Seagen acquisition: Pfizer can now bet on future of cancer drugs

After much ado, Seagen Inc. is finally being acquired — by Pfizer Inc. The $43 billion proposed deal should quell investor calls for Pfizer to do something splashier with its Covid cash, and could put Pfizer into a leadership position in oncology. But Pfizer still has a lot of work to do to convince investors that its huge bet on Seagen is sound.
 

One word came up over and over again as Pfizer laid out its case to investors Monday morning: durability. Pfizer argued that Seagen can provide a steady and long-lasting revenue stream that will help fill the $17 billion hole it is facing as key products lose patent protection between 2025 and 2030.

Pfizer makes a decent argument. Its commercial and manufacturing heft can undoubtedly maximize the value of Seagen’s portfolio and pipeline of antibody-drug conjugates, medicines that use antibodies to deliver powerful chemotherapies directly to tumor cells. But Pfizer also has a reasonable case for its ability to push the biotech firm’s technology even further in the long run.

On the first point, Pfizer thinks that Seagen’s four FDA-approved oncology products have far more potential. It believes Seagen’s 2030 sales will exceed $10 billion — or about $2 billion more than analysts’ estimates.

That’s a discrepancy Pfizer feels is surmountable based on the promise of Seagen’s pipeline. There’s also revenue potential in pairing Pfizer’s portfolio of small-molecule cancer drugs with Seagen’s products, particularly in treating breast cancer, to help close the gap.

Given the muted response to the deal on Monday, analysts seem skeptical that this will be as easy as Pfizer makes it sound. That $10 billion forecast is in part predicated on positive data due later this year on several late-stage clinical trials for Seagen drugs.

But Merck & Co.’s decision to walk away from a deal with Seagen last year could also be a warning sign about the prospects for those studies. As Evercore ISI analyst Umer Raffat noted, Merck “has unusual visibility into ongoing cancer trials” across the industry because drugs are so often being tested in combination with its immunotherapy Keytruda.

On the second point, Pfizer underscored a feature of antibody-drug conjugates that I’ve outlined before: They are likely to be uniquely insulated from generic competition. The regulatory bar for creating a biosimilar of an antibody is already high, (see, for example, Humira’s long reign as the industry’s top-selling drug).

Seagen’s drugs add several more layers of complexity, both in terms of patent protection and manufacturing, making them hard to mimic. Because of that, “the durability of this asset is way beyond the durability of small molecules,” Pfizer’s chief executive officer Albert Bourla told investors this morning.

Pfizer understands how tough these treatments are to develop. Industry watchers will recall that Pfizer spent a lot of time trying to generate its own portfolio of antibody-drug conjugates. In the early 2010s, the company made a significant internal investment in the technology with the goal of really homing 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.

Alas, none of that work yielded effective medicines. “Clearly, we didn’t do as good of a job as Seagen did,” Bourla said. Putting these drugs together isn’t trivial; it has taken decades of trial and error to finally reach an understanding of the properties needed to ensure the toxic chemo is released at the right place. But, Bourla noted, Pfizer’s experience means that the company understands what does and doesn’t work when it comes to assembling this type of drug.

It’s also reasonable to think that background could help Pfizer to push Seagen’s already-healthy pipeline even further. The larger pharma company undoubtedly has the clinical development experience and commercial heft to maximize the potential of any promising oncology drugs. But it also has strong medicinal chemistry skills, particularly in oncology. Pfizer hinted at the potential for incorporating other types of molecules that would be delivered directly to cancer cells into antibody-drug conjugates — for example, some of its immunotherapies or drugs it has developed that can break down cancer-causing proteins.

Pfizer also expects to see about $1 billion in cost synergies out of the deal, savings Bourla said would come from avoiding costs rather than cutting them. “We are very clear that we are not buying the gold eggs. We are acquiring the goose,” he said.

The outstanding question for investors, of course, is whether the goose was worth $43 billion. Pfizer clearly has a lot to prove about the value of the deal. Still, the case for buying some durability for its small molecule-focused cancer portfolio is a good start.