In late August, Amgen agreed to buy Onyx Pharmaceuticals in one of the worst-kept M&A secrets of the year. Amgen paid 50% more than Onyx's pre-rumor trading price, suggesting there may be other biotech companies similarly undervalued. Seattle Genetics (NASDAQ: SGEN ) , a biotech collaborating with some of the largest drug companies on cancer research, may be on that list.
Biotechnology is one of the most M&A-friendly industries
The cost to develop and the failure rate of new drugs are high. Because of this, fledgling biotechs often turn to venture capital and partner with major drug companies to finance development
Seattle Genetics currently has just one drug on the market, Adcetris, which was approved in 2011 to treat Hodgkin's lymphoma and anaplastic large-cell lymphoma. The drug serves as a showcase for the company's antibody-drug conjugates, or ADCs -- complex molecules delivering payloads directly to cancerous cells without the collateral damage associated with traditional chemotherapy.
As a result of Adcetris winning 70% of the market share for its approved indications, major drug companies including Bayer, Roche's Genentech, Takeda's Millennium, AbbVie (NYSE: ABBV ) , and Pfizer (NYSE: PFE ) have inked lucrative deals with Seattle Genetics to gain access to its ADC portfolio.
Those deals mean big money for Seattle Genetics, totaling as much as $3.5 billion in future milestone payments plus royalties from any drugs that become commercialized.
Absolutely. Big pharma is facing an unprecedented patent cliff in the coming years. They are desperate to replace the lost revenue. Just take genentech/roche Rituxan: patent in Europe expires now. US patent in a few years. 7.6bil in sales, lost. Blockbusters Avastin, Herceptin are close behind. Not only do they face a patent cliff, biosimulars may be approved before those patents expire. And it's not just Roche. Drugs are about to get much cheaper as many of the largest blockbuster patents expire.
ADC'S offer about the only path to a new generation of better, blockbuster cancer drugs and add a degree of protection from biosimular competition.
My guess is that SGEN has been approached already. The greatest fear will be that some other company will get them so if they ever decide to sell there will be a bidding war. But Red is right. So far they claim to not be interested.
SGEN is building a world class organization of the most talented people. It would be difficult to replicate.
All just my dumb, useless opinion
This subject has come up from time to time. For the record, SGEN CEO Clay Siegall has said that he plans to build SGEN into a major, independent biotech, but he and the board would exercise their fiduciary responsibility and consider any M&A inquiries that might come alone.
That said, the Baker brothers largely control the board and they have a record of building and then selling biotechs to Big Pharm.. Personally, I believe that - sooner or later - a high-premium (50-80 percent over pps) takeover of SGEN is inevitable. Others here disagree.
Also, note that when a Biotech gets bought out every other biotech believes they will be the next target so there is a mini-bubble in the sector like we saw in Sept - October. ......... however, as long as the big Pharma companies remain flush with cash, have patents expiring, and need new technology then SGEN (and others) will remain potential takeover targets).