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Why MorphoSys Stock Sank This Week

By Keith Speights - Jun 3, 2021 at 7:07PM

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Investors weren't happy about the drugmaker's wheeling and dealing.

What happened

Shares of MorphoSys (MOR 3.73%) sank 11.5% this week as of the market close on Thursday. The decline stemmed from the German drugmaker's announcement on Wednesday that it plans to acquire Constellation Pharmaceuticals (CNST) for $1.7 billion. MorphoSys also said that it entered into a long-term strategic funding partnership with Royalty Pharma (RPRX 1.67%) in connection with its purchase of Constellation. 

So what

Investors could be concerned that MorphoSys is overpaying for Constellation. The price tag of the deal represents a steep premium to the previous trading level for the small biotech stock

There's also some risk involved with the transaction. Constellation's lead pipeline candidate is in phase 3 testing, while its only other pipeline program is in phase 2 testing. It's possible that these clinical studies won't be as successful as MorphoSys is counting on.

Two people shaking hands.

Image source: Getty Images.

On the other hand, some investors might not like MorphoSys' deal with Royalty Pharma. MorphoSys will receive an upfront payment of $1.425 billion and can access another $350 million in development funding bonds. Combined, that's enough to fund its acquisition of Constellation.

However, in exchange, MorphoSys will hand over its rights to royalties on sales of Tremfya, a drug approved for treating plaque psoriasis and psoriatic arthritis that's marketed by Johnson & Johnson. Royalty Pharma will also receive 80% of MorphoSys' future royalties and 100% of its future milestone payments related to otilimab, which was licensed to GlaxoSmithKline

That's not all. MorphoSys also will assign to Royalty Pharma 60% of its future royalties on gantenerumab, an experimental Alzheimer's disease drug licensed to Roche. And Royalty Pharma will claim 3% of any future net sales of Constellation's two clinical programs -- pelabresib and CPI-0209.

Now what

MorphoSys thinks that its acquisition of Constellation will close in the third quarter of 2021. Once the deal is finalized, Royalty Pharma will make an equity investment of $100 million in the German drugmaker.

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Stocks Mentioned

MorphoSys AG Stock Quote
MorphoSys AG
MOR
$5.01 (3.73%) $0.18
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$179.52 (1.13%) $2.01
Roche Holding AG Stock Quote
Roche Holding AG
RHHBY
$42.01 (0.72%) $0.30
GSK Stock Quote
GSK
GSK
$43.75 (0.51%) $0.22
Constellation Pharmaceuticals, Inc. Stock Quote
Constellation Pharmaceuticals, Inc.
CNST
Royalty Pharma plc Stock Quote
Royalty Pharma plc
RPRX
$42.74 (1.67%) $0.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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