Wall Street downgrades Terns Pharmaceuticals as Merck swoops on $6.7bn cancer drug bet

A wave of analyst downgrades has hit Terns Pharmaceuticals after Merck agreed to acquire the US biotech for $6.7bn, ending one of the most striking small-cap rallies of the past year and underlining the willingness of large pharmaceutical groups to pay heavily for differentiated oncology assets.

Oppenheimer cut its rating on the Foster City, California-based company to "perform" from "outperform" on Sunday and removed its previous $58 price target, citing the expected near-term completion of the Merck deal. The downgrade follows similar moves by William Blair, Truist Securities, Barclays and Citizens, all of which have pulled back on the stock following the announcement of the agreement, with several aligning their targets to the $53 cash offer price. Mizuho retained a neutral stance with a price target of $53.

Merck's offer of $53 per share in cash represents a substantial premium to recent trading levels, although the stock has rallied so aggressively over the past 12 months — gaining 1,711 per cent — that it was already trading close to its 52-week high of $53.19 by the time the deal was announced, leaving limited residual upside. The transaction is expected to close in the second quarter of 2026 following the expiry of the Hart-Scott-Rodino antitrust waiting period in the US.

The catalyst for both the rally and the takeover is TERN-701, an experimental therapy for chronic myeloid leukaemia, a blood cancer where Terns has positioned its candidate as a potential answer for patients underserved by existing treatment regimens. Updated clinical data over the past year drew a wave of investor enthusiasm and triggered the stock's parabolic move, attracting wider sell-side attention and ultimately culminating in Merck's bid.

Oppenheimer said the Merck transaction "validates the potential of TERN-701 to address underserved chronic myeloid leukemia patients", and noted the firm had previously held a bullish view on the drug's differentiated profile and commercial prospects. The broker said it expected the shares to continue trading largely on deal dynamics from here, with limited scope for fundamental drivers to push the stock materially above the agreed price.

The downgrade chorus reflects a familiar pattern in biotech M&A. Once a binding cash agreement is in place at a meaningful premium, sell-side analysts typically retreat from "outperform" or "buy" calls, given that the upside has effectively been capped. William Blair flagged the low likelihood of a higher bid emerging, a view echoed across the broader analyst community.

For Merck, the deal continues a multibillion-dollar push to broaden its oncology pipeline beyond the dominant Keytruda franchise, ahead of the loss of US patent exclusivity on the cancer immunotherapy at the end of the decade. Acquisitions of differentiated, late-stage assets — particularly those targeting underserved patient populations — have become a strategic priority for the US group, alongside in-house development efforts.