German drug developer MorphoSys intends to sell itself in a pair of deals that will hand most of its assets to Novartis and one of its marketed medicines to longtime partner Incyte.

In the larger of the two deals, Novartis has agreed to acquire MorphoSys for €68 per share, about €2.7 billion, or $2.9 billion in total. The offer represents an 18% premium to MorphoSys’ €57.40 closing price Monday on the German stock exchange. While that figure is on the lower end of biopharmaceutical deal premiums, MorphoSys shares had surged Monday after a Reuters report revealed Novartis was closing in on an acquisition.

Meanwhile, biotechnology company Incyte is paying $25 million for rights to the lymphoma drug tafasitamab that it doesn’t already own. Incyte has been developing tafasitamab with MorphoSys since 2020. The drug is approved for a form of relapsed lymphoma and is in advanced testing for other blood malignancies. Following the deal, Incyte won’t have to make future milestone payments to MorphoSys or split profits.

For Novartis, the deal is something of a surprise. Reports over the last month had indicated the company was considering a much larger acquisition of heart drug developer Cytokinetics. But a buyout hasn’t materialized and, on a conference call last week, CEO Vas Narasimhan emphasized the company is focused on “bolt-on acquisitions in the sub $5 billion space.”

MorphoSys fits that description, but represents a gamble by Novartis on the future of a bone cancer drug called pelabresib. MorphoSys has been developing it for myelofibrosis, a condition that can cause severe anemia and related symptoms of weakness and fatigue. A combination of the drug and Incyte’s Jakafi succeeded in late-stage testing last year, improving markers of health important to myelofibrosis patients. In a statement, Novartis described its expectations the regimen could be “practice changing.”

Still, pelabresib faces questions. The drug didn’t significantly reduce symptom scores in testing, missing a key secondary study goal. Novartis pointed to “favorable trends” in symptom improvements and said a U.S. approval filing is expected later this year. Nonetheless, the results leave the drug’s regulatory prospects uncertain and make the timing of Novartis’ buyout a “potential risk,” wrote Leerink Partners analyst Andrew Berens, in a research note.

The Federal Trade Commission, which has been more aggressively scrutinizing pharmaceutical deals in recent years, could also challenge the deal given therapeutic “overlaps” and financial ties between MorphoSys and Novartis in myelofibrosis, he added.