Seagen lost a royalty battle Friday, but SGEN stock jumped on the potential the resolution could give Merck the fodder it needs for an acquisition.
According to recent rumors, Merck is in the market to buy Seagen for around $40 billion. But Merck has reportedly been waiting for a resolution in a royalty fight between Seagen and Japan's Daiichi Sankyo before pulling the trigger.
On Friday, an arbitrator ruled in favor of Daiichi Sankyo. This means it won't have to pay Seagen a royalty on sales of AstraZeneca-partnered cancer drug Enhertu. Seagen claimed the technology in Enhertu came from a collaboration agreement it signed with Daiichi Sankyo in 2008.
The decision Friday could be the final piece before Merck makes a jump for Seagen, RBC Capital Markets analyst Gregory Renza said in a report to clients.
"Seagen still resides as an attractive strategic target," he said. "Any incremental negative or even forward clarity from these events only makes this dynamic all the more intriguing."
SGEN Stock Advances Amid Takeover Rumors
In after-hours trading on today's stock market, SGEN stock leapt 2.9% higher near 175. Shares lost 2.2% during the regular session, closing at 170.14. Merck stock sank a fraction near 91.
Adding Seagen to its wheelhouse would help guard Merck against looming patent losses for bread-and-butter cancer drug, Keytruda. The first patents will expire in 2028, leaving Merck open to rival generics. In 2021, Keytruda generated $17.2 billion in sales, accounting for 35% of revenue.
Seagen uses a technology called antibody drug conjugates to send toxic chemicals directly to tumors. This limits the amount of damage to healthy tissue. Last year, Seagen's four drugs brought in a total $1.39 billion in sales, surging 38% year over year.
SGEN stock has risen markedly this year on the potential of a Merck takeover. Shares are forming a cup-with-handle base and a buy point at 183.10, according to MarketSmith.com.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
