Is Amgen's Acquisition of Five Prime a Good Move for the Big Biotech?

Amgen (AMGN -0.59%) recently announced plans to acquire Five Prime Therapeutics (FPRX) for approximately $1.9 billion. The deal gives Amgen rights to bemarituzumab, which has made it through phase 2 testing. In this video from Motley Fool Live, recorded on March 8, Fool.com contributors Brian Orelli and Keith Speights discuss why Amgen needs to seek out this potential growth and whether Five Prime's pipeline is worth the premium Amgen paid for it.

Brian Orelli: Moving on to Amgen. It's acquiring Five Prime Therapeutics for $38 per share. That's a 79% premium, and values the company at about $1.9 billion. Five Prime's lead asset is an antibody called bemarituzumab. It targets fibroblast growth factor receptor, which is overexpressed in 30% of non-HER2-positive gastric cancers, as well as other solid tumors. I think lung and breast and ovarian cancers have a pretty high percentage there, and there might be potential to treat those indications in the future, if Amgen wants to go after them and beyond gastric cancer.

They tested the drug in a phase 2 clinical trial for gastric cancer. It improved progression-free survival, overall survival,  and had a high overall response rate.

Amgen talked up the potential to get into its growth strategy in Asia, where gastric cancer's particularly prevalent. But Amgen already has a significant deal with BeiGene (BGNE -1.63%) to market its drugs in China, and Five Prime had already licensed the drug to Zai Labs (ZLAB -4.85%), so I'm a little confused as to whether they want to go with BeiGene or Zai Labs or maybe they don't care because they're not going to go into China by themselves, and so having a partner, any large partner, is good enough. What are your thoughts, Keith?

Keith Speights: I look at this more from the standpoint of Amgen, honestly. I think Amgen absolutely needs to make more acquisitions to boost its growth. If you look, three of their four top-selling products have sales that are either flat or declining. Amgen does have some other products, but their biggies, their top-selling products, are not being the growth drivers the company needs. The biggest growth story for Amgen right now is Otezla, and that's a product they acquired. They bought Otezla from Celgene to help facilitate Bristol Myers Squibb's buyout of Celgene. Acquisitions, I think, are just very key to Amgen's fortunes going forward.

Now, Five Prime's lead candidate is ready for phase 3 testing, and like you said, in treating gastric cancer, so I think buying a late-stage candidate is probably a pretty good move for Amgen. Looks like a pretty good fit for the company. It remains to be seen if the price tag will be worth it, $1.9 billion for the late-stage candidate. It just depends on how the drug ends up faring in those late-stage studies. But, overall, I think it's probably a good move, but we will have to wait and see to know for sure.

Orelli: Yeah, I mean, definitely. I think if they get positive phase 3 data, they'll definitely earn back that $1.9 billion and then some. But risk-adjusted, is it worth $1.9 billion? I think the phase 2 data looked solid enough. Amgen obviously thought it was worth more, although you could argue that investors, before Amgen stepped in, didn't think it was worth nearly that much. We'll have to wait and see.