Merck is now in advanced talks to buy cancer biotech Seagen for roughly $40 billion, according to reports that sent SGEN stock higher Thursday.
The Wall Street Journal reported that Merck hopes to sign the deal on or before the company's quarterly earnings announcement, set for July 28. The deal would value Seagen above $200 a share. On today's stock market, SGEN stock jumped 1.6% to 177.95. Merck stock sank a fraction to 93.01.
A takeover of this magnitude could further prod biotech stocks, which have quietly risen over the last three weeks.
Most Trusted Financial Companies — Take A Survey And Win A $50 Amazon Gift Card
"The sector has started to show signs of a rebound, and we believe several key data events expected in the coming months, as well as any potential pickup in (mergers and acquisitions), will likely be pivotal in determining whether investor risk appetite will increase and help sustain the recovery," RBC Capital Markets analyst Brian Abrahams said in a report to clients, noting the potential Merck-Seagen tie-up.
SGEN Stock: Could FTC Block A Deal?
A deal between Merck and Seagen would marry two already big players in cancer drugs. Merck sells Keytruda, a blockbuster immuno-oncology treatment for a myriad of cancers. Seagen makes antibody drug conjugates, or ADCs. These drugs target toxic chemicals directly at tumors, mitigating the fallout for healthy surrounding tissue. Its biggest drug is a blood cancer medicine called Adcetris.
One key point in the recent Merck-Seagen saga has involved the potential for U.S. regulators to block the deal, citing antitrust issues.
"It is unlikely the (Federal Trade Commission) will attempt to block the merger, based on a lack of substantial direct competition between the entities' 'crown jewel' assets," SVB Securities analyst Andrew Berens said in his note to clients, citing an antitrust attorney specialized in health care. "However, as a larger deal, the (attorney) said investors should expect FTC to request additional information from the companies."
SGEN stock has run up as rumors emerged Merck could acquire it. Shares are now forming a cup base with a buy point at 192.89, according to MarketSmith.com. Today, Seagen has a market cap north of $32 billion, in comparison with Merck's $235 billion cap.
CEO Search Underway
The potential deal would come at an odd time for Seagen, which is still looking for a new chief executive after Clay Siegall resigned following his domestic violence arrest.
But recent clinical study news out of the company has been positive. In a midstage test, Seagen added an ADC called Tukysa to Roche's Herceptin. That led to durable responses in patients with colon cancer. But SGEN stock fell almost 2% after the announcement.
Still, SVB Securities' Berens said the results could position Seagen's combination to become the standard of care for these patients. He estimates peak worldwide sales of $542 million. Berens has an outperform rating on SGEN stock.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
