Mergers and acquisitions have always been a big part of the biotechnology industry, and the patent cliff has further increased M&A activity. We are only mid-way into 2013, but the biotech industry has already seen M&A of over $93.6 billion, as the generic threat and empty pipelines are forcing big-pharmaceutical players to adopt aggressive M&A strategies.
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) has said that it has rejected an acquisition offer from Amgen, Inc. (NASDAQ:AMGN). Amgen was prepared to offer around $120 per share for Onyx, but the board considers this an extremely low offer–it believes that Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s rich drug portfolio can fetch around $140 to $150 per share. Onyx has recently gained prominence for its cancer drug Kyprolis, which received FDA approval last year.
Kyprolis
The FDA approved Kyprolis last July. The drug is for patients with multiple myeloma who had not responded to at least two other medications. Multiple myeloma is a rare but deadly disease that attacks the plasma cells in the bone marrow. Every year approximately 21,000 patients are diagnosed with multiple myeloma in the U.S., and almost 10,000 do not survive. During the first 8 months of clinical trials, Kyprolis reduced tumors in 23% of patients from a total population of 266. The drug also showed a number of common side-effects including fatigue, shortness of breath, low platelet count, diarrhea, fever, etc.
Kyprolis is for patients who have already stopped responding to at least two other treatments, including Velcade and Revlimd/Thalomid. Kyprolis is a 3rd line treatment for multiple myeloma and is a pretty expensive drug. First line treatments like Velcade cost around $1,471 per vial, whereas Kyprolis costs around $1,658 per vial. The sell side expects the multiple myeloma market to exceed $5 billion in a couple of years and Kyprolis to reach peak annual sales of $3 billion.
The competition in the multiple myeloma market is tough. Celgene has recently launched Pomalyst, which is also approved for patients not responding to Revlimd or other first line treatments. Despite these issues, Kyprolis managed to beat the Street’s sales expectations for the first quarter. The Street was expecting sales to be around $54.7 million, but Kyprolis sales were $58 million. The drug can continue to trump estimates as its off-label usage as a 2nd line treatment grows. The drug can become an official 2nd line treatment if the data from the Aspire trial is good; trial results are expected later this year.
The Offer
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) jumped more than 50% on Monday after the announcement that Amgen, Inc. (NASDAQ:AMGN) had offered $120 for the company. Amgen is the largest biotechnology company in the world, with over 40 drug candidates in its pipeline. Despite the strongest pipeline in the world, Amgen is struggling to maintain growth. Its high-earners Epogen and Aranesp are declining in demand due to safety concerns and restrictions.
The market capitalization of Amgen, Inc. (NASDAQ:AMGN) is around $74 billion, and the company has around $21 billion in cash. The acquisition of Onyx can be synergetic for Amgen, which already has a stellar oncology portfolio. Amgen’s commercialization machine can significantly increase Kyprolis’s potential. The Street expects Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) to fetch around $140 per share; the company is already trading above $130. If Amgen, Inc. (NASDAQ:AMGN) increases its bid and manages to buy Onyx, the acquisition will affect the company’s top-line by 2015.
There is a lot of speculation on other healthcare giants that might be interested in buying Onyx. The most common target of speculators is Bayer. Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) and Bayer are already partners, and co-commercialize the kidney and liver cancer drug Nexavar and the colon treatment Stivarga. From a business standpoint the deal might make sense, but it is highly unlikely logistically. Bayer doesn’t have any presence in the United States, which makes it highly unlikely that it would go for Onyx. The company will have to invest in infrastructure and counter other geographical limitations.
Bottom-line
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) has rejected Amgen’s bid for now, but is hoping to find new suitors. The stock is trading around $130 on acquisition speculation and has limited upside at these levels. If the company doesn’t find any active interest from investors soon, the shares will slide. Amgen, Inc. (NASDAQ:AMGN) is still the top contender to buy Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), and the chances are slim that Bayer will be interested in the company. Investors that have missed yesterday’s rally should avoid this investment until the valuations are adjusted downwards or any other potential suitors surface.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Avoid This Biotech Investment, For Now originally appeared on Fool.com.
Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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