Merck and Seagen can't agree on a price for their rumored merger: Bloomberg

An anticipated merger between pharma giant Merck and cancer powerhouse Seagen has stalled because the companies can’t agree on a price, Bloomberg reports, citing sources familiar with the negotiations.

The potential deal—which was rumored to be valued at around $40 billion—remains on the table and could still happen soon, the new outlet reports. For now, neither company is commenting.

An acquisition of this kind typically comes with a significant premium. Seagen’s market cap is at $30.3 billion.

As rumors of a buyout have heated up over the last three months, Seagen’s shares have risen by 51%. Merck’s have remained relatively stable over the period.

An acquisition makes sense for both companies. Merck would broaden its thin portfolio with a bevy of cancer treatments to help alleviate concern over the company’s dependence on megablockbuster Keytruda. The versatile cancer treatment, which loses its patent protection in 2028, accounted for 36% of Merck’s $14.6 billion revenue figure in the second quarter.

As for Seagen, the timing is right as well. The company was thrown for a loop four months ago when co-founder, chairman and CEO Clay Siegall, Ph.D., was arrested for domestic violence and soon followed with his resignation.

In 24 years, Siegall built the company, formerly known as Seattle Genetics, into one of the world’s most successful biotechs. In short order, it became an industry leader in antibody-drug conjugate research. Seagen has earned FDA approvals for three cancer treatments since 2019 after its first nod for Adcetris in 2011.

An acquisition would likely become the largest in the biopharma industry since AbbVie’s $63 billion buyout of Allergan in 2019. The same year, Bristol Myers Squibb snapped up Celgene for $74 billion.

But the Federal Trade Commission (FTC) would likely scrutinize a deal between the companies. The antitrust enforcement unit has been tasked by the Biden administration to curb monopolies and to specifically target the pharma industry to combat high drug prices.

Whether the FTC has the legal standing to block a Merck-Seagen merger has been questioned by M&A experts. Another option for the regulator would be to require the companies to divest selected assets.

For a variety of reasons, Merck and Seagen appear to be a perfectly matched pair.

Over the last few years, Merck has talked about beefing up its thin pipeline through M&A. And, with the success of blockbuster drugs such as Keytruda and COVID antiviral Lagevrio, it has had plenty of cash to throw at the problem. Last year, Merck showed its interest in diversification with its $11.5 billion buyout of rare-disease specialist Acceleron.

During Merck’s second-quarter earnings call last month, CEO Rob Davis reiterated his interest and the company’s wherewithal for M&A scores.

“We have the capital and the balance sheet strength to go after anything that we feel is strategically important that brings that scientific innovation I mentioned that will allow us to continue to augment what we have in the pipeline,” Davis said.

In the second quarter, Seagen posted revenue of $498 million, a 28% increase from the same period last year. With the result, the company slightly boosted its 2022 revenue guidance to a range of $1.71 billion to $1.79 billion. 

Seagen has 16 drugs in its pipeline, with trials underway in 42 indications. The company also has begun construction of a 270,000 square foot manufacturing facility in nearby Everett, Washington.

Over the last few months, as Merck and Seagen considered the move, one of the key factors at play in determining the value of Seagen was impending data from a trial of its bladder cancer drug Padcev in combination with Merck’s Keytruda.

Last month, Seagen and its Padcev partner Astellas revealed positive results of the trial that set up a key first-line approval for the combo. More data from the trial are expected in two weeks at the European Society of Medical Oncology’s annual meeting.

According to SVB Securities analyst Josh Berens, a first-line nod would boost Padcev’s overall sales potential to $7.7 billion. It also would extend Keytruda’s patent protection in the indication beyond 2027.

This partnership and other past deals between the companies could draw the attention of the FTC. In 2020, Merck spent $600 million to buy into the development of Seagen’s breast cancer drug ladiratuzumab vedotin. Additionally, Seagen licensed commercial rights of its cancer treatment Tukysa to Merck in some areas of the world outside of the U.S. and Europe. Also with the package deal, Merck took a $1 billion stake in the company.

Also in recent months, Seagen's patent litigation versus Daiichi Sankyo played into the Merck deal considerations. In April, a Texas court granted a $41.8 million award to Seagen, ruling that its patents were infringed in Daiichi’s development of breast cancer drug Enhertu. But Daiichi prevailed in appeals earlier this month.

At the time, Seagen's interim CEO Roger Dansey, M.D., said the ruling "does not impact our existing business."