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Seattle Genetics Up on Two New Oncology Deals With Merck

Zacks Equity Research
·3-min read

Shares of Seattle Genetics, Inc. SGEN were up 14.5% on Monday after the company announced that it has entered into two new strategic oncology collaborations with pharma giant Merck MRK.

In fact, the stock has rallied 50.3% so far this year against the industry’s decrease of 3%.


Per the agreement, both companies will co-develop and co-commercialize Seattle Genetics’ pipeline candidate ladiratuzumab vedotin, which is an investigational antibody-drug conjugate (ADC) targeting LIV-1. It is currently being evaluated in phase II studies for the treatment of breast cancer and other solid tumors.

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Going by the terms of the deal, Seattle Genetics is eligible to receive an upfront payment of $600 million from Merck, which will also make an equity investment of $1 billion in Seattle Genetics acquiring 5 million common stock for $200 per share. Additionally, Seattle Genetics will be entitled for up to $2.6 billion worth milestone fees.

The companies will evaluate ladiratuzumab vedotin, both as a monotherapy as well as in combination with Merck’s PD-L1 inhibitor Keytruda (pembrolizumab) for addressing triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Both companies will equally share profits worldwide for ladiratuzumab vedotin.

Meanwhile, in another contract, Seattle Genetics granted Merck an exclusive license and rights to commercialize its oral tyrosine kinase inhibitor Tukysa (tucatinib) for the treatment of HER2-positive cancers in Asia, the Middle East, Latin America and other regions outside the United States, Canada and Europe. Meanwhile, the company retains all commercial rights in the United States, Canada and Europe.

Under this pact, Seattle Genetics will receive an upfront payment of $125 million and earn up to $65 million worth milestones from Merck, $85 million for prepaid research and development payments      and also tiered royalties on the sales of Tukysa in Merck’s territory. Meanwhile, Merck will co-fund a portion of the global development plan for Tukysa, studied across a range of HER2-positive cancers including breast, colorectal, gastric and other cancer indications.

Notably, the financial impact of these above-mentioned alliances is not included in Seattle Genetics’ guidance for 2020.

We note that in April 2020, the FDA approved Tukysa in combination with Roche's RHHBY Herceptin (trastuzumab) and Xeloda (capecitabine) to treat adult patients with locally advanced/metastatic HER2-positive breast cancer including those with brain metastases, having received one or more prior anti-HER2-based regimens in the metastatic setting.

Zacks Rank & Key Pick

Seattle Genetics currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the biotech sector is Emergent BioSolutions Inc. EBS, which sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emergent’s earnings estimates have been revised 65.5% and 21.7% upward for 2020 and 2021 each over the past 60 days. The stock has skyrocketed 93.1% year to date.

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Roche Holding AG (RHHBY) : Free Stock Analysis Report
 
Merck Co., Inc. (MRK) : Free Stock Analysis Report
 
Emergent Biosolutions Inc. (EBS) : Free Stock Analysis Report
 
Seattle Genetics, Inc. (SGEN) : Free Stock Analysis Report
 
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