Merck Just Paid $6.7 Billion for a Company That Was Worth $300 Million Two Years Ago
Merck is paying $6.7 billion for a company whose stock traded at $2.65 just thirteen months ago. The reason: one CML drug with eye-popping early data and a Keytruda-sized hole that needs filling before 2028.
A Stock That Rose From the Dead
In May 2025, you could buy a share of Terns Pharmaceuticals for around $3. A bag of trail mix cost more. The company was a clinical-stage biotech with a modest pipeline and a market cap under $500 million. Nobody was writing love letters about it on Wall Street.
Fast forward thirteen months: Merck just agreed to buy Terns for $53 per share in cash. That's a roughly 1,900% gain from last year's low. The deal values Terns at approximately $6.7 billion, or about $5.7 billion after subtracting Terns' cash on hand.
So what happened between "cheaper than trail mix" and "worth more than most NFL teams"? One drug. One really promising drug.
The Drug That Launched a Billion-Dollar Bid
Terns' crown jewel is TERN-701, a pill designed to treat chronic myeloid leukemia (CML), a type of blood cancer. CML patients already have treatment options, including a drug called asciminib. But TERN-701's early clinical data has been turning heads.
In the Phase 1/2 CARDINAL trial, 75% of evaluable patients hit a key milestone called major molecular response (MMR) within 24 weeks. That's the kind of deep tumor suppression that doctors look for. Terns claims this response rate is two to three times higher than what asciminib showed in comparable studies, though cross-trial comparisons always come with caveats.
The safety profile has been clean so far, too. Dose escalation went up to 500 mg daily with no dose-limiting toxicities. Low rates of serious side effects. No blood pressure issues. For patients who've already burned through multiple prior treatments, that matters enormously.
The drug also earned FDA Orphan Drug Designation for CML back in 2024, and Terns was heading toward a pivotal trial in late 2026 or early 2027. Merck decided it didn't want to wait around and let someone else grab it first.
Why Merck Is Shopping Like It's Black Friday
Merck has a problem, and it's a $30 billion problem named .
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Keytruda
Keytruda is the world's best-selling cancer drug, pulling in nearly $30 billion in 2024 revenue alone. It's projected to peak somewhere around $33 to $35 billion by 2027 or 2028. But its core U.S. patent expires in December 2028, and Medicare price cuts under the Inflation Reduction Act kick in even sooner, starting January 2028.
Imagine your biggest client, the one paying most of your bills, telling you they're leaving in two years. That's Merck's situation. Analysts estimate Keytruda sales could drop roughly 19% by 2029 once biosimilars enter the U.S. market. Over five years, the company could be staring at around $18 billion in cumulative lost revenue across its expiring patents.
Merck's response? Go on an acquisition spree. The Terns deal is just the latest in a string of purchases: Harpoon Therapeutics for T-cell engagers, Modifi Biosciences for brain tumor therapies, Verona Pharma for respiratory drugs (roughly $10 billion), and more. The company has committed over $70 billion to R&D and U.S. investment, plus billions in external deals, all while developing a subcutaneous version of Keytruda (branded QLEX, approved September 2025) that effectively extends patent protection to around 2041 for that specific formulation.
The strategy isn't to find one Keytruda replacement. It's to build a portfolio of mid-sized blockbusters that collectively fill the gap. Think of it like replacing one superstar player with a deep bench of really good starters.
Wall Street's Verdict: Smart Deal, But Was It Too Cheap?
Analysts broadly like the move for Merck. BMO Capital Markets called it "one of the best deals" Merck has made in its current deal cycle. RBC Capital Markets called the deal "strategically sound and incrementally positive," praising Merck's willingness to pursue differentiated oncology assets early. Guggenheim, BofA, and Barclays all maintained buy-equivalent ratings on Merck with price targets between $132 and $140.
But the Terns side of the equation is more contentious.
The $53 offer represented just a 6% premium to Terns' prior-day closing price, one of the lowest same-day premiums for a public biotech acquisition since at least 2018. Measured against the 60-day volume-weighted average price, the premium was a more reasonable 31%. Still, several analysts felt Terns shareholders got shortchanged.
Leerink Partners argued the deal "vastly underestimates" TERN-701's potential, suggesting a fair price should have been meaningfully higher based on peak sales projections. William Blair initially flagged the possibility of a rival bidder stepping in. But that thesis lost steam when reports emerged that Merck had actually offered roughly $1 billion more at one point, then reduced the price after reviewing updated TERN-701 data.
That data revision is the quiet subplot here. It suggests Merck saw something in the numbers that gave it pause, enough leverage to negotiate down. William Blair eventually reversed course and said a competing bid was unlikely.
The $5.8 Billion Accounting Hit Nobody's Talking About
One detail buried in the deal filings: Merck plans to account for this as an asset acquisition, not a business combination. That distinction triggers an estimated $5.8 billion charge (about $2.35 per share) to both GAAP and non-GAAP earnings when the deal closes.
Why does this matter? Because it means TERN-701 hasn't generated enough revenue yet to qualify as a "business" under accounting rules. Merck is essentially paying $6.7 billion for a pipeline and taking a massive upfront hit to earnings. It's a bet on the future, plain and simple.
The deal closed on May 5, 2026, after roughly 86% of Terns shareholders tendered their shares. Terns stock was delisted from Nasdaq. The company that was worth pocket change just two years ago no longer exists as an independent entity.
The Bigger Picture
Merck's Terns acquisition isn't really about CML. It's about survival math.
When your franchise drug faces a patent cliff, you have two options: pray for a miracle or buy your way into the future. Merck is choosing the latter, aggressively. The company is reorganizing its Human Health business into separate internal units, launching new Keytruda formulations, and inking deals at a pace that would make a private equity shop blush.
Whether TERN-701 lives up to its early data is still an open question. The drug needs to prove itself in a pivotal trial against established CML therapies, and Merck's own decision to lower its initial offer hints at lingering uncertainty. But with peak sales estimates from bullish analysts reaching blockbuster territory by the early 2030s, the risk/reward math made sense.
For Terns shareholders who held through the lows, this is the kind of ending biotech investors dream about. For Merck, it's one more piece in a very expensive, very high-stakes puzzle. The clock to December 2028 is ticking, and they're building the ark as fast as they can.
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