Four Potential Suitors for Onyx Pharmaceuticals, Inc. (ONXX)

Page 2 of 2

Dark horse

Gilead Sciences, Inc. (NASDAQ:GILD), the final name mentioned by the insiders, has been slowly building out its oncology franchise through multiple acquisitions and even an academic partnership.

Gilead Sciences, Inc. (NASDAQ:GILD) has six oncology drugs in the pipeline, but hasn’t gained FDA approval for an oncology drug yet. Purchasing Onyx would give it a couple of marketed products and thus a built in sales force.

Gilead Sciences, Inc. (NASDAQ:GILD) doesn’t have the cash to make the purchase, though. At the end of the first quarter, the biotech only had less than $2 billion in the bank. Of course, capital is still cheap, so issuing bonds to pay for the purchase is an option.

Buy?
I could see any of the companies mentioned eventually buying Onyx. Of all the companies, Gilead could benefit the most from purchasing Onyx, although I think it’s probably the least likely to pull the trigger.

The concern for shareholders of the potential buyers isn’t whether they should buy, but whether they’ll overpay. Getting in a bidding war for a company that’s already increased in value over 75% this year can be dangerous.

I think there’s probably some room to go higher. My Foolish colleague Sean Williams did a good job breaking down Onyx’s assets, coming up with a potential price of $145 per share based on 2.5 times peak sales, which seems reasonable to me, but whether a potential acquirer will see it that way remains to be seen. Jumping on for the 9% upside may not be worth the risk of acquirers deciding the valuation has gotten too steep.

The article 4 Potential Suitors for Onyx originally appeared on Fool.com is written by Brian Orelli.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2