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Seattle Genetics Inc. Message Board

  • redhot47fla redhot47fla Mar 31, 2013 10:31 AM Flag

    Musings on the possibility (probability) of a takeover of SGEN

    Knowing that this will trigger a welcome debate, here is my logic thread on why I believe that a takeover of SGEN is inevitable.

    Please note, this topic is separate from whether shareholders would be best served by a takeover or by SGEN remaining independent. Opinions differ, but it seems to me that the issue is irrelevant because it's out of our hands. The BOD and top management have something close to total control of SGEN, so they will be the decision makers if (when) the time comes.

    With that in mind:

    - I believe that SGEN eventually will be bought out -- and at a fairly high premium to whatever the share price is at that time. Maybe tonight, maybe next year, maybe in five years. But I do not believe that SGEN will remain independent over the long haul.

    - The main reasons, pretty much in order of priority: 1. Big Pharmas are increasingly on the prowl for acquisitions and many of them are loaded with cash. 2. SGEN's ADC technology, which offers enormous promise - not only today but increasingly in the future. 3. Adcetris, which will gain additional label uses in coming years. 4. SGEN's pipeline and partnerships, which may or may not prove to include a blockbuster but do offer some real potential.

    - The other major factor: The Baker brothers, who pretty much control this company and have a long history of investing large in promising bio-techs, reaping outsized profits when those companies are sold off, and moving on to their next promising target.

    - Management attitude: Yes, there is a poison pill available and CEO Clay Siegall has said the company prefers to remain independent. But neither he nor anyone else in control has ever ruled out the possibility of being sold. They cannot rule that out. They have a fiduciary responsibility to consider all options.

    - Given all of that, I believe that when a Big Pharma makes a rich offer -- and if the deal allows SGEN to be run fairly independently -- the company will be sold. And we will cash out.

    Thoughts?

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    • I think I have read your post on many other boards

    • OK Red, I'll play devil's advocate and debate this since I'm temporarily on the sideline.

      First, I can't see any real reason this would be a buy-out target. Big pharma has what they want from SGEN. They've bought it already thru colaborations and are now using SGEN technology to develope their own drugs. There just isn't a reason to buy a company whose greatest potential may be to avoid paying a tiny royalty stream. Big pharma has shown it would rather monetize royalties than receive them in drips and drabs. There's just no reason to own SGEN ADC technology.

      Second, the touted pipe-line just doesn't yet exist. To start, only 10% of drugs ever make it to approval. The most advanced solely owned pipline drug is SGN-75. I don't believe (please correct me where I'm wrong) it has yet to demonstrate enough anti-tumor activity to make into phase II. The joint ASG-5ME has done better but its best result I believe has been one partial response. If those two fail than next would be CD-19 now just starting phase one and CD-33A which is still in clinic. Those last two are years and years from approval.

      While SGEN claims a $4billion milestone potential, odds say it isn't gonna happen either. It would be wise to discount that by the potential for failure.

      Now look at royalties. CLDX's CDX-11 is currently in phase II. That means it may be 2015 - 2016 before approval. When approved it will most likely be limited to heavily pretreated patients which is a very small group. A mid-single digit royalty just won't be all that impressive. Roche's two B-cell ADC's are phase II..also years away.

      So that leave Adcetris for now which just hasn't yet proved it can be a blockbuster.

      There is also a general healthcare risk that the decision making for patient care will shift from doctor to insurer. Current LOW COST treatments for HL have a really good 85% cure rate.

      So, you said you wanted lively debate.

      Please do your own DD. Please don't assume this as accurate or factual.

      • 1 Reply to mauihope2000
      • SGEN currently has a mkt. cap of +$4.1 bil so thats what the market values the company at, and if I agreed with your analysis I'd be short! If you agreed with SGEN management who has multiple clinical trials designed to expand the Adcetris label / they have said eventually + $1 bil in revenues product and a large pipeline 6 products owned or co owned in the clinic along with + 16 royalty / milestone products in the clinic . So in my opinion your assumption that Pharma would not be interested in the leading ADC company is pretty silly!

    • I'm one of those stakeholders who'd prefer that the company remains independent. However it obviously is way more up to the BBs to make that decision than it is up to me and their record is quite impressive. With that in mind, and the fact that there are ~ 15 target drugs in the pipeline that use SGEN technology, it is most unlikely that SGEN will be undersold.
      If it were to remain independent and with a 20% success rate for the pipeline, the company valuation is likely to be in the $25-30 billion range in the 2-3 years that it will take for it to solidify. With that in mind the BBs are highly unlikely to agree to a sale that is less than half of it now.
      Pharmasset?
      Perhaps a good bit more.

    • Would agree with your analysis. Roche took an interest in Genentech and finally bought the whole loaf. Was concernd that Roches would squelch Genentech's free wheeling and innovative culture but it seems to still be reasonably flowing.

 
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