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Amgen seeks to bolster drug pipeline with US$10.4b Onyx buy

PUBLISHED : Monday, 26 August, 2013, 9:44am
UPDATED : Monday, 26 August, 2013, 9:44am
 

Amgen struck a deal to buy cancer drug maker Onyx Pharmaceuticals for about US$10.4 billion, as it moves to restock its product pipeline in response to declining sales of its flagship anaemia drugs.

The acquisition - which ends a two-month-long auction of Onyx - represents the fifth-largest biotechnology deal in history. It gives Amgen full rights to Kyprolis, the new multiple myeloma drug that analysts expect to reach annual peak sales in excess of US$2 billion.

The world’s largest biotechnology company will also gain a revenue stream from the liver and kidney cancer drug Nexavar that Onyx shares with Bayer, as well as royalty payments on Bayer’s much newer colon cancer drug, Stivarga, and potential future royalties on an experimental breast cancer drug being developed by Pfizer.

Amgen has faced growing pressure to beef up its drug development pipeline as safety concerns have trimmed sales of its flagship anaemia drugs, Aranesp and Epogen. Also, patents on four of its five top-selling drugs are set to expire starting in 2015.

Cancer medicines are the holy grail for many drugmakers because current products have limited effectiveness and the companies can charge steep prices for new biotech treatments.

Amgen said it will pay US$125 per share for Onyx, a 4.2 per cent increase from the US$120 a share it offered in June. Onyx said that bid significantly undervalued the company and put itself up for sale.

The companies expect the deal to close in the beginning of the fourth quarter. Amgen expects it to add to adjusted net income in 2015.

Discussions between Amgen and Onyx hit a snag earlier this month after Amgen sought access to data from Onyx’s ongoing clinical trials, people familiar with the matter told Reuters previously. A source familiar with the matter on Sunday said that Amgen believed it had done extensive due diligence and was comfortable with the purchase.

Onyx shares closed at US$116.96 on Friday. They closed at US$85.50 on June 28, before reports of Amgen’s US$120-a-share bid surfaced.

The Onyx deal is Amgen’s biggest since its US$16 billion acquisition of Immunex in 2001 which gave it the rheumatoid arthritis drug Enbrel, now one of Amgen’s biggest-selling products.

It is also by far the biggest deal under chief executive Bob Bradway, who assumed the top spot in May last year. He has done a handful of much smaller deals, the biggest to date being a US$1.16 billion acquisition of Micromet.

Large pharmaceutical companies have increasingly been looking to acquire smaller biotech firms to gain access to new drugs, as they face significant revenue losses stemming from expired patents.

This helped drive up the volume of healthcare M&A in the first six months of this year more than 30 per cent compared with the same period last year.

Recent deals include generic drugmaker Actavis’s US$8.5 billion acquisition of Warner Chilcott

and Human Genome Sciences’ US$3 billion sale to GlaxoSmithKline.

The Onyx deal is expected to give Amgen a much higher profile in oncology. Several of its current drugs offer supportive care for cancer patients, such as treating anaemia or decreases in white blood cells caused by chemotherapy.

Another of Amgen’s newer medicines, Xgeva, helps prevent fractures in patients whose cancer has spread to the bone. Its one product that treats cancer, the colon cancer drug Vectibix, has been largely a disappointment.

Analysts expected Onyx revenue to reach US$878 million next year, according to Thomson Reuters I/B/E/S.

Mark Schoenebaum, an analyst with ISI Group LLC, projected that an Onyx acquisition would increase Amgen non-GAAP earnings by 5 per cent in 2015, and boost them as much as 15 to 20 per cent in 2018.

Reuters

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