Seattle Genetics is in line to receive $1.72 billion from Merck via a pair of deals, one for a cancer drug that’s still in development and the other for partial rights to a therapy that won FDA approval earlier this year.
The larger of the two deals is for the drug still in clinical development, ladiratuzumab vedotin. According to terns announced Monday, the two companies have agreed to jointly develop that drug, both by itself and in combination with Merck (NYSE: MRK) blockbuster cancer drug pembrolizumab (Keytruda). The deal calls for Merck to pay Bothell, WA-based SeaGen (NASDAQ: SGE) $600 million up front, along with a $1 billion equity investment.
Merck’s investment in SeaGen breaks down to the purchase of 5 million shares of the biotech for $200 apiece, a 33.3 percent premium to the company’s closing stock price on Friday.
SeaGen specializes in a type of drug called an antibody drug conjugate (ADC). The company’s drugs link vedotins, a powerful tumor-killing compound, to an antibody that homes in on a target cancer protein. That approach is the basis for the company’s first two commercialized products, brentuximab vedotin (Adcetris), an ADC approved in 2011 for treating rare lymphomas, and enfortumab vedotin (Padcev), which cleared the regulatory bar late last year for treating urothelial cancer that has spread.
Ladiratuzumab vedotin is designed to target LIV-1, an estrogen-regulated protein that is found in abundance in breast cancers and other solid tumors. Speaking on a conference call Monday, SeaGen CEO Clay Siegall said his company has found that ADCs work very well with checkpoint inhibitors, such as Merck’s pembrolizumab. While ADCs target proteins on the surface of a cancer cell, pembrolizumab works on the inside of the cancer cell. Though pembrolizumab has become far and away Merck’s top selling drug, it doesn’t work for all patients and the company has been searching for combinations that could expand the treatment’s reach.
SeaGen has advanced ladiratuzumab vedotin to Phase 2 testing in breast cancer and other solid tumors. Siegall said that his company is still optimizing the dose of the drug for weekly administration. The agreement with Merck calls for the companies to work together and share equally in the development of the SeaGen drug. Depending on the drug’s progress, SeaGen could earn up to $2.6 billion in development and sales milestone payments.
The deal is a vote of confidence in SeaGen’s technology, and it’s the latest development in the burgeoning ADC field. The FDA approval of SeaGen’s enfortumab vedotin last December was followed days later by a regulatory nod for trastuzumab deruxtecan (Enhertu), a Daiichi Sankyo ADC designed to treat HER2-positive breast cancer. The most recent FDA nod for an ADC belongs to GlaxoSmithKline (NYSE: GSK), whose drug belantamab mafodotin (Blenrep) was approved for treating multiple myeloma. That drug was designed with ADC technology licensed from SeaGen.
Big pharmaceutical companies are showing increasing interest in getting a piece of the ADC market. Daiichi Sankyo developed trastruzumab deruxtecan in collaboration with AstraZeneca (NYSE: AZN), which saw enough promise in another ADC in the Tokyo-based company’s pipeline to commit $1 billion to partner in the development and global commercialization of that compound. And over the weekend, Gilead Sciences (NASDAQ: [[tickier:GILD]]) agreed to pay $21 billion to acquire Immunomedics (NASDAQ: IMMU), a company whose ADC sacituzumab govitecan (Trodelvy) won FDA approval earlier this year for triple negative breast cancer and is in development as a potential treatment for other solid tumors.
Meanwhile, the second deal SeaGen announced with Merck covers tucatinib (Tukysa), a small molecule drug that the FDA approved in April for treating breast cancer that’s positive for human epidermal growth factor receptor 2 (HER2), a protein that promotes the growth of cancer cells. Merck is paying $125 mlllion up front for the rights to sell that drug globally except for the US, Canada, and Europe, where SeaGen keeps the commercialization rights.
Siegall said on the call that tucatinib has the potential to become a bigger product than brentuximab vedotin, which now tops $1 billion in annual sales globally (SeaGen sells the drug in the US and Canada; Takeda Pharmaceutical pays SeaGen royalties from its sales of the drug in the rest of the world). To achieve that mark, more clinical trials in more types of cancer are needed. Merck will co-fund clinical studies that support expanding the drug’s use to other cancers, including colorectal and gastric cancers. The pharmaceutical giant is committing to $85 million in research and development payments to SeaGen. The pharmaceutical giant will be responsible for regulatory submissions for tucatinib in the regions for which it has rights to the drug. Depending on Merck’s progress developing and selling that drug, SeaGen could earn up to $65 million in milestone payments.
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