Pfizer (PFE) and Seagen (SGEN) lived up to investor predictions on Monday when they announced the pharma giant’s planned $43 billion acquisition of the antibody-drug conjugate developer once known as Seattle Genetics. But the blockbuster purchase—the largest mergers-and-acquisitions (M&A) transaction in nearly four years—doesn’t appear to have hit a home run with Seagen investors.
Investors only sent shares of the company up 14.5% the day of the announcement, from $172.61 to $197.65—hardly the size of stock price jumps typically seen after a big deal. Pfizer shares rose even less than typical for buyers in blockbuster deals, inching up 1% from $39.39 to $39.86.
The reason for the small stock surges: Investors and other market watchers are waiting for the proverbial other shoe to drop—as in possible antitrust challenges from the U.S. Federal Trade Commission (FTC) and other global regulators. The FTC has flexed muscle against larger M&A deals that it perceives as creating new monopolies by stifling competition—most notably the ongoing challenges by the agency and the European Union to kill Illumina’s $7.1 billion planned acquisition of cancer blood test developer Grail.
Has Pfizer begun planning to divest itself of some assets in order to get its Seagen deal through regulators? If it has, chairman and CEO Albert Bourla was not willing to discuss it at the conference call he and Seagen CEO David Epstein held to announce their deal.
Pfizer has billions riding on the answer—namely the $2.224 billion “termination fee” it would have to pay Seagen should their acquisition deal fall through. The companies have said they expect their transaction to close in “late 2023 or early 2024” subject to closing conditions that include approval by Seagen shareholders and regulatory approvals.
“We aren’t acquiring the golden eggs. We are buying the goose that lays the golden eggs,” Bourla told analysts on the conference call.
In a statement, Bourla added: “Together, Pfizer and Seagen seek to accelerate the next generation of cancer breakthroughs and bring new solutions to patients by combining the power of Seagen’s antibody-drug conjugate technology with the scale and strength of Pfizer’s capabilities and expertise. Oncology continues to be the largest growth driver in global medicine, and this acquisition will enhance Pfizer’s position in this important space and contribute meaningfully to the achievement of Pfizer’s near- and long-term financial goals.”
$25B revenue goal
Those goals include generating $25 billion in new revenue through M&A as revenue from Pfizer’s COVID-19 vaccine Comirnaty® (co-developed with BioNTech) and COVID-19 antiviral therapy Paxlovid® (nirmatrelvir and ritonavir) are expected to diminish in coming years. Pfizer is 80% of the way toward meeting that goal, Bourla said.
As StockWatch reported earlier this month, Andrew Berens, MD, senior managing director, Targeted Oncology and a senior research analyst with SVB Securities, has observed that Pfizer may need to divest itself of one of its marketed cancer drugs—the urothelial cancer therapy Bavencio® (avelumab), since its indication in first-line treatment of bladder cancer overlaps with Seagen’s marketed drug Pacdev® (enfortumab vedotin).
Yet Pfizer can hardly be expected to lose sleep if it feels compelled to sell off Bavencio because the drug generated only $271 million in global “alliance” revenues (since it was co-developed with Merck KGaA)—a mere 2% piece of Pfizer’s $12.132 billion in 2022 oncology revenues, as Berens’ colleague at SVB Securities, David Risinger, CFA, wrote in a research note Monday.
[SVB Securities is a wholly-owned subsidiary of SVB Financial Group, which was shut down Friday by the California Department of Financial Protection and Innovation. SVB Securities said Saturday that the shutdown “will not directly impact the broker-dealer’s business operations, which continue uninterrupted under the management of SVB Securities leadership team.”]
“SGEN’s marketed products and pipeline fit well with PFE’s oncology portfolio in breast cancer, genitourinary, and heme indications,” Risinger wrote Monday in a research note.
Risinger liked the Pfizer/Seagen deal enough to raise SVB Securities’ 12-month price target on Seagen shares by 62%, from $141 to $229, reflecting the per-share price Pfizer has agreed to pay. $229 a share represents a 33% premium over Seagen’s closing price Friday.
Also raising their price targets on Seagen shares following the Pfizer announcement:
- Etzer Darout, PhD, managing director and senior research analyst covering biotechnology at BMO Capital Markets, up 28% from $179 to $229, and downgraded the firm’s rating from “Outperform” to “Market Perform.”
- Jay Olson, CFA, managing director and senior analyst covering biotechnology with Oppenheimer, up 9% from $210 to $229, and maintained the firm’s “Outperform” rating.
- Gregory Renza, MD, a director and senior analyst of biotechnology equity research with RBC Capital, up 41% from $155 to $219, and maintained the firm’s “Outperform” rating.
- Gena Wang, PhD, CFA, managing director, Biotech Equity Research with Barclays, up 57% from $145 to $228, and maintained the firm’s “Equal-Weight” rating.
However, another three analysts cited the prospect of an antitrust challenge and other uncertainties in lowering their ratings on Seagen shares:
- Reni Benjamin, PhD, a managing director and senior biotechnology analyst with JMP Securities, from “Market Outperform” to “Market Perform.”
- Ami Fadia, managing director and senior biotech equity research analyst with Needham, from “Buy” to “Hold.”
- Dane Leone, managing director, biotechnology with Raymond James, from “Strong Buy” to Market Perform.”
Second time’s the charm
Pfizer is the second pharma giant in as many years to attempt a takeover deal for Seagen. Last year Merck & Co. tried but failed to buy the company—a deal some analysts said made sense for the companies—with the would-be buyer and seller reportedly unable to reach agreement on a price. Zhiqiang Shu, PhD, head of healthcare equity research and senior biotech analyst with Berenberg Capital Markets, told Reuters last month that Pfizer posed less of an antitrust challenge due to fewer overlapping drugs with Seagen compared with Merck.
Seagen currently markets four drugs that generated a combined $1.707 billion in net product sales last year, up 23% from $1.386 billion in 2021. Three are ADCs—Adcetris, indicated for some forms of large cell lymphoma as well as Hodgkin’s lymphoma; the urothelial cancer drug Padcev® (enfortumab vedotin‐ejfv); and the cervical cancer treatment Tivdak® (tisotumab vedotin-tftv). Seagen’s fourth drug, Tukysa® (tucatinib) is a tyrosine kinase inhibitor indicated for some forms of breast and colorectal cancer.
Adcetris finished 2022 with near-blockbuster net product sales of $839 million (up 19% from $706 million in 2021); followed by Pacdev, $451 million (up 33% from $340 million); Tukysa, 353 million (up 6% from $334 million); and Tivdak, $63 million (up more than 10-fold from $6 million).
This year, Seagen expects to generate approximately $2.2 billion, 12% year-over-year growth over 2022, from its four marketed drugs, as well as royalties and collaboration and license agreements.
Pfizer said it believes Seagen could contribute more than $10 billion in risk-adjusted revenues in 2030—well above the $8 billion in revenue that a consensus of analysts projected just last month—with “potential significant growth” beyond 2030.
By 2030, Berens has estimated, Seagen’s four marketed drugs will rack up a combined $8 billion-plus in revenues: Adcetris will more than double in sales to $2.2 billion, Pacdev will balloon nearly 10-fold to $4.1 billion, Tukysa to $1.6 billion, and Tivdak to $560 million.
You’d have to turn the clock back to 2019 to find larger M&A deals than the Pfizer-Seagen hook-up. Bristol Myers Squibb started that year by revealing its $74 billion purchase of Celgene, a deal completed later that year. Also in 2019, AbbVie announced plans to acquire Allergan for $63 billion, a deal completed in May 2020.
“Pfizer shares our steadfast commitment to patients, and this combination is a testament to the passion, dedication and talent of the Seagen team to achieve our mission to discover, develop, and commercialize transformative cancer medicines that make a meaningful difference in people’s lives,” Seagen CEO Epstein stated. “The proposed combination with Pfizer is the right next step for Seagen to further its strategy, and this compelling transaction will deliver significant and immediate value to our stockholders and provide new opportunities for our colleagues as part of a larger science-driven, patient-centric, global company.”
