MorphoSys inks not one but 2 billion-dollar deals including Constellation Pharma buy valued at $1.7B

It’s a meteor shower of billion-dollar deals for MorphoSys today. The cancer- and autoimmune-disease-focused biotech will buy Constellation Pharmaceuticals in a deal valued at $1.7 billion.

But that’s not all: MorphoSys has also inked a funding partnership with Royalty Pharma worth a staggering $1.425 billion upfront that will "anchor" the Constellation deal, MorphoSys CEO Jean-Paul Kress, M.D., told investors on a conference call early this morning. 

MorphoSys will acquire epigenetics biotech Constellation for $34 a share in a transaction that has been unanimously approved by the boards of both companies. The deal is expected to close in the third quarter.

Constellation’s two lead assets are the BET inhibitor pelabresib and CPI-0209, a EZH2 inhibitor. Both are in mid- to late-stage clinical trials in hematological and solid tumors. Pelabresib is being tested in phase 3 clinical trials for the bone marrow cancer myelofibrosis, which disrupts the production of blood cells. The company has other preclinical compounds in the pipeline as well.

“This transformational acquisition represents a major step forward for MorphoSys as we bolster our position in hematology-oncology,” said Kress in a statement. “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.”

Constellation President and CEO Jigar Raythatha said becoming part of MorphoSys will create an industry leader with a rich R&D pipeline and the financial strength to advance targets.

“Our shareholders will receive attractive, immediate and certain cash value for their shares, the employees of the combined entity will have a broader platform and greater opportunities, and patients will potentially benefit from innovative new therapies that address serious unmet needs,” Raythatha said.

Once the Constellation deal closes, MorphoSys will begin to draw on that mega deal with Royalty Pharma.

The long-term strategic funding pact will see Royalty Pharma pay a $1.425 billion upfront fee to support MorphoSys’ growth strategy and aid with financing of the Constellation deal.

“In acquiring Constellation, MorphoSys has a significant opportunity to drive clinical and commercial success,” said Royalty Pharma CEO Pablo Legorreta. “We are excited to join forces to further advance the combined company’s pipeline and positively impact patients.”

MorphoSys will also have access to $350 million in development funding bonds that can be drawn on over a one-year period. Another $150 million in milestone payments will be up for grabs based on certain clinical, regulatory and commercial milestones for Constellation’s pelabresib and MorphoSys’ otilimab and gantenerumab.

In return, Royalty Pharma will receive full rights to the royalties MorphoSys receives on sales of plaque psoriasis and psoriatic arthritis drug Tremfya, which is marketed by Johnson & Johnson’s Janssen unit. Similar rights were granted for future drug sales of other MorphoSys products, including Constellation’s pipeline.

“We are thrilled to announce this partnership with Royalty Pharma, which is providing more than $2 billion to fuel our proprietary drug development and commercialization,” Kress said. “We are confident they will be a strong financial partner for years to come, enabling us to fund our growth and—with the addition of Constellation’s innovative pipeline—bring our attractive new candidates to patients.”

RELATED: Dumped by Roche, Constellation celebrates end of an option deal

Analysts were not as convinced that Constellation's technology was a strong buy, given previous setbacks with the science behind epigenetics.

Epigenetics is the study of how behaviors and the environment can change the way your genes work, according to the Centers for Disease Control and Prevention. Epigenetic changes do not change the actual DNA sequence, but instead how the body reads them. Genetic alterations can change the way a protein is made, whereas epigenetic changes turn genes on and off, in a way. 

Genentech passed over an option to acquire the company back in 2015 and sent Constellation off on its own. The company laid off staff and went on to collect financings to keep afloat over the years.

But MorphoSys is certain that Constellation's second-generation product will be a strong competitor to products already on the market. And Constellation has plenty of Big Pharmas breathing down its neck, including AstraZeneca and Bristol Myers Squibb, Malte Peters, M.D., MorphoSys' chief R&D officer, said on the call. 

"The data that we've seen make us confident that we have actually highly competitive molecules in our pipeline now," said Peters.

Kress said MorphoSys had been looking for acquisition targets for a long time, but Constellation had always been in the back of their minds.

"We grew very big on them," he said. "We looked at a lot of things. There were not many things that came remotely close to [Constellation]."

Once the deal closes, MorphoSys will remain headquartered in Munich, with a commercial and R&D presence in Boston.