Nearly two-thirds of bladder cancer patients responded to a combination treatment from Seagen and Merck, leading SGEN stock to jump Tuesday.
Seagen and Japan's Astellas Pharma added their drug, Padcev, to Merck's Keytruda in previously untreated patients with an advanced form of bladder cancer. After treatment, 64.5% of patients responded, meaning their tumors shrank or disappeared entirely.
RBC Capital Markets analyst Gregory Renza called the result a "checks-the-box" event for Seagen. Rumors suggest Merck could be eyeing Seagen for a buyout at around $40 billion. But insiders have told the Wall Street Journal that Merck was waiting for the bladder cancer results and an outcome in a patent battle before putting pen to paper.
"In the context for Seagen now in play and as a reported acquisition target, we view this development as a 'checks-the-box' event with overall positive top-line results for the (study) supporting regulatory discussions and potential filings," Renza said in a note to clients.
On today's stock market, SGEN stock rose 2.7% to 177.51. Merck stock lifted 0.9% to 91.34.
SGEN Stock: Seeking Speedy Approval?
The companies tested their combination in patients ineligible for a form of chemotherapy. Astellas' head of development for therapeutic areas, Ahsan Arozullah, estimates about half of patient fall into this category.
"We intend to discuss (the study's) results with regulatory authorities as we seek to develop a new first-line treatment combination for these patients," Arozullah said in a written statement. First-line means the treatment is the first option for patients with a new diagnosis.
SVB Securities analyst Andrew Berens said the results met his 60% bar for effectiveness.
But Seagen, Astellas and Merck kept a tight lid on additional data. The companies also tested Padcev alone in another group, but didn't unveil those results. Further, it's unclear how long patients will respond to the regimen. Patients still responded at the data cutoff, Berens said in his note to clients.
"Despite a paucity of key data, we think the stock will be up as some investors viewed these results as gating for the alleged Merck deal, although we think Merck probably had access to much of the open-label data previously," he said. "We see the expected arbitration decision as more unpredictable and a larger bottleneck for deal advancement until the determination/potential award is disclosed."
Still, Berens has an outperform rating on SGEN stock.
Growing Padcev Sales
Berens says the results could help the companies ask the Food and Drug Administration for a speedy accelerated approval. He sees a ceiling of $7.7 billion in sales from the Padcev-Keytruda combination in the U.S. and Europe in bladder cancer treatment.
Needham analyst Ami Fadia offered a similar view.
"We note that a positive study was likely largely expected, given the data from (a previous study) and the meaningful step-up in Padcev revenue implied in consensus for 2023 and 2024, but today's release removes some residual fear of a negative finding, so we believe the stock could make a small positive move today," she said in a report.
Berens and Fadia noted safety details were sparse, but in line with the drugs' profiles so far. Fadia kept her buy rating and 180 price target on SGEN stock. She estimates adding this population of chemotherapy ineligible bladder cancer patients could double Padcev's market.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
