Why Seagen Surged Today

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What happened

Shares of Seagen (SGEN 14.92%) jumped more than 15.9% as of 2:51 p.m. on Friday on news that Merck (MRK -0.64%) is thinking about acquiring it to get access to the company’s portfolio of oncology drugs.

Though the management teams of both businesses are tight-lipped about the possibility of a deal (it might not ultimately happen), the teams are already collaborating to develop a pair of cancer therapies, and Merck currently holds the ex-U.S. commercial rights to one of Seagen’s drugs.

So what

Seagen currently has four oncology medicines on the market. It’s also investigating a handful of its candidates to see how they perform as part of a combination therapy with Merck’s drug Keytruda. The potential to own the rights to compounds that are ideal for synergistic combination therapies is doubtlessly one of Merck’s major motivations for considering the acquisition, as having more effective therapies is an important competitive advantage.

If the acquisition occurs, it’ll make Merck an even more formidable oncology powerhouse, which is one of its strategic goals; the company already has 46 approved indications for its portfolio of cancer drugs.

Now what

Seagen isn’t profitable; its trailing-12-month net losses are greater than $689.5 million, and it only has around $1.9 billion in cash and equivalents as of the first quarter. That means getting acquired might be a very positive development for shareholders, so expect to hear more from management if a deal starts to solidify.