Why Terns Pharmaceuticals Stock Rocked the Market in March

Terns Pharmaceuticals (NASDAQ: TERN) had a more memorable March than a great many other companies on U.S. stock exchanges. That's largely because it agreed to be bought out by a much larger peer, and the deal's premium helped crank Terns' share price more than 25% higher over the month.

Billions for a buyout

That earth-shaking event occurred on March 25. In a joint press release, Terns and global pharmaceutical giant Merck announced a definitive agreement under which Merck (via a subsidiary) will acquire the smaller company for $53 per share in cash. The pair said this represents a 42% premium over Terns' 90-day volume-weighted average price.

All told, wrote the companies, the deal is worth around $6.7 billion.

Image source: Getty Images.

The jewel in this crown is Tern's lead drug candidate, TERN-701. This medication is intended to treat certain patients with chronic myeloid Leukemia (CML) and has shown efficacy in clinical trials. Currently, it's being evaluated in a phase 1/2 trial and has received the Food and Drug Administration's (FDA) Orphan Drug Designation as a potential CML treatment.

Terns and Merck quoted the latter's CEO, Robert Davis, as saying that the acquisition "further diversifies and strengthens our position in oncology as we continue to look for opportunities to broaden our portfolio into other therapeutic areas."

The boards of directors of the two companies have approved the agreement. It's subject to a majority of Terns' shareholders tendering their stock, though given the well-in-the-double-digits premium, this is very likely. It's also subject to approval by the relevant regulatory bodies.

Terns and Merck expect the deal to close in the current quarter.

Some Terns followers felt Merck is getting quite a bargain. Just after the transaction was announced, Truist Securities analyst Kripa Devarakonda published a quick-reaction update on the biotech. She wrote that the agreement was a "steal" for the buyer, as she feels that if and when it comes to market, TERN-701 can be a powerful revenue driver.

Time to let go

I feel this acquisition is beneficial for both the buyer and seller. Merck, which will soon begin losing patent protection from its star drug Keytruda, gets a robust asset that bolsters its oncology efforts. At the same time, Terns' shareholders receive a very healthy premium -- despite what some commenters might think -- for unloading their stock.

With that anticipated closing date looming sooner rather than later, the story of Terns as an independent company is, at least for now, over. Investors who haven't done so yet should tender their shares, as there's almost no reason to hold on to them.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Truist Financial. The Motley Fool has a disclosure policy.