Pfizer Acquires Seagen for $43 Billion in Bid for Oncology Leadership Position

After much deliberation, Seagen Inc. has been acquired — by Pfizer Inc. The proposed $43 billion deal should quell investor calls for Pfizer to do more with its Covid cash, and it could propel Pfizer to the forefront of oncology. However, Pfizer still has a long way to go before convincing investors that its large bet on Seagen is sound.

One word came up repeatedly as Pfizer presented its case to investors on Monday morning: durability. Pfizer argued that Seagen can provide a consistent and long-term revenue stream that will help it close a $17 billion gap as key products lose patent protection between 2025 and 2030.

Pfizer makes a compelling case. Seagen’s portfolio and pipeline of antibody-drug conjugates, medicines that use antibodies to deliver powerful chemotherapies directly to tumour cells, will undoubtedly benefit from its commercial and manufacturing clout. However, Pfizer has a compelling case for its ability to advance the biotech firm’s technology in the long run.
Pfizer believes that Seagen’s four FDA-approved oncology products have far more potential. It expects Seagen’s sales to exceed $10 billion by 2030, which is about $2 billion higher than analysts’ estimates.
Based on the promise of Seagen’s pipeline, Pfizer believes this gap can be bridged. There is also revenue potential in combining Pfizer’s small-molecule cancer drug portfolio with Seagen’s products, particularly in the treatment of breast cancer.

Given the lacklustre reaction to the deal on Monday, analysts are sceptical that it will be as simple as Pfizer claims. That $10 billion forecast is based in part on positive results from several late-stage clinical trials for Seagen drugs, which are expected later this year.
However, Merck & Co.’s decision to back out of a deal with Seagen last year could be interpreted as a warning sign about the prospects for those studies. Merck has “unusual visibility into ongoing cancer trials” across the industry, according to Evercore ISI analyst Umer Raffat, because drugs are frequently tested in combination with its immunotherapy Keytruda.

On the second point, Pfizer emphasised an aspect of antibody-drug conjugates that I’ve previously discussed: They are most likely to be immune to generic competition. The regulatory bar for developing an antibody biosimilar is already high (consider Humira’s long reign as the industry’s top-selling drug).
Seagen’s drugs add several layers of complexity in terms of patent protection and manufacturing, making them difficult to replicate. As a result, “the durability of this asset is far beyond the durability of small molecules,” Pfizer CEO Albert Bourla told investors this morning.

Pfizer understands how difficult it is to develop these treatments. Pfizer spent a lot of time trying to develop its own portfolio of antibody-drug conjugates, as industry observers will recall. The company made a significant internal investment in the technology in the early 2010s with the goal of really honing in on better payloads — that is, the powerful chemo end of the drug — as well as improving the “linker” that tethers those molecules to the antibody.

Unfortunately, none of that research resulted in effective medicines. “Clearly, we didn’t do as well as Seagen,” Bourla admitted. Putting these drugs together isn’t easy; it took decades of trial and error to finally understand the properties required to ensure toxic chemo is released in the right place. However, Pfizer’s experience means that the company understands what works and what doesn’t when it comes to assembling this type of drug, according to Bourla.

It’s also reasonable to believe that background could assist Pfizer in expanding Seagen’s already robust pipeline. The larger pharmaceutical company, without a doubt, has the clinical development experience and commercial clout to maximise the potential of any promising oncology drugs. However, it also possesses strong medicinal chemistry abilities, particularly in oncology. Pfizer hinted at the possibility of incorporating other types of molecules into antibody-drug conjugates that would be delivered directly to cancer cells, such as immunotherapies or drugs that can break down cancer-causing proteins.

Pfizer also anticipates about $1 billion in cost synergies from the transaction, which Bourla claims will come from avoiding costs rather than cutting them. “We have stated unequivocally that we will not be purchasing the gold eggs. “We’re getting the goose,” he said.
Of course, the big question for investors is whether the goose was worth $43 billion. Pfizer clearly has a lot to prove about the deal’s worth. Still, buying some durability for its small molecule-focused cancer portfolio is a good place to start.