Merck To Buy $1B Seattle Genetics Stake For Oncology Collab

Seattle Genetics (SGEN) shares are up 9% in pre-market hours today following the news that Merck will make a $1 billion equity investment as part of an oncology collaboration related to Seattle Genetics’ cancer drug ladiratuzumab vedotin.

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Seattle Genetics and Merck (MRK) will co-develop and sell Seattle Genetics’ antibody-drug ladiratuzumab vedotin, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. The collaboration will evaluate ladiratuzumab vedotin as monotherapy and in combination with Merck’s blockbuster drug Keytruda in types of breast cancer and other solid tumors.

As part of this agreement, Seattle Genetics will receive a $600 million upfront payment and Merck will invest $1 billion to buy 5 million shares of Seattle Genetics at a price of $200 per share. Plus, Seattle Genetics will be eligible for milestone payments of up to $2.6 billion.

The companies also disclosed a second agreement under which Seattle Genetics has granted Merck an exclusive license to sell its cancer therapy TUKYSA (tucatinib) in Asia, the Middle East and Latin America and other regions outside of the US, Canada and Europe. Seattle Genetics will receive an upfront payment of $125 million from Merck and is eligible for milestone payments of up to $65 million. (See SGEN stock analysis on TipRanks)

Last month, Cowen analyst Boris Peaker raised his price target for Seattle Genetics to $169 from $163 after the company reported strong revenue for Padcev and Tukysa, while Adcetris revenue fell short of consensus. The analyst maintained a Hold rating, stating “While we anticipate positive updates from upcoming catalysts, we believe that is factored into current valuation.”

Seattle Genetics stock has advanced over 31% year-to-date (as of September 11) and the average analyst price target of $178.29 reflects a further upside of about 19%. The Street has a cautiously optimistic Moderate Buy consensus for Seattle Genetics based on 10 Buys, 5 Holds and no Sell ratings.