Merck Just Spent $6.7 Billion on a Drug Most People Have Never Heard Of
Merck is paying $6.7 billion for Terns Pharmaceuticals and its early-stage leukemia drug. With Keytruda's $29.5 billion in annual sales about to face patent expiration, this is what urgency looks like in pharma.
Merck doesn't do small. The pharma giant just agreed to buy Terns Pharmaceuticals for $6.7 billion in all cash, paying $53 per share for a company whose lead drug hasn't even finished Phase 2 trials yet. That's like buying a restaurant based entirely on how good the appetizers were.
But when your biggest product is about to lose patent protection, you don't have the luxury of waiting for the full meal.
The Keytruda Clock Is Ticking
To understand why Merck is writing checks this big, you need to understand one number: $29.5 billion. That's how much Keytruda, Merck's blockbuster cancer immunotherapy, brought in during 2024. It accounts for roughly 46% of the company's entire total revenue.
Now here's the problem. Keytruda's primary U.S. patents expire in late 2028. Once that happens, biosimilars (cheaper copycat versions of the drug) flood in, and history tells us prices can erode by up to 80%.
Imagine earning half your paycheck from one client, and that client just told you they're leaving in two years. You'd be making some moves too.
So Why This Company?
Terns Pharmaceuticals isn't a household name. It's a clinical-stage biotech with a small team and a handful of drug candidates. But it has one thing Merck desperately wants: TERN-701.
TERN-701 is an oral drug designed to treat chronic myeloid leukemia, or CML, a type of blood cancer. CML patients already have treatment options (drugs called tyrosine kinase inhibitors, which block the protein that drives the cancer). But TERN-701 works differently from the existing options. Instead of targeting the protein's active site directly, it hits an alternative spot called the "allosteric" pocket. Think of it like picking a lock through the back door instead of the front.
That difference matters because many CML patients eventually stop responding to current treatments. Their cancer figures out how to resist the front-door approach. TERN-701's back-door mechanism could work where others fail, which is why the FDA granted it Orphan Drug Designation, a special status reserved for drugs targeting rare diseases.
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The drug is currently in the CARDINAL Phase 1/2 trial, and while detailed efficacy data hasn't been publicly disclosed yet, Merck apparently liked what it saw. Enough to pay a 42% premium over Terns' 90-day average stock price.
Merck's Shopping Spree Has a Pattern
This isn't an impulse buy. Merck CEO Rob Davis essentially previewed this strategy at the J.P. Morgan Healthcare Conference back in January 2026. He told investors the company had the balance sheet capacity for deals in the "multi-tens of billions of dollars" range and described 2025 as a "very busy year" for dealmaking.
He wasn't kidding. Just a few months before the Terns deal, Merck shelled out $9.2 billion for Cidara Therapeutics, picking up a long-acting influenza preventive. Before that, it acquired Verona Pharma for a marketed respiratory drug. The company is building an entirely new revenue base across oncology, respiratory, infectious disease, and more.
The overarching goal? Hit $70 billion in revenue from new growth drivers by the mid-2030s. Davis has framed the Keytruda patent expiration as a "hill, not a cliff," insisting Merck can grow through the loss rather than just survive it. Whether that's confidence or bravado depends on how these acquisitions pan out.
The Math Behind the Deal
Let's look at the numbers. Merck is paying $6.7 billion total, but Terns has cash on hand, making the net cost roughly $5.7 billion. Because TERN-701 is still in clinical trials (not yet generating revenue), Merck will account for this as an asset acquisition. That triggers an approximately $5.8 billion charge, or about $2.35 per share, hitting Merck's books in Q2 2026.
Analysts had mixed feelings. Pre-acquisition price targets for Terns stock ranged from $54 to $60 per share, meaning some analysts thought the company was worth more than what Merck offered. Barclays reiterated its Overweight rating on Merck with a $140 price target, while Morgan Stanley maintained a more cautious Equalweight stance at $109.
The deal is structured as a tender offer, meaning Merck needs a majority of Terns shareholders to agree to sell their shares. Combined with standard antitrust clearance, the acquisition is expected to close sometime in Q2 2026.
The Bigger Picture: Buying Growth Is Expensive
Merck isn't the only pharma company facing this problem. Across the industry, blockbuster drugs are losing exclusivity, and companies are racing to replace them. But Merck's situation is uniquely intense because of just how dominant Keytruda has been.
Consider everything hitting Merck between now and 2029: Januvia and Janumet face generic competition starting mid-2026. Lynparza's U.S. protection disappears in 2027. And then the big one, Keytruda, in late 2028. That's a lot of revenue to replace.
Merck isn't just relying on acquisitions, though. It secured FDA approval for a subcutaneous (injectable) version of Keytruda in September 2025, which could help retain patients even after biosimilars arrive. And its cancer vaccine partnership with Moderna (which halved melanoma relapse risk in a Phase 2b trial) remains one of the most exciting programs in oncology.
But internal R&D takes time, and time is exactly what Merck is running low on. Acquisitions like Terns let the company buy its way into new markets quickly, even if the price tag makes your eyes water.
What It Means for CML Patients
Beyond the boardroom strategy, there's a real patient story here. CML is a cancer that many people live with for years, cycling through treatments as resistance develops. If TERN-701 delivers on its promise of working through a novel mechanism, it could become a crucial option for patients who've run out of alternatives.
Merck's resources (its global sales force, manufacturing scale, and regulatory expertise) could accelerate TERN-701's path to a Phase 3 trial and, eventually, to pharmacy shelves. Terns had already licensed the drug to Hansoh for development in China, Taiwan, Hong Kong, and Macau; now Merck takes the wheel everywhere else.
The $6.7 billion question is whether TERN-701 works as well in larger trials as early data suggests. Clinical development is littered with drugs that looked great in Phase 1/2 and fell apart later. Merck is betting billions that this one won't. Given what's at stake with Keytruda's expiration looming, they probably felt they couldn't afford not to.
Clinical & Regulatory4 min read
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