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Merck’s Interest in Seagen is Mounting; Now What?
Stock Analysis & Ideas

Merck’s Interest in Seagen is Mounting; Now What?

Story Highlights

Merck’s earlier interest in Seagen seems to be expanding. However, even without that interest, Seagen has a stable of anti-cancer drugs that makes it a potentially attractive play.

Just days ago, biotech company Seagen (SGEN) jumped after reports emerged that Merck (MRK) was interested in buying the company. Now, the company gained another 3.5% in pre-market trading on Friday after word emerged that Merck might be more interested than the initial reports suggested. The gains held into the morning’s trading, though they backtracked somewhat at the opening bell.

A Merck purchase would likely do big things for Seagen, so I’m cautiously bullish going forward. While buyouts have fizzled in the making before, this move would give Merck a leg up in the field and likely do well for all concerned.

The last 12 months have been wildly erratic for Seagen. A series of up-and-down plays sent Seagen to a 52-week high of just under $193 back in early November 2021. Further up-and-down plays sent it ultimately down to around $105 back in May. A rebound followed, and now the stock has recovered nearly to its previous highs.

Driving much of this most recent volatility is the news that Merck is going from casual interest to active interest, going through with a planned deal to acquire Seagen. The talks have, based on reports from The Wall Street Journal, “picked up pace,” and a meeting is actually scheduled in the near future.

Wall Street’s Take

Turning to Wall Street, Seagen has a Moderate Buy consensus rating. That’s based on seven Buys and four Holds assigned in the past three months. The average Seagen price target of $170.20 implies 4.5% downside potential.

Analyst price targets range from a low of $136 per share to a high of $208 per share.

Investor Sentiment is Brightening on Several Fronts

Right now, Seagen is looking like an attractive Buy to quite a few facets of investors out there. On TipRanks, Seagen currently has a Smart Score of 9 out of 10, the second-highest level of “outperform.” That makes it very likely that Seagen will ultimately outperform the broader market.

One sector that’s demonstrating the reason behind this score is hedge fund involvement. Based on the results of the TipRanks 13-F Tracker, hedge funds recently increased their involvement with Seagen.

Hedge funds picked up another 72,800 shares in the last quarter, which is up from a slight drop seen in the quarter prior to the latest. Overall, however, hedge funds have generally kept their involvement with Seagen fairly stable since December 2020.

Insider trading, meanwhile, has also been volatile, though trending positive. In the last three months, insiders bought an extra $46,500 worth of shares. This is despite Sell transactions outpacing Buy transactions by 12 to eight.

Over the last year, however, sellers were clearly out in force, with 51 Sell transactions against 25 Buy transactions. This suggests rising confidence in Seagen, perhaps as the result of a potential Merck buyout.

As for retail investors who hold portfolios on TipRanks, their confidence is rising as well. TipRanks portfolios holding Seagen stock are up 2.1% in the last seven days and up 1.7% in the last 30 days.

Seagen’s dividend history, however, is a non-issue, as it has yet to issue a dividend. That suggests a clear focus on raising share prices and establishing itself as a growth opportunity.

A Buyout is Good News, but It May Not Matter

Seagen isn’t exactly a bad play on its own. The company has a significant focus on cancer drugs, but it only has a few drugs overall in its stable. Specialization does have a way of limiting potential, even as it improves focus.

A look at Seagen’s pipeline, meanwhile, shows some real potential afoot. Just taking a look at Adcetris shows that it’s already cleared Phase 3 testing for R/R diffuse large B-cell lymphoma. It’s cleared Phase 2 testing, meanwhile, for several other ailments, including 1L Hodgkin lymphoma, certain pediatric cancers, and R/R Metastatic solid tumors.

Meanwhile, Seagen has treatments afoot—some even past Phase 3 testing—for a range of diseases from breast cancer to bladder cancer. An entire line of cancer fighters, including at least one for “advanced solid tumors,” are waiting in the wings and in the Phase 1 testing phase.

If Merck were to buy in, it would be buying a veritable arsenal of cancer fighters. Merck already has a presence in the cancer-fighting arena with its Keytruda drug for tackling cervical cancer. With Seagen’s lineup, Merck can position itself in the market as a major supplier for cancer fighting instead of something of a one-trick pony in the field.

That’s already got some analysts’ attention. One report from SVB Securities suggests that Merck could pay $215 per share—around $39.5 billion total—for Seagen, which would represent a major step upward for Seagen from current levels.

Meanwhile, BMO (BMO) Capital’s Etzer Darout recently started coverage on Seagen, though he seems to be ignoring the possibility of a Merck buyout for now. Darout called it a “market perform” with a price target of $169, just a little under where it’s currently trading.

So, take all these points together and what you get is a fairly solid platform for investor interest. The possibility of a Merck buyout raises the potential stakes admirably. That’s especially true if SVB Securities’ projections come to pass.

Even without such a Buy, however, it’s hard to ignore the fact that Seagen has a big slug of cancer drugs at various stages of testing and approval. Merck could certainly make a lot of use out of these drugs, but so too could Seagen if its marketing is up to snuff.

Concluding Views

There are several reasons why I’m bullish on Seagen. One, it’s got a nice stable of anti-cancer drugs that it is looking to actively grow. It’s great to have a product line today. It’s even better to have a product line ready for tomorrow, too.

Two, the potential interest from Merck only improves on an already-good thing. Seagen by itself is a decent play. Seagen bought by Merck will make Merck even better. Getting all those cancer drugs into Merck’s stable will propel Merck forward in oncology and make it a force to be even more reckoned with than it already is.

Throw in the rising interest in several sectors of investor sentiment, and that suggests good things to come for Seagen. It’s easy to like what’s been seen so far, and what may be is even better.

Disclosure

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