MorphoSys Partners with Royalty Pharma to Fund $1.7B Constellation Pharmaceuticals Buyout

On June 2nd, MorphoSys announced it would acquire Constellation Pharmaceuticals, a company specializing in developing small molecules for epigenetic targets, for $1.7 billion. The deal will add two clinical-stage therapies to MorphoSys’ pipeline for hematological malignancies and expand into solid tumors.

The deal will be funded by a partnership with Royalty Pharma, which will pay more than $2 billion. In return, Royalty Pharma will acquire the rights to receive royalties and milestone payments on five of MorphoSys’ therapies. After the announcement, MorphoSys’ stock dropped almost 15%, while Constellation Pharmaceuticals’ stock jumped a whopping 67%.

MorphoSys specializes in generating optimized antibodies for therapeutics. Their lead therapeutic is Tafasitamab-cxix, which is being tested in two Phase 3 clinical trials for different lymphomas. The second therapeutic on their pipeline is Felzartamab, an anti-PLA2R antibody, currently in clinical trials for membranous nephropathy.

Most of their clinical programs are being developed with partnerships where MorphoSys receives royalties. This includes Tremfya, an anti-IL-23 antibody developed in collaboration with Janssen’s and approved for severe plaque psoriasis and psoriatic arthritis. In 2020, it generated more than $1.3 billion in sales.

Acquiring Constellation Pharmaceuticals

As per the terms of the agreement, MorphoSys will pay $1.7 billion in cash. That is $34 per share, and it is almost 70% higher than the price per share at the closing of the previous trading session. In return, MorphoSys will add two mid to late-stage therapeutics to its pipeline:

• Pelabresib (CPI-0610): a small molecule inhibitor of BET proteins that is currently in Phase 3 clinical trials for myelofibrosis.
• PI-0209: a second-generation ZH2 inhibitor currently in Phase 2 clinical trials for solid tumors and hematological cancers.

These will help cement MorphoSys’ position in hematological cancer therapeutics and allows them to break into solid tumors. Additionally, they will win expertise in the development of small molecules aim at altering epigenetic readers, writers, and erasers.

“This transformational acquisition represents a major step forward for MorphoSys as we bolster our position in hematology-oncology,” said Jean-Paul Kress, M.D., CEO of MorphoSys. “Both pelabresib and CPI-0209 have broad potential and we look forward to unlocking their full benefits for cancer patients. Our existing clinical and commercial expertise is ideally suited to accelerate Constellation’s programs, enabling us to maximize Constellation’s potential and bring these novel therapies to market. With Constellation’s high-potential product candidates, complementary R&D capabilities, and outstanding team, we can further advance our mission in the fight against cancer.”

Funding the Deal

MorphoSys also announced it entered a strategic partnership with Royalty Pharma to pay for the acquisition of Constellation. MorphoSys would receive $2.025 billion, which includes $1.425 billion in cash, $100 million in the purchase of shares after the completion of the transaction, $350 million in development funds, and up to $150 million in milestone payments.

In return, Royalty Pharma acquired the rights for several of MorphoSys’ future royalties and milestone payments in five of its biggest clinical programs. These include:

• 100% of future royalties on Tremfya.
• 80% of future royalties and 100% of milestone payments on otilimab, an anti-GMCSF antibody developed by GlaxoSmithKline and currently in Phase 3 clinical trials.
• 60% of future royalties of gantenerumab, an anti-amyloid-beta antibody developed by Roche and currently in Phase 3 clinical trials for Alzheimer’s disease.
• 3% of future net sales on both of Constellation’s therapeutics.

The deal is expected to close in the third quarter of 2021.

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Author

Daniel Ojeda