Merck said to near $40B deal to buy Seagen. But will FTC rain on their parade?

Weeks after speculation surrounding a potential Merck acquisition of Seagen first surfaced, the two companies are now reportedly nearing a deal that could be the biopharma world’s largest since 2020—unless antitrust regulators intervene.

Merck is in advanced talks to buy Seagen for about $40 billion or more, or above $200 per share, The Wall Street Journal reports, citing people familiar with the matter.

The companies hope to tie the knot on or before Merck’s second-quarter earnings report, which is set for July 28, the newspaper reports.

Previously, analysts at SVB Securities modeled a $215-per-share sticker, which would value a potential buyout at about $39.5 billion. Seagen’s stock reached an all-time high of about $212 back in the fall of 2020 shortly after Merck signed up for the Seattle biotech’s LIV-1-targeting antibody-drug conjugates (ADCs) and made an investment of $1 billion for 5 million Seagen shares.

WSJ first reported on the new deal talks mid-June, and Seagen’s stock price has jumped from below $150 back then to $175 at Wednesday’s close.

If Merck eventually buys Seagen for $40 billion, it would be the largest biopharma transaction involving a drugmaker in about three years after AbbVie’s June 2019 announcement to purchase Allergan for $63 billion. It would edge out AstraZeneca’s $39 billion acquisition of rare disease specialist Alexion last year. And it would be much larger than Gilead Sciences’ $21 billion takeover of fellow ADC player Immunomedics in 2020.

The buyout, if finalized, would also be the first biopharma deal of this scale under the current U.S. Federal Trade Commission (FTC). The now Democrat-led antitrust watchdog has threatened to crack down on large pharma M&A deals, and that could be a hurdle for Merck and Seagen.

“I think the big question right now is going to be, how does the FTC look at this?” former FDA Commissioner Scott Gottlieb, M.D., said of the Merck-Seagen deal report Thursday during an interview with CNBC’s "Squawk Box."

Last March, the FTC partnered up with international antitrust authorities to form a multilateral pharmaceutical merger task force dedicated to addressing anticompetition issues in pharma M&As.

The current FTC has indicated that further consolidation among large biopharma firms in general deserves a more careful look, drawing a link between pharma mergers and rising drug prices. It's looking beyond simple product overlaps in its reviews, officials have said.

That could be bad news for a potential combination between Merck and Seagen, because Merck is looking to bolster its already strong oncology offerings. The New Jersey pharma already has the world’s best-selling cancer drug, PD-1 inhibitor Keytruda, and is looking to diversify by tapping into Seagen’s industry-leading ADC technology.

So, the question is, will the FTC be willing to allow Merck additional power in oncology in general, which may give the company additional say in drug pricing negotiations? With all the attention fanned by reports of the deal talks, the FTC might already be circling a possible Merck-Seagen union.