Shares of development-stage biopharma Cascadian Therapeutics (NASDAQ: CASC) soared more than 73% Wednesday after the company announced it was being acquired by Seattle Genetics (NASDAQ:SGEN). The move is a bit of a surprise. After all, the tiny biopharma was valued at just $300 million on Tuesday.
But while the acquisition is great news for the relatively unknown Cascadian Therapeutics, Wall Street isn't exactly signaling that it approves of the deal: Seattle Genetics shares are down about 6.5%. The reasons for disappointment are understandable after considering the bigger picture.
As of 2:05 p.m. EST, Cascadian Therapeutics stock had settled to a 70.6% gain, while Seattle Genetics shares were down 5.9%.
The $614 million buyout provides Seattle Genetics with the tiny biopharma's lead drug candidate, tucatinib, an oral tyrosine kinase inhibitor being investigated in a phase 2 trial as a potential treatment for HER2 breast cancers. While the market is a bit crowded for that specific indication (Roche's Herceptin is one of the best-selling drugs of all-time but is threatened by the encroachment of biosimilars), tucatinib is viewed as a potentially best-in-class oral therapy. It will soon be investigated as a treatment in other HER2 cancers.
What's not to like about the deal? Well, Seattle Genetics failed to license a drug from Immunomedics for $2 billion last year, which would have given the company a potential blockbuster treatment for lung and breast cancer. It turned into quite a mess with the company's founder and CEO being pushed out in the end. Separately, the company also jettisoned its lead drug candidate after preliminary analysis of phase 3 data revealed unacceptable patient deaths.
Essentially, after an awful 2017 there's a lot of pressure on Seattle Genetics to make a big move to bolster its pipeline. Wall Street doesn't think the acquisition of relatively unknown Cascadian Therapeutics goes far enough to alleviate concerns about the company's pipeline.
Whether or not the acquisition was a move of desperation on the part of Seattle Genetics, the $614 million deal could pay off handsomely if tucatinib delivers on its lofty potential. It's still too early to say, given the drug is only in phase 2 trials, but expectations are high. There are several important data readouts expected in 2018, so investors could get answers soon.
As for Cascadian Therapeutics investors, congratulations, you'll receive $10 per share the deal closes.