Date: Aug 25, 2013 Author: Dana Camilluca; Joanthan D Rockoff and Joseph Walker Source: Wall Street Journal (
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Amgen Inc.'s AMGN -0.05% a deal Sunday to buy fellow biotechnology Onyx Pharmaceuticals Inc. ONXX 0.00% for roughly $10.4 billion, gives it a strategic presence in the lucrative market for cancer drugs, but one that is crowded and carries significant risks.
The acquisition, expected to close at the beginning of the fourth quarter, would give Amgen the multiple myeloma drug Kyprolis. The drug's success, however, hinges on the results of pending clinical trials and the ability of Amgen to expand sales against entrenched competitors such as Johnson & Johnson JNJ +0.03% and Celgene Corp. CELG +2.29%
"We felt this opportunity was strategically compelling for us, enabling us to build on our strengths in" cancer therapies and "add to our long-term growth prospects," said Amgen Chairman and Chief Executive Robert A. Bradway during a conference call with analysts on Monday. "Our confidence [in Kyprolis] is reflected in the price that we've moved forward the transaction with."
Investors appeared to view the deal as a positive step for Amgen in offsetting continued sales declines among some of its core drug franchises. Amgen shares rose 7.9% to $113.96 in midafternoon trading Monday on the Nasdaq Stock Market.
The all-cash takeover would value Onyx at $125 a share. The price Amgen is paying is below what investors expected in the days after the possible deal surfaced in late June. Amgen had approached Onyx with an offer of $120 a share for the company.
Onyx shares rose 5.7% to $123.60 in midafternoon trading.
Amgen, the largest biotechnology company by sales, is under pressure to find new sources of revenue growth to offset declines—expected to accelerate in the coming years—among some of its older therapies. Copycat versions of biological drugs, known as biosimilars, are expected on the U.S. market in the coming years, posing a threat to Amgen sales.
"This is a sensible deal strategically, but it doesn't transform Amgen," said Ravi Mehrotra, a Credit Suisse analyst. "It's an important steppingstone to solve a structural problem, which is post-2015 Amgen revenue and earnings growth in the face of biosimilar erosion."
For weeks, Onyx shares—which had been trading at less than $90 before the approach was disclosed—changed hands for more than $130 each. But when it became apparent that the auction Onyx subsequently tried to run drew less interest than the company had hoped for, the share price sagged, closing Friday at $116.96. At $125 a share, Onyx is selling for more than four times the price it traded at roughly five years ago.
Amgen's agreement to buy Onyx is the latest deal aimed at snapping up a maker of cancer drugs and diving deeper into one of the industry's fastest-growing segments. Scientific advances have paved the way for developing new treatments to once intractable conditions, and drug makers have been able to charge high prices for the therapies that receive approval—$10,000 a month or more for some drugs.
Most recently, in June, Johnson & Johnson agreed to buy privately held cancer drug developer Aragon Pharmaceuticals Inc.
Despite their promise, deals for cancer biotechs can flame out. To limit the risks, big drug makers have sought to buy firms with cancer drugs that are already approved and on sale.
The acquisition will give Amgen control of South San Francisco-based Onyx's Kyprolis, which was approved in the U.S. last year as a treatment for a blood cancer known as multiple myeloma. It notched $125 million in sales during the first half of this year, and is expected to have $1 billion in sales by 2015. The revenue will help Amgen cope with sales lost as some of its leading products start facing lower-priced competition, and before promising drugs can finish development.
Amgen is taking some risk betting that current testing of Kyprolis will demonstrate the drug deserves to win wider approvals, however. The riskiness of the testing was a subject of dispute during acquisition talks, according to a person familiar with the discussions.
Aside from a small-selling colorectal cancer agent, Amgen's cancer portfolio consists mostly of treatments, like its top-selling Neupogen and Neulasta franchise, that help patients cope with the side effects of chemotherapy and other treatments. Last year, the Thousand Oaks, Calif., biotech had $17.3 billion in revenue.
Cancer has become an important market. Last year, the drugs accounted for $84 billion in world-wide sales, second only to central nervous system treatments, according to EvaluatePharma. Sales of cancer therapies are expected grow faster than for drugs for all other conditions, at a compounded rate of 8% a year, and become the industry's top-selling category by 2018.
Big drug makers have taken notice, pivoting toward cancer treatments as heart drugs and other treatments that had driven their revenues lose patent protection. In one sign of the companies' hunger for new cancer products, about a quarter of industry deals greater than $100 million now involve cancer, more than any other disease, according to J.P. Morgan Chase & Co.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Jonathan D. Rockoff at jonathan.rockoff@wsj.com and Joseph Walker at joseph.walker@dowjones.com
