Amgen to Buy Onyx for $10.4 Billion to Gain Cancer Drug

Amgen Inc. (AMGN) said it will acquire Onyx Pharmaceuticals Inc. (ONXX) in a $10.4 billion transaction that gives Amgen access to a rapidly expanding cancer market with a new product that offers sure revenue.
Amgen agreed to pay $125 a share for Onyx’s outstanding stock, the companies said in a statement yesterday. Onyx’s Kyprolis, approved last year for a rare blood cancer, may spur more than $3 billion in revenue by 2021, according to analyst estimates compiled by Bloomberg. Onyx is now studying the medicine in an expanded group of patients.

The accord mirrors recent deals in which drugmakers have focused on buying companies with one or two promising products, rather than attempting large mergers that come with whole pipelines or offer business synergies. Onyx’s oncology drug fills a hole for Amgen in a product line that largely contains drugs to support rather than treat cancer patients, at a time when the oncology market is growing increasingly important as the U.S. population ages.
The Onyx agreement offers “a unique opportunity to add value to Kyprolis, a product which is at an early and promising stage of its launch,” said Robert Bradway, chief executive officer for Thousand Oaks, California-base Amgen in the statement.
Next Transaction
The next buyout within the drug industry could involve Alexion Pharmaceuticals Inc., another single-product company whose blood-disease treatment Soliris generated $1.1 billion in sales last year as one of the world’s most expensive medicines. Alexion has engaged Goldman Sachs Group Inc. as an adviser as it prepares for a possible takeover offer from Roche Holding AG, people with knowledge of the matter have said.
Amgen’s deal for South San Francisco-based Onyx follows similar agreements featuring the takeover of a small number of already-marketed or late-stage experimental drugs.
Last year, for example, Bristol-Myers Squibb Co. bought Inhibitex Inc. and Amylin Pharmaceuticals to gain individual treatments for diabetes and hepatitis C. The chief executives for both Pfizer Inc. and Merck & Co, have said this year that they prefer similar “bolt-ons,” rather than mergers that come with a slate of products.
While Amgen has gained from its dominance of the anemia market, the company has been seeking products to expand its product portfolio in cancer. Eight late-stage medicines are in development that will generate clinical trial data over the next three years, Bradway said in February.
44% Higher
The price for Onyx will be 44 percent higher than the stock’s $86.82 value on June 28, before the discussions with Amgen were disclosed. The deal will be financed using $8.1 billion in bank loans and cash it has in the U.S., the companies said in the statement. Approved by both boards, the transaction should close in the fourth quarter, they said.
The price “leaves some net present value on the table for Amgen shareholders, but still allows Onyx shareholders to enjoy a substantial premium,” said Mark Schoenebaum, an analyst with International Strategy & Investment Group in New York. “In addition, Onyx management can exit after having created substantial value in a relatively short period of time.”
At the same time, the deal could signal that prices may be dropping for biotechnology generally, Schoenebaum said. Amgen and Onyx agreed to the $125-a-share price after an earlier offer of $130 a share fell apart, people familiar with the negotiations said previously. The parties couldn’t resolve a dispute about Onyx drug data, said one of the people.
Schoenebaum questioned whether the lowered price meant companies were becoming more skeptical of valuations. “Is there price sensitivity out there?” he asked in an e-mail. “Why didn’t it go for more? The Onyx analysts all said originally this would go for $140 or $150” a share.
‘Unique Opportunity’
The Onyx acquisition will be Amgen’s largest after its 2001 purchase of Immunex Corp. for $16.8 billion, data compiled by Bloomberg show. Amgen’s next-largest deal was its 2005 acquisition of Abgenix Inc. for $2.21 billion.
Amgen fell less than a percent to $105.60 in New York trading on Aug. 23 after gaining 25 percent in the previous 12 months.
In addition to Kyprolis, Onyx sells Nexavar for liver and kidney cancer in partnership with Germany’s Bayer AG. Onyx generated $362 million in 2012 revenue, with 80 percent coming from Nexavar and the stomach-cancer treatment Stivarga. The company gets a 20 percent royalty on Stivarga from Bayer, which has said it expects the medicine to be a bestseller.
Onyx CEO N. Anthony Coles joined the company in March 2008. Since taking over, the shares have increased fourfold.
Third Largest
The purchase is the third-largest acquisition of a biotechnology company in the past three years, according to data compiled by Bloomberg. Since August 2010, 62 biotechnology deals valued at $50 million or more were announced, with an average disclosed price of $1.29 billion and an average premium of 55 percent, the data show.
Sanofi’s 2011 purchase of rare-disease drugmaker Genzyme Corp. for $20.1 billion was the largest, followed by Gilead Sciences Inc.’s purchase of Pharmasset Inc. for $10.6 billion.
Onyx’s shares soared after Amgen’s original $120-a-share offer became public at the end of June. That signaled that some investors expected competing offers. The shares closed at $116.96 on Aug. 23.
Lazard Ltd. and Bank of America acted as financial advisers to Amgen, and Sullivan & Cromwell were legal advisers. Centerview Partners were financial advisers to Onyx, and Goodwin Procter LLP were legal advisers.
The companies will discuss the deal Monday morning at 8:30 a.m. New York time on a conference call.

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