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  • Jonathan Poyer

Merck & Seagen Merger: Will Antitrust Officials Flex? Or Is There Just Not Enough Juice?

Blockbuster M&A news remained elusive to start the shortened holiday trading week.

The Wall Street Journal posted an article about a possible merger between Merck and Seagen: ARTICLE

The WSJ article suggesting Merck (MRK) may acquire Seagen (SGEN) has yet to ring true.

From the article: "Few investors would argue that the deal lacks strategic sense. The two companies already collaborate in breast cancer, and the acquisition of Seagen would help replenish Merck's pipeline as Keytruda, its $17B blockbuster drug, loses patent protection later this decade."

However, regulators are enforcing a stricter antitrust interpretation to their policies and thus resisting consolidation.

The WSJ generally has a good reputation calling M&A deals, but unprofitable SGEN at a $30B market capitalization is one of the more expensive large cap biotechs at 16x current EV / revenue. Even a moderate acquisition premium in the neighborhood of $40 billion would make the deal highly dilutive to MRK for 3-4 years, even assuming SGEN's current $1.8 billion revenue stream multiplies as expected to consensus 2025 revenue of $4.5 billion. Despite the apparently high price tag, several analysts have come out positive on the deal rationale as there are few assets out there that might possible generate that magnitude of revenue in the next 3-5 years.

The majority of big pharma companies will lose 33-50+% of their 2023 revenue by 2030, making every viable revenue stream in SMID biotech a potential acquisition target at a certain price relative to the growth rate and duration

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