Today, large-cap biotech company Seagen (NASDAQ:SGEN) is once again in focus for investors. Today, SGEN stock is up more than 15%, a rather abnormal move for this company. This move comes on reports that biotech giant Merck (NYSE:MRK) could be looking to acquire Seagen.
Like anyone, I enjoy a good takeover story. Indeed, the biotech area is rife with such opportunities right now. Many investors generally view healthcare and biotech names as recession-resistant, given the need for drugs and treatments in any market environment. Accordingly, as valuations have come down, so too has interest in mergers and acquisitions (M&A) among big names in this space.
Merck is a massive player in the pharma space, with a valuation of more than $200 billion at the time of writing. As it happens, Seagen is no slouch, with a valuation around $30 as of today’s session. Accordingly, such a deal would be one of the biggest we’ve seen in some time. And with M&A activity so modest of late, investors looking for special opportunities are certainly pointing their attention to these two stocks.
Let’s dive into what investors may want to consider with this potential deal.
Will Merck Take Out SGEN Stock?
With valuations having come down so dramatically this year, it’s understandable why so much M&A speculation is taking hold right now. In the pharma sector, which has already attractive valuations, this speculation is perhaps more heated than elsewhere.
For Merck, Seagen’s oncology-focused business is an intriguing one to consider. Oncology drugs (those used to treat cancer patients) are among the most sought-after assets in the biotech world. That’s generally because these drugs have higher margins and, unfortunately, “sticky” demand, making for strong cash flow prospects over time.
Thus, this deal certainly appears to make sense on its surface. However, given the size of these two firms, this deal is likely to see regulatory scrutiny. Given how strongly President Joe Biden has pushed back against anti-competitive practices, the level of uncertainty this deal provides with respect to regulatory review is high.
That said, it’s clear interest in Seagen’s business, even if it doesn’t result in a deal, is positive for this stock. If Merck likes the company’s drug pipeline, so too should investors. Thus, this is a stock investors may want to put on the watch list right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
