Merck pays $6.7 billion for Terns, betting on early leukemia data to shore up post-Keytruda pipeline

When your best drug makes $30 billion a year and its patent expires in two, you buy. Merck announced March 25 it will acquire Terns Pharmaceuticals for $6.7 billion, a bet that an early-stage leukemia drug can help fill the hole Keytruda will leave when U.S. exclusivity ends in 2028.

Merck, known as MSD outside the U.S., will pay $53 per share in cash — a 31 percent premium to Terns 60-day volume-weighted average price, but only 6 percent above its last close before the deal leaked. The gap tells you something: Merck moved fast, catching the stock after a six-month, sixfold rally driven by oncology speculation. The deal is expected to close in the second quarter of 2026 and will carry a one-time charge of approximately $5.8 billion.

The asset is TERN-701, a novel oral allosteric tyrosine kinase inhibitor targeting chronic myeloid leukemia. Unlike older CML drugs that block the ATP-binding site of the BCR::ABL1 fusion protein — the mechanism behind Gleevec, Bosulif, and Sprycel — TERN-701 binds the ABL myristoyl pocket, a regulatory region of the protein that acts as an on-off switch. By forcing the pocket closed, it keeps BCR::ABL1 inactive. The first approved drug in this class was Novartis Scemblix, cleared in 2021; TERN-701 is a second-generation entrant that, if approved, would enter a market Scemblix already validated with $1.285 billion in 2025 sales. The FDA granted TERN-701 Orphan Drug Designation in March 2024.

The Phase 1/2 CARDINAL trial (NCT06163430) completed dose escalation in January 2025 with no dose-limiting toxicities observed up to 500 milligrams daily. Dose expansion launched in April 2025, comparing 320mg and 500mg cohorts of roughly 40 patients each. In January 2026, Terns added a new arm for patients whose leukemia carries resistance mutations, including T315I — one of the most feared in CML because it renders most existing TKIs useless. Updated data is expected in the second half of 2026.

At 24 weeks, patients in the dose escalation cohorts showed a major molecular response rate of 64 to 75 percent — meaning the BCR::ABL1 transcript had fallen to less than 0.1 percent of baseline in the majority of heavily pretreated participants. That benchmark matters in CML: patients who reach and maintain MMR have significantly lower rates of disease progression. Major molecular response is not a cure, but it is the next best thing for people who will otherwise take a TKI every day for decades.

Among 10 patients previously treated with Scemblix — Novartis allosteric TKI approved in October 2021 that made $1.285 billion in 2025 — TERN-701 achieved 43 percent major molecular response. The data also showed no food effect and no clinically significant drug-drug interactions, a meaningful advantage over Scemblix, which requires patients to fast before dosing.

William Blair analysts called TERN-701 clinical profile unprecedented and noted that Merck offer does not fully capture its potential, leaving room for a competing bid. BMO Capital Markets called it one of the best deals Merck has made since the Keytruda loss-of-exclusivity spree began. RBC pegged peak sales above $4 billion; Leerink partners noted some investors wanted a higher price. The disagreement among analysts is itself a data point — the upside scenario is large, and nobody is sure the deal is done at the right number.

There is a structural reason Merck wanted this deal structured this way, and it has a name: the Inflation Reduction Act. TERN-701 was developed by Terns, not Merck, which means it arrived via acquisition rather than internal pipeline development. Merck CFO Caroline Litchfield said on the company earnings call that she expects the drug would not be subject to IRA Medicare price negotiation as a result. That framing — management expectation, not statutory guarantee — matters. IRA negotiation eligibility is keyed to years since FDA approval, not acquisition structure, and the law does not explicitly exclude drugs simply because they changed hands. In practice, if TERN-701 is approved and reaches the market while still early in its lifecycle, it may face different pressure than an in-house asset that has been in the program for years. Whether the IRA apparatus, still being shaped by CMS guidance, treats a recently acquired NME the same as an internally developed one remains a live question. Merck is betting the answer is no.

The human story is Terns pivot. Five months before this acquisition, in August 2025, Terns announced it would partner off its metabolic assets — TERN-501, a THR-beta agonist for MASH, and TERN-601, an oral GLP-1 — because the obesity field had become oversaturated. The company had been built as a NASH and obesity play. The stock had already climbed sharply on oncology data before the August pivot. By the time Merck came knocking, Terns had already made the case that its future was hematology, not metabolism. CEO Amy Burroughs, who has run Terns since 2021, steered the company through that pivot and into a $6.7 billion exit.

The deal is the third $1 billion-plus acquisition Merck has made in under a year: $10 billion for Verona Pharma, $9.2 billion for Cidara Therapeutics, and now $6.7 billion for Terns. Acceleron, at $11.5 billion, was a 2021 transaction and belongs to a different chapter of Merck's deal history. The current spree is about hematology and respiratory assets built to survive the Keytruda cliff. That is not a normal acquisition pace for a company that generates $30 billion in annual revenue from a single drug. It is the sound of a company aware of its own cliff.

What to watch: whether AbbVie or Bristol Myers Squibb — the other large hematology players with IRA exposure — make a competing bid. Whether updated CARDINAL data in the second half of 2026 validates the William Blair thesis. And whether TERN-701 resistance mutation cohort produces results good enough to suggest it can be used earlier in the treatment pathway, not just as a last resort. The current data is in heavily pretreated patients. If it moves up — to second line, or even newly diagnosed — the market model gets significantly larger, and the $6.7 billion price tag starts to look cheap.

Terns is based in Foster City, California. The deal requires standard regulatory approvals and is expected to close in Q2 2026.