The Amgen-Onyx Deal Should Make All Biotech Investors Happy

As I'm sure you've probably heard by now, Amgen (NASDAQ: AMGN  ) agreed to purchase Onyx Pharmaceuticals (UNKNOWN: ONXX.DL  ) for $125 per share.

While that's certainly not what Onyx investors were hoping for -- at one point, after Amgen made its initial $120 bid, shares of the biotech topped $136 -- the deal looks healthy for the sector in general.

M&A still an option for exit
Without a doubt, M&A is still the easiest way to make money in the biotech sector. Unlike the typical binary event, an acquisition only has upside potential; unless it's a take-under, there's no downside related to the M&A event. Onyx investors who were holding before Amgen's initial bid was announced are sitting on a nice 44% increase.

Without a doubt, it's good news for the industry that Amgen would go after Onyx and still raise its bid when it appears no one else was interested in buying the biotech. Investors in other biotechs should see an increase in value simply because there's a possibility that they'll be bought. I wouldn't buy for that reason alone, but it's nice to have a valuation bump as long as it doesn't get out of control.

Partner shmartner
Conventional wisdom says having a big pharma partner makes a biotech less likely to be a takeout target because potential buyers won't want to work with the partner. The most obvious buyer is the current partner, and it's hard to get a bidding war going with just one bidder.

But Amgen was still willing to purchase Onyx, which markets Nexavar with Bayer. There's more to Onyx than Nexavar -- its blood cancer drug Kyprolis was likely just as much a factor in the purchase -- but the fact that Amgen wasn't scared off by having to work with Bayer is a good sign for other commercial-stage biotechs with partners.

Arena Pharmaceuticals (NASDAQ: ARNA  ) , for instance, is partnered with Eisai for their obesity drug Belviq. While I doubt anyone would be interested in buying Arena right now given the lackluster launch, if the companies can overcome the challenges of selling obesity drugs, it's not hard to see how someone would want to buy Arena. The potential obesity market is huge (pun intended).

It'll be interesting to see how far this "partners don't matter" thought might go. Fellow Fool, Keith Speights, suggested that Seattle Genetics (NASDAQ: SGEN  ) could be next, but the company has partnerships with 12 different companies. I'm not sure a big pharma would want to deal with that many of its competitors.

Not a bubblicious price
Sure, Onyx investors would have preferred a higher price, but as an industry, reasonable prices are healthier. Crazy valuations can only last for so long. Eventually they fall back to reality (often below it).

Amgen's final offer looks like a pretty decent price. At $125, I expected a CVR that would have given investors a piece of the upside if Onyx's drugs exceeded expectations. Amgen's investors sure seem to think the company got a good deal; shares are up 8% as I write this.

It's clear Amgen and the other potential suitors that bowed out before then weren't willing to go overboard to acquire Onyx. After the recent run up in biotech valuations and the ease that biotechs have had in going public, I've become increasingly worried that the valuations have gotten out of hand. Amgen's lower-than-expected takeout price is a sign that there's some sanity to the market.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 26, 2013, at 4:49 PM, RSRdriver wrote:

    In order for Arena to be takeover bait they must first have a viable product! Belviq sales so far point to the fact that they cannot even give it away for free!

    The company is run by scientists not business people and their pipeline is many years away.

    Orexigen is more likely this sectors (obesity) target.

    Vivus is a lawsuit with j+j waiting to happen.

  • Report this Comment On August 26, 2013, at 5:17 PM, Foreeverlong wrote:

    RS,

    Your comments about sales of Arena's Belviq are misleading. Eisai and Arena both said that they were going to engineer a soft ramp-up of Belviq. Orexigen's Contrave is questionable as to whether it will ever get to market. Belviq's sales trajectory has been far better than that of Qsymia. I believe that when the DTC advertising begins in a matter of months, a critical mass of physicians have been educated about Belviq and insurance coverage has been established, we will see robust sales of Belviq.

    www.belviqsuccessstories.com is already showing that responders to Belviq and their attending physicians are very pleased with the weight reduction that they are achieving. And, for those patients who have T2DM the results are equally outstanding. General Internist, Dr. Steven Vig in Tucson, AZ now has over 300 patients on Belviq, and is very pleased with the results that are being achieved. You might want to view his grand rounds tape shot at University of Arizona that is available on YouTube.

    And to your point that Arena is run by scientists, not business people, you should remember that Eisai, not Arena, is handling the task of marketing Belviq. Eisai is very experienced in doing this.

  • Report this Comment On August 26, 2013, at 7:07 PM, RSRdriver wrote:

    It seems that the typical Areniac name calling and typical numbers twisting has evolved to a higher standard BS slinging! Still, the Belviq success stories are nothing more than the same message board hacks that have been pumping Belviq for the last 15 months or so.

    As for DR. Vig, he too regularly pumps Belviq on message boards (yahoo look it up) and refuses to state whether or not he holds Arena stock!

    To compare Belviq sales to Vivus Qsymia sales is ridiculous if you are not going to include the fact that Vivus only recently was allowed to sell in brick and mortar.

    It is obvious who is misleading who here.

  • Report this Comment On August 26, 2013, at 8:55 PM, TheGazoo wrote:

    RSRDRIBBLE......

    You're back..... what's your agenda this time out?

    You're so worried about Areniac's..... What are you? Are you short again trying to cover?

    "LIKE LAST TIME"

    You're the "paid" basher with you're own agenda....

    WOW..... even to start name calling is POOR...

    You are the worst of the worst in this play....

    TTYAL......

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