Merck Has Good Reason to Buy a Cancer-Drug Biotech: Lisa Jarvis
Seagen’s innovative technology for delivering chemotherapy is blossoming.By Lisa Jarvis
(Bloomberg Opinion) -- Merck & Co. has said nothing publicly about rumors that it is in talks to buy Seagen, a biotech company working on cancer treatments, for about $40 billion.
But Seagen has laid out a strong case for the idea. The 25-year old biotech’s cancer-drug technology is finally coming to fruition.
Seagen is working at the center of a renaissance in so-called antibody-drug conjugates — a class of medicines created by tacking powerful chemotherapy agents onto antibodies that can carry them directly to tumor cells. The idea is that, by releasing the chemo precisely where it’s needed, the drugs might not cause nasty side effects, even if rather toxic chemo is used.
It’s a simple concept that has taken decades to perfect. Of the 12 antibody-drug conjugates to receive Food and Drug Administration approval by the end of 2021, nine have gotten the green light just since 2017.
Biotech companies have finally come to understand the formula for putting the complex molecules together, by choosing the ideal antibodies and chemo agents and figuring out the best ways to connect them.
The new drugs are clearly making a difference in treating cancer. At a recent oncology meeting, data from a clinical trial of an antibody-drug conjugate called Enhertu, developed by AstraZeneca and Daiichi Sankyo, was deemed practice-changing for certain patients with metastatic breast cancer. These data reinforced a sense among oncologists that, for certain types of cancer, antibody-drug conjugates could start to replace conventional chemo.
The results also suggest that this class of drugs could be used much more broadly than thought — a notion that Seagen is exploring with its own portfolio of drugs. This was part of a strong case that company executives laid out in their second-quarter earnings call for expanding the use of Seagen’s four approved drugs. They also noted how these drugs complement Keytruda, Merck’s own immuno-oncology treatment.
Seagen last week showed that combining its drug Padcev with Keytruda shrank tumors in about 65% of people with a certain kind of bladder cancer. Such positive, if early, data is viewed as critical to sealing a deal between the companies.
There’s another reason that buying Seagen would be a smart move for Merck: Those better-built antibody-drug conjugates could be very hard to duplicate. Manufacturing such complex treatments is tricky, and that might stave off generic competition — an appealing proposition for any suitor looking for lasting revenue streams.
For Merck, the appeal could be especially great, because starting in 2028 the company could face competition from the first generic versions of Keytruda, a drug that has become increasingly critical to its financial fate. In the second quarter of 2022, it brought in $5.3 billion, or about 36% of the company’s total revenues of $14.5 billion for the period. Although Merck is developing a subcutaneous version of the currently intravenously administered drug, a delivery format the company believes will get patent protection, alternate revenue streams still will be essential to maintaining its business.
Merck is reportedly delaying its decision on buying Seagen until it learns the resolution of its patent litigation with Daiichi over a component of its antibody-drug conjugate technology. Money certainly hangs in the balance, but the long-term potential of Seagen’s portfolio makes this a deal worth getting done.
