Nothing to Seagen here: Merck remains mum on merger

Without a single word in its press release about Seagen—the powerful biotech it has reportedly been targeting for a buyout over the last several weeks—Merck revealed second-quarter earnings on Thursday that showed exactly why the top-heavy company is so anxious to make a transformational deal.

With Keytruda generating $5.3 billion in the second quarter, the versatile cancer juggernaut accounted for 36% of the company’s revenue figure of $14.6 billion.

Thus the interest Merck has in deepening its thin portfolio and why Seagen—which already does lots of business with the New Jersey-based pharma giant—is in play for a merger. The Seattle biotech has four approved cancer drugs, 12 others in its pipeline and is investigating treatments in 42 different indications.

The closest Merck came to addressing the elephant in the room came 42 minutes into a conference call when CEO Rob Davis was asked how the Keytruda-centric company could pull off an M&A deal with another firm that was singularly focused on cancer treatments and do it under the watchful eyes of the Federal Trade Commission.   

“Oncology continues to be an incredibly competitive field and importantly, it’s not monolithic,” Davis said. “You have to look tumor by tumor and even modalities, whether it’s (immuno-oncology) or targeted therapies.”

Early in his tenure, President Joe Biden made antitrust enforcement a priority and a large part of his push has been focused on the pharma industry as he attempts to rein in drug prices.

As of yet under Biden, the FTC has not been challenged by a pharma deal of this magnitude, which analysts believe could be worth more than $40 billion.

“We have to develop these drugs indication by indication, investing in the science to bring each of those forward,” Davis added. “While the environment is more complex—and obviously we’ll have to be very thoughtful of how we navigate it—we believe as long as we’re doing deals that are science-driven, where we accelerate innovation and we can show that we can expand access best to patients, that there are still deals to be done.”    

When Davis was asked if a potential M&A deal would be for all cash or equity, he didn’t take the bait.

“I don’t want to speculate on specific future transactions or the specific combination of cash or equity,” Davis said. “We have the capacity and flexibility to structure it how we see best to optimize the business. How you do that between cash, debt and equity is really deal specific.”

As for Merck’s facts and figures, in a quarter in which Keytruda added four new indications and increased sales by 26% year over year, its performance allowed the company to withstand a big drop in sales of COVID-19 antiviral Lagevrio.

Revenue for the Ridgeback-partnered pill came in at $1.2 billion after a $3.2 billion showing in the first quarter, which was fueled largely by $2.2 billion in sales of the drug to the U.S.

With Pfizer’s Paxlovid becoming the favored COVID-19 treatment in the U.S., Merck said it has turned to Japan and the U.K. for the bulk of its Lagevrio business. Also on Thursday, Pfizer revealed sales of Paxlovid came to $8.1 billion in the second quarter.

Lagevrio’s decrease wasn’t a surprise to Merck as it held steady with an annual projection of between $5 billion and $5.5 billion for the COVID drug.

Also pulling a heavy load for Merck was Gardasil. The vaccine overcame a drop in sales in the U.S. to post $1.7 billion for a 36% increase on the second period of last year.

Gardasil’s sagging performance in the U.S. was chalked up to “CDC purchasing patterns” and pandemic effects, said CFO Caroline Litchfield. She added that international sales, especially in China, more than compensated for the shortfall.  

Merck’s revenue figure was an increase of 28% from the same quarter last year. And for the second straight quarter, the company adjusted its annual sales projection upward. After opening the year estimating 2022 sales to fall between $56.1 billion to $57.6 billion, the company has raised and narrowed the window, now projecting revenue between $57.5 billion and $58.5 billion.