After a second offer, Amgen (NASDAQ:AMGN) and Onyx Pharmaceuticals (UNKNOWN:UNKNOWN), a maker of drugs to fight cancer among other diseases, are in agreement on the offer price. The acquisition of Onyx is going to cost Amgen about $10 billion, or $125 per share. Now that the acquisition is locked stocked and barreled, in the health care industry this acquisition is the newest out of many, particularly since drug makers are looking to add to their offerings.
Onyx is a hot topic in the health care industry, and with Amgen acquiring it, investors can fill their pockets with enormous profits if played right.
If you look at the biotechnology companies by sales, Amgen is the world's largest, with $17.3 billion in revenue in 2012. However, its most prosperous products are now exhausted and various products are selling at a slower pace, or even in descent.
Competition is becoming fierce for Amgen's products, particularly in Europe where companies are producing near generic copies, called biosimilars. In addition, the opposition is supposed to roll over into the United States over the next several years. Teva Pharmaceutical (NYSE:TEVA), one of those rivals that is supposed to announce a near generic copy of its Neupogen later this year. Neupogen is a drug for patients who undergo chemotherapy; the drug is supposed to repress infections.
This acquisition of Onyx is the first large-scale acquisition struck by Amgen's chief exec Robert Bradway, who came aboard in May 2012. In June of this year, Amgen set in motion its pursuit for Onyx, by making a voluntary bid of $120 per share, which at that time was around 38% higher than the stock price. However, Onyx reprimanded the attempt and authorized Centerview Partners, an investment bank, to explore bids for its company. Since Amgen's attempt and Centerview's hunt for bids, there has been a large number of biotech companies expressing interest, including Novartis and Pfizer.
Cancer drugs are Onyx's primary captivating force, in 2012, two of its drugs were approved. Its most valuable drug is Kyprolis -- finally approved in July 2012 and outright owned by Onyx -- which treats multiple myeloma. In a few years, many analysts foresee $2 billion in annual sales generated for Kyprolis, contributing immense momentum to the growth of Onyx. In 2012, Onyx reported revenue of $362.2 million, with a majority of the proceeds coming from drugs it splits with Bayer AG.
Amgen decided to reduce its rumored bid of $130 per share to $125 per share when a dispute between it and Onyx arose. An abrupt setback in the deliberations manifested when Amgen ordered the release of more clinical trial data on Kyprolis. Amgen's bid of $125 per share was compellingly higher than its opening pitch and far outweighs any bewilderment of a prolonged sales process.
Amgen is paying around 13 times the amount Onyx will generate in sales over the next year or so, according to most analysts. In the biopharmaceutical industry, this multiple is one of the highest.
Competition ramping up
Teva is an Israel-based biotech company, and in June, it acquired MicroDose Therapeutx, a drug delivery specialist. Teva paid $40 million in cash up front to purchase all shares and $125 million in possible payments contingent on the achievement of development, regulatory, and sales-based milestones.
Earlier this month, Teva launched Temozolomide, a generic version of Temodar. According to IMS data in 2012, Temodar generated $423 million in annual sales in the United States. Teva's launch of its generic version renders a quality substitute, thus reducing costs for patients who undergo cancer therapy.
Teva has many generic versions that will hit the United states markets in the near future. Teva has a generic version of Shire's Adderall XR capsules for the treatment of attention deficit hyperactivity disorder. According to IMS data in 2012, Adderall XR generated $2 billion in annual sales of both generic and brand sales in the United States. Teva's Sildenafil is a generic version of erectile dysfunction drug Viagra and is available in Europe and other countries as of now, but will most likely end up in the United States soon.
The Foolish bottom line
Almost every biotech company is searching for a treatment to cure cancer, and Amgen is trying to take the lead by acquiring Onyx, which has already made strides in this direction. Amgen could be the one to change the world and discover a cure, which would result in major profits for the shareholders of such a company. Onyx seems like a buy if you jump in now.
Although going through a transition phase given fewer large generic opportunities, Teva is still a good play. Investors should look at Teva, but beware that Teva is in the game of producing generic versions, drawing attention to patent infringements that result in litigations, which could send the stock in a downward spiral.