ABBV - Eli Lilly Targets IBD Takes Calculated Gamble With $3.2bn Morphic Deal

2024-07-08 12:30:52 ET

Summary

• Eli Lilly and Company is set to acquire Morphic Holding for $3.2bn. Morphic is focused on autoimmune disease drugs.
• Morphic's MORF-057 has a similar MoA to Takeda's ~$5bn per annum selling drug entyvio, but it is orally available, unlike the injectable entyvio.
• Study data for MORF-057 has been somewhat mixed, and Wall Street seemed to have lost faith - Lilly, however, is paying an >85% premium to the traded price for Morphic.
• Thanks to the >$50bn per annum revenue promise of its wonder-drug tirzepatide and the double-digit billion potential of Alzheimer's drug Kisunla, Lilly can afford to make more speculative M&A deals than rival pharmas.
• The Morphic deal strikes me as a calculated gamble that could be unsuccessful or deliver a $5bn per annum drug. In the latter scenario, it would help Lilly's revenues may exceed $100bn in time and perhaps contribute to a trillion-dollar company valuation.

Investment Overview

Eli Lilly and Company ( LLY ), the world's largest pharmaceutical company by market cap, announced today that it is set to acquire Morphic Holding, Inc. ( MORF ), the Waltham, Massachusetts-based, autoimmune disease-focused drug developer, for $57 per share, valuing the deal at $3.2bn.

Indianapolis-based Lilly has seen its stock price rise in value by an astonishing >700% across the past five years, thanks largely to the promise and potential of its Glucagon-like peptide-1 ("GLP-1") and glucose-dependent insulinotropic polypeptide ("GIP") dual agonist drug tirzepatide, which has been lauded for its ability to help patients lose weight (a mean of ~27% weight loss at 84 weeks in its pivotal Surmount study), is already approved to treat Type 2 diabetes and obesity, and which analysts believe will generate >$50bn in annual sales at its peak....

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