Pharmaceutical giant Merck & Co. (NYSE: MRK) is in the advanced stages of purchasing biotech company Seagen Inc. (NASDAQ: SGEN) in a deal expected to be worth at least $40 billion, according to reporting from the Wall Street Journal.
The deal is expected to be agreed upon before Merck releases its second-quarter earnings report on July 28. Under the current proposal, Merck would pay $200 per share to acquire the cancer-focused biotech firm, above its Wednesday closing price of $175 per share. According to data from Refinitiv, Seagen's market value is $32.24 billion.
Following the Wednesday announcement, Merck shares fell 1% in premarket trading, while Seagen saw a 5% bump to $184.
According to Wells Fargo (NYSE: WFC) analyst Mohit Bansal, Merck is making the acquisition as part of its efforts to prepare for 2028 when it will lose marketing exclusivity on its top money-maker: the cancer drug Keytruda. The drug, which brought in $17.2 billion for Merck in 2021, represents more than a third of the drug company's total revenue.
Alongside its clinical-stage oncology candidates, Seagen already has four approved cancer drugs on the market, collectively bringing in $1 billion in revenue for the company in 2021.
With equity markets falling and borrowing costs rising, several major corporate acquisition deals have fallen through in recent weeks. Kohl's (NYSE: KSS) had been in negotiations for months to sell its chain to Franchise Group (NASDAQ: FRG) before that deal fizzled out, and Wallgreens Boots Alliance (NASDAQ: WBA) had planned to sell its Boots pharmacy chain before that deal also failed.
While financing has been the root cause behind several acquisition cancellations, Bansal says that shouldn't be an issue for Merck, but the companies could still fail to agree on a deal.
If the agreed upon deal costs at least $40 billion, it will be the costliest pharmaceutical acquisition since 2020.
The U.S. Federal Trade Commission (FTC) has recently pledged to do more to scrutinize pharmaceutical deals, and Merck's purchase of Seagen is expected to put that pledge to the test. Before the sale can be completed, it will need to go through a thorough FTC review.
"This is the first deal of its kind in the biopharma space under this new FTC and we've seen them be a lot more aggressive," Pfizer (NYSE: PFE) board member and former U.S. Food and Drug Administration commissioner, Scott Gottlieb, told CNBC. "The question is, what are they going to force the two companies to divest to get this deal done?"
Seagen's highest selling drug, Adcetris, is used to treat the same illness at Keytruda, and companies seeking to merge have recently been required by the FTC to divest from overlapping products before completing their purchase.