Morphic focused on Lilly for $3.2B buyout

Eli Lilly's strategic acquisition of Morphic for $3.2 billion is a narrative of a growing relationship between the two companies, culminating in a successful buyout. Morphic detailed this development in a financial regulatory filing dated July 19, providing insights into the discussions that led to the acquisition.

The journey began in late 2020 when Morphic and Lilly entered into a confidentiality agreement to discuss general business opportunities. Although initial conversations did not yield immediate results, the companies stayed in touch and re-engaged in 2023. This year was particularly significant for Morphic as it announced phase 2a results for its drug candidate, MORF-057, aimed at treating ulcerative colitis.

The turning point occurred in September 2023, right before the phase 2a data publication, which negatively impacted Morphic’s stock. At that time, Morphic shares were trading at about $53 each. However, by January, when the two companies met again at the J.P. Morgan conference, the stock had plummeted to around $28 per share.

Early meetings in 2023 primarily focused on Morphic’s clinical programs. The discussions gained momentum in April when Lilly expressed interest in a possible strategic transaction. After subsequent meetings, Lilly made an initial bid to acquire Morphic for $46 per share. Morphic considered this offer for several days but ultimately found it insufficient. In an effort to bridge the valuation gap, Morphic suggested additional limited due diligence by Lilly, which took place throughout May. During this period, executives from both companies even met for dinner at a conference, underscoring the growing seriousness of the negotiations.

Lilly increased its offer to $50 per share by late May. Morphic’s board countered by offering more detailed information, aiming to support a bid of at least $60 per share. While Lilly agreed to review additional information, they cautioned that $60 was a significant target. Following a series of meetings in June, Lilly raised its offer to $53 per share. Once again, Morphic pushed for a $60 per share offer.

Throughout these negotiations, there were no attempts by Morphic to seek out other potential bidders, and Lilly did not initially request exclusivity. However, this changed on June 24 when Lilly increased its offer to $57 per share and asked for exclusive negotiation rights. Morphic suggested incorporating a contingent value right linked to the success of MORF-057, but Lilly declined this proposal. Ultimately, Morphic agreed to proceed with the $57 per share offer.

Both companies then entered into an exclusivity period, concluding on July 11, to finalize the details of the acquisition. The agreement was signed on July 7, setting the stage for Lilly to acquire Morphic, including its promising oral α4β7 inhibitor, which has the potential to compete with Takeda’s injectable Entyvio.

This acquisition underscores Lilly’s commitment to expanding its portfolio, particularly in treatments for chronic inflammatory diseases, by leveraging Morphic’s innovative therapeutic approaches.

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