Merck Explores Purchase of Biotech Seagen

A marketing agreement is seen as an alternative given the risk of a regulatory challenge to a takeover.

By guest authors Cara Lombardo, Miriam Gottfried and Dana Cimilluca from the Wall Street Journal. Jonathan D. Rockoff contributed to this article.

Merck MRK & Co. is eyeing a purchase of biotech Seagen Inc., SGEN  according to people familiar with the matter, a move that would beef up the pharmaceutical giant’s cancer-drug portfolio.

Talks have been under way for a while, and a deal isn’t imminent, the people said, cautioning that pulling one off could be tricky given the heightened risk of a regulatory challenge. It is possible the companies could end up striking a marketing agreement instead, some of the people said.

Other unnamed suitors are also eyeing Seagen, a perennially speculated takeover target, some of the people said.

If there is a deal, it would be significant. Seagen’s market value is around USD 30 billion following a 13 % rise in its shares Friday, June 17, 2022 after The Wall Street Journal reported on the talks.

New Jersey-based Merck has a market value of nearly $215 billion, its shares down less than 1% Friday. Acquiring Seagen would help bolster its lineup of cancer drugs, led by the blockbuster immunotherapy Keytruda, Merck’s top-selling product with USD 17.2 billion in sales last year.

Seagen helped pioneer a class of cancer therapy that works like a guided missile attacking tumors with toxins. By pinpointing their hit, the therapies, called antibody drug conjugates, can maximize the treatment’s benefits while minimizing side effects by not going off target. Among Seagen’s products are Adcetris, which had USD 1.4 billion in sales last year.

Seagen reported a total of USD 1.6 billion in sales last year.

The two companies have existing ties, including a collaboration to develop and commercialize a breast-cancer treatment. Under the agreement, Seagen and Merck have said they planned to test the experimental treatment in combination with Keytruda. Merck agreed to pay USD 600 million upfront to Seagen, while buying five million shares for USD 1 billion.

Merck also licenses one of Seagen’s drugs outside of the U.S.

Seagen was previously known as Seattle Genetics and is based in Washington state. Its co-founder Clay Siegall resigned as chief executive and chairman in May as the company was investigating his conduct following an allegation of domestic violence. The company has said he denied the allegations and informed it he was going through a divorce. Chief Medical Officer Roger Dansey has been acting as interim CEO while the company looks for a replacement.

It is not uncommon for a company that has been between leaders to draw takeover interest. Potential competition from other drugmakers could put pressure on Merck to make an offer for Seagen, though there is no guarantee it will. Merck hadn’t been expected to strike any deal before the fall.

Merck’s pursuit of Seagen follows an USD 11.5 billion deal to buy Acceleron Pharma Inc. last year and the spinoff of a collection of slower-growth assets, including its women’s health products and cholesterol treatments, into a new publicly traded company.

That move, announced in 2020, paved the way for Merck to focus on growth areas including cancer, vaccines and animal health. Merck CEO Robert Davis has said Merck wants to do deals, which analysts say the company needs to bolster its pipeline and portfolio, and to diversify beyond Keytruda in particular.

Healthcare is typically one of the busiest sectors when it comes to deal making. But deal volumes in the sector so far this year are roughly half of what they were in 2021, driven by declining stock prices, lofty valuations for targets and increased risk of antitrust scrutiny.

Roughly USD 160 billion worth of healthcare deals have been announced so far this year, compared with about $309 billion at this time last year, according to data provider Dealogic. Among the largest was Pfizer Inc.’s agreement to purchase the rest of Biohaven Pharmaceutical Holding Co. for roughly USD 11.6 billion in May.

Several large drugmakers facing revenue losses from aging patents are contemplating mergers as a way to offset those declines. Pfizer executives have said they want to find USD 25 billion in additional revenue from deals by 2030.

Merck’s longtime CEO Kenneth Frazier retired about a year ago after roughly a decade in the role. He was replaced by Mr. Davis, who had been chief financial officer since 2014. Analysts have expected one of Mr. Davis’ priorities to be deal making, given that patent protection for Keytruda will expire in 2028.

www.wsj.com