Merck in "advanced talks" for $40bn Seagen bid; report

The rumour that Merck & Co is preparing to make a sizeable offer to buy cancer specialist Seagen won't go away.

The latest report  - in the Wall Street Journal – says that "advanced talks" are underway that could lead to a $200-plus per share offer that would value Seagen at a massive $40 billion, $10 billion more than earlier estimates.

Seagen's share is currently hovering around $175, having gained around 20% since speculation of a Merck bid started in earnest in the middle of June, giving it a market capitalisation of around $32.5 billion.

Neither company is saying anything just yet, but the WSJ has said it understands they are hoping to seal a deal before Merck reports its second quarter results on 28 July.

Reaching an agreement may just be the first hurdle, given both companies' prominence in oncology which may raise antitrust issues with financial regulators – something that has already delayed some big deals in the pharma sector.

The Federal Trade Commission (FTC) has already launched a probe into its handling of big pharma mergers – such as the deals between Bristol-Myers Squibb and Celgene and AbbVie/Allergan – citing concerns about rising marketing power and the potential to force payers to accept higher prices for medicines.

Merck and Seagen are already working together quite closely, as the big pharma took a $1 billion stake in Seagen two years ago.

That deal gave it rights to the biotech’s LIV-1-targeting antibody-drug conjugate (ADC) ladiratuzumab vedotin and follow-up candidates, with another $600 million paid in cash, and Merck also has rights to Seagen's oral HER2 inhibitor Tukysa (tucatinib) in a host of markets outside the US, Canada and Europe.

Adding Seagen's four approved oncology drugs – Adcetris (brentuximab vedotin) for blood cancers, Padcev (enfortumab vedotin) for bladder cancer and cervical cancer therapy Tivdak (tisotumab vedotin), as well as Tukysa – would help Merck prepare for the loss of patent protection on big-selling cancer immunotherapy Keytruda (pembrolizumab).

Keytruda currently dominates the checkpoint inhibitor category with approvals across 15 cancer types and annual sales of $17 billion, but could start to lose patent protection in 2028.

There are some factors that could delay a deal, including an ongoing arbitration process between Seagen and Eisai over technology used in the latter's AstraZeneca-partnered HER2 drug Enhertu (trastuzumab deruxtecan).

Seagen has already prevailed in a patent infringement lawsuit, but the financial benefit that could accrue from the arbitration could have a material effect on the company's value.

A decision is due within the next few weeks, so could fit in with the WSJ's speculation about a timeline for announcing a deal.