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Does This First-in-Class Acquisition Make Amgen a Buy?

By Anirudh Shankar - Apr 27, 2021 at 5:54AM

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Amgen just bought Rodeo Therapeutics in a move that bolsters its drug candidate pipeline.

Amgen (AMGN 0.93%) recently agreed to acquire biotechnology start-up Rodeo Therapeutics in an all-cash deal. Amgen will buy all outstanding shares of Rodeo for a total of $55 million. However, Rodeo stakeholders will be able to receive up to an additional $666 million in cash if certain milestones are met. For investors, the key questions are: How good is this deal for Amgen, and should you consider buying the stock now? 

Behind the deal

The California-based biotechnology giant made this purchase to expand its inflammation portfolio. It is Amgen's second acquisition of 2021 -- last month, it bought Five Prime Therapeutics for $1.9 billion. Through this deal, Amgen will get its hands on Rodeo's collection of assets targeting prostaglandins, a group of signaling molecules that play a role in tissue repair and regeneration. One drug that Amgen seems to have a lot of interest in is 15-prostaglandin dehydrogenase or 15-PDGH, which breaks down prostaglandins. 

Scientists working

Image source: Getty Images.

Pumping up the pipeline

Rodeo has been focused on developing drugs and therapies that will aid in tissue regeneration and repair. It's an industry leader in the development of, and data collection on, prostaglandins and their various enzymes. Amgen will get access to an array of studies and clinical trials, giving it the potential to treat multiple illnesses related to inflammation using this 15-PGDH enzyme. 

There has actually been quite a bit of interest in Rodeo Therapeutics' pipeline from multiple (unidentified) companies for some time now, but Amgen came out the winner. Following its founding in 2017, the small biotechnology start-up went through several funding rounds to support its work relating to tissue regeneration. In its 2017 series A funding round, players including AbbVie, Johnson & Johnson, and Eli Lilly invested a combined $5.9 million in it, reflecting their perception of its research's potential.

Amgen will look to integrate all of Rodeo's drugs and therapies into its inflammation portfolio, where it will work to create new drugs with the potential to repair and regenerate human tissue. In a statement, Amgen said that Rodeo's 15-PGDH will play a key role in its research into stem cell self-renewal, among other things. Given the extent of Rodeo's data collection from clinical trials, these treatments could come to market sooner rather than later.

Why you should consider buying now

Amgen's current lineup features a number of blockbusters, including newer drugs Otezla (psoriasis) and Prolia (osteoporosis). Otezla did almost $2.2 billion in sales in 2020, up from just $178 million in 2019, when it was launched. These drugs have massive long-term potential. Between those, its own pipeline candidates, and the drugs acquired from Rodeo and Five Prime, Amgen will have plenty of fuel to drive growth. And at its current share price, its dividend yields 2.74%, more than double the S&P 500's current yield of 1.32%. Amgen recently increased its annualized payout by 10% to $7.04 a share.

Expect the company's latest acquisitions to bolster its pipeline and maintain Amgen as a great investment for the long term. 

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