lilly's new drug, branded as Omvoh, operates through a different mechanism than MORF-057.