How Lilly wooed Massachusetts biotech with flurry of offers

It was a mating dance that lasted more than three years and involved a flurry of back-and-forth negotiations.

At the end, Indianapolis-based Eli Lilly and Co. wound up buying a Waltham, Massachusetts-based biotech developing treatments for inflammatory bowel disease for $3.2 billion. The two companies issued a joint release earlier this month.

The agreement for Lilly to buy Morphic Holding Inc., a nine-year-old, publicly traded company, is a significant moment. It’s the largest deal for Lilly since 2019, when it bought Connecticut-based Loxo Oncology for $8 billion, still Lilly’s biggest acquisition ever.

The purchase of Morphic gives Lilly access to a class of drug known as oral integrin therapies to treat autoimmune diseases, pulmonary hypertensive diseases, fibrotic diseases and cancer.

The two companies announced the deal 10 weeks after the Indianapolis-based pharmaceutical giant dangled its first offer, according to a blow-by-blow account contained in new regulatory filings by the two companies.

But the two companies were not strangers. Their relationship dates at least as far back as Dec. 30, 2020, when they entered into a confidentiality agreement “in connection with general business development discussions,” according to the filings.

The relationship, however, took time to develop. “From time to time in 2023 and early 2024, representatives of Morphic met with Lilly to discuss Morphic’s clinical programs and product candidates, and the  possibility of a collaboration,” the filings said.

Things got serious on April 2, 2024, when Lilly officials contacted Morphic to indicate that Lilly was “interested in exploring a strategic transaction” with Morphic.

Three weeks later, representatives of Lilly met with members of Morphic’s senior management for an overview of Morphic’s business, clinical programs, its lead candidate for a bowel disease treatment and market opportunities.

Then, on April 29, Lilly made its opening pitch: $46 a share, or about $2.3 billion, representing a 64% premium to Morphic’s closing price the previous trading day.

Morphic fouled off that pitch, claiming it “did not represent sufficient value” for the company to transact.

Following that was a flurry meetings and communications back and forth, and Lilly tried to get more information on Morphic’s clinical programs and market candidates.

On May 28, roughly a month after its first offer, Lilly served up its second: $50 a share, representing a 62% premium to the closing price of Morphic stock on May 24.

And again, Morphic lobbed the offer back, saying its board would be willing to provide certain additional due diligence information in order to support Lilly increasing its proposal to at least $60 a share.

For Lilly, that was a steep price, and through its financial advisers, told Morphic that increasing its proposal to $60 “was a high bar.”

Over the next few weeks, leaders of both companies met numerous times to discuss chemistry, manufacturing, clinical and regulatory matters, data and clinical trials, according to highlights of the meetings laid out in the filings.

Translation: the two sides were still talking—and frequently—a promising sign during advanced M&A discussions.

On June 21, Lilly spoke with top officials at Morphic and said they would be willing to go to $53 a share, a 93% premium to the closing price of Morphic’s stock on June 20.

But again, Morphic officials responded with a $60 counteroffer.

On June 24, Lilly officials said they would be willing to pay $57 a share, but “did not have flexibility above this price.” The same day, Morphic accepted the offer.

On July 5, Lilly’s board approved the agreement, structured as a merger. Two days later, the companies executed the merger agreement. On July 8, they announced the deal in a press release before the markets opened.

But whether Morphic’s senior management team—or any other employees—will keep their jobs is an open question.

According to the filings, Lilly has not “had any discussions with, or made any offers to, any individual Morphic director or officer regarding employment with Lilly following the closing of this offer.”