Morphic only had eyes for Eli Lilly. While some takeover tales have casts of Shakespearean breadth, Lilly’s $3.2 billion Morphic buyout is a simpler story of two companies gradually closing the gap between their positions before tying the knot.
The biotech set out the narrative in a July 19 financial regulatory filing. As Morphic explained, it entered into a confidentiality agreement with Lilly in connection with general business development discussions late in 2020. Nothing came from that early contact but the companies met from time to time in 2023, the year that Morphic published phase 2a data on MORF-057 in ulcerative colitis.
Morphic identified a September meeting, weeks before it published MORF-057 data that sank its stock, as the start of the sequence of events that led to the Lilly takeover. Morphic was trading at around $53 per share when it met Lilly in September 2023. By the time the companies met again the week of the J.P. Morgan conference in January, Morphic’s stock had slumped to around $28.
The companies discussed Morphic’s clinical programs at those two early meetings. Things started to get serious in April, when Lilly expressed an interest in exploring a strategic transaction. The companies met later in April, after which Lilly proposed buying Morphic for $46 a share.
Morphic considered the offer for a couple of days before telling Lilly the bid was too low. Seeking to close the valuation gap, the biotech proposed allowing Lilly to conduct additional limited due diligence to give it the information that could support a higher offer. Morphic spent May responding to requests for more information from Lilly and its financial adviser. Execs met for dinner at a conference during that time.
By late May, Lilly had seen enough to up its offer to $50. The next day, the Morphic board offered to give Lilly additional information to support a bid of at least $60. Lilly accepted the offer of more information, while warning that $60 was a high bar. After a series of meetings in June, Lilly raised its bid to $53, only for Morphic to again request $60.
Lilly made no requests for exclusivity in its offers of $46, $50 and $53 but Morphic’s narrative is devoid of attempts by the biotech to feel out potential rival bidders. Lilly asked Morphic to agree to exclusive talks when it dialed up its offer to $57 on June 24. Morphic suggested adding a contingent value right tied to the success of MORF-057 but Lilly declined, leading the biotech to agree to proceed at $57 a share.
At that point, Lilly and Morphic agreed to an exclusivity period ending on July 11 and got down to ironing out the final details. The two companies executed the agreement on July 7, positioning Lilly to become the new owner of an oral α4β7 inhibitor that could challenge Takeda’s injectable Entyvio.