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2022-07-08| M&A

Merck Reportedly Interested in Potential $40 Billion SeaGen Buyout

by Reed Slater
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According to a couple of undisclosed sources close to the matter, New Jersey-based Merck & Co. is in advanced talks with Seagen Inc. about a potential $40 billion purchase of the Seattle-based company. Though nothing is set in stone, one of the sources says Merck offered $200 per share to purchase Seagen, a 15% premium on the stock’s Wednesday close. If successful, the deal would be the largest under the newer and stricter Federal Trade Commission. 

 

What Merck Has To Gain From Seagen Purchase

 

Bolstered by a successful history, Merck is in an enviable position with dozens of approved products contributing to its revenue. One of its most successful products, Keytruda, is an oncology drug approved for nearly 20 indications. Though it continues to bring prosperity to the company, Keytruda’s patent will expire in 2028, forcing the company to think about the future of its oncology sector.

Seagen could be a solution to some of Merck’s future concerns. With four approved oncology therapies on the market and more than a dozen others in development, Seagen could be a solid acquisition for Merck. Though pricey, acquiring a company with a proven track record and four approved treatments could be safer than going with a younger, less stable company. 

Amidst an unfavorable economic landscape, Seagen has faired much better than some of its competitors. After Seagen’s chief executive officer Clay Siegall was arrested in April for domestic violence, the company’s stock has risen 47%. Siegall resigned from his position in May, and investors have since suspected that Seagen may be more willing to sell without one of the original co-founders at the helm. 

Seagen’s revenue has considerably increased yearly, driven by its four approved therapies. In 2021 the four drugs accounted for a 38% increase over 2020 sales. Altogether, the four drugs brought in $1.38 billion for Seagen last year. 

Merck has close connections with Seagen, co-developing one of Seagen’s approved cancer therapies. The two worked together on Tukysa, which gained FDA approval in 2020 and has since brought in over $450 million. 

The two companies have some close ties and with Merck planning for its future without Keytruda’s marketing exclusivity, buying Seagen looks like a mutually beneficial option. A deal looks more likely so long as both companies can agree on terms and if the Federal Trade Commission (FTC) does not have reason to intervene with its recently established Multilateral Pharmaceutical Merger Task Force. 

Related Article: As Private Equity Sale Becomes Less Likely, Novartis May Gravitate Towards Sandoz Spinoff

 

Challenges in a Deal of This Magnitude

 

If Merck does find a way to buy Seagen for upwards of $40 billion, it would be one of the largest pharmaceutical deals in US history. A deal this big could come with a host of problems not common to smaller merger and acquisition deals. 

The biggest potential issue facing the deal is the FTC’s opinion on the matter, which its Multilateral Pharmaceutical Merger Task Force (MPMT) will certainly play a role in if the deal develops further. The FTC established the MPMT in March of last year to review and analyze mergers and acquisitions to address any issues with market competitiveness. 

More specifically, the MPMT is keeping an eye on the consolidation of large biopharma companies to prevent the potential for unwarranted price hikes in drugs. This consideration could be an issue in Merck’s quest to acquire Seagen because Keytruda is one of the top-selling oncology drugs in the US, and the potential purchase would result in the acquisition of four more oncology therapies. Having control over so many successful oncology therapies could raise red flags for the FTC and MPMT.

Other huge pharma deals like AstraZeneca’s 2020 acquisition of Alexion for $39 billion did not have the same FTC influence that Merck and Seagen may face. The same goes for Abbvie’s $63 billion purchase of Allergan in 2019. FDA Commissioner Scott Gottlieb says the new FTC has proven to be much more aggressive than it has been in the past. The FTC might not be the deciding factor for Merck and Seagen, but the agency will certainly have a significant influence on the deal’s proceedings. 

With Keytruda’s patent expiration creeping closer, Seagen appears to be a solid fit for Merck’s future. The massive $40 billion deal would be historic for both companies and the industry as a whole. The world will closely monitor how 2022’s biggest potential deal unfolds. 

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