Merck plans to take an equity stake and pay as much as $4.5 billion in a series of deals with Seattle Genetics for two of its cancer drugs.
The pair have worked together before, studying combinations of Seattle Genetics cancer drugs with Merck’s blockbuster medicine, Keytruda. Now Merck will take a $1 billion stake in the biotech firm. An investment of 5 million shares to be purchased at $200 a piece — a 33% premium from Friday’s close — will put Merck among Bothell-based Seattle Genetics’ top 10 holders.
Seattle Genetics shares jumped $21.82, or 14.6%, to close Monday at $171.79.
The companies will develop an experimental medicine, ladiratuzumab vedotin or LV, that has shown signs of early promise in triple-negative breast cancer, a particularly aggressive and difficult disease to treat. Merck will pay $600 million upfront while development costs and any future profits will be split equally between the two drugmakers. Seattle Genetics will be eligible for up to $2.6 billion in sales and development milestones.
LV belongs to a class of cancer drugs known as antibody drug conjugates which are meant to kill cancer cells while leaving healthy cells alone. The biotech wants to test the medicine against other cancer tumors outside of breast cancer. Cancer medicines of this type have been drawing interest of larger drugmakers. On Sunday, Gilead Sciences announced plans to pay about $21 billion to acquire Immunomedics, a company Seattle Genetics once held a stake in before a licensing deal was scuttled.
Investors appear to be struggling with a potential price tag that could be north of $50 billion required for a Seattle Genetics takeover, Stephen Willey, an analyst with Stifel, wrote in a research note. They had similarly struggled with the potential price tag required for an Immunomedics buyout, he said. While Seattle Genetics has more partnerships and assets that would complicate a deal, Gilead’s bid for the Morris Plains, New Jersey-based company may “now be used to rationalize” Seattle Genetics as an M&A target, Willey added.
The partnership does not preclude Seattle Genetics from getting bought or from cutting more deals. With a growing stable of cancer medicines, Seattle Genetics is one of the frequently mentioned names by investors as a potential M&A target, according to a Bloomberg Intelligence survey.
Merck is also going to give Seattle Genetics a leg up in reaching new markets for another medicine, Tukysa. The medicine has U.S. approval to treat another aggressive breast cancer where a protein known as HER2 spurs on rapid growth of cancer cells.
Merck will pay Seattle Genetics $125 million upfront and up to $65 million in milestones as it commercializes the drug outside of North America and Europe.
“We have a very strong trajectory, I get up every morning excited to make a difference in cancer patients’ lives,” Clay Siegall, Seattle Genetics’ chief executive officer, said in an interview. “Our intention is to grow the company,” he added, though he would have a fiduciary responsibility to look at any offers.
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