Onyx Pharmaceuticals, Inc. (ONXX), Amgen, Inc. (AMGN): Is This A Good Acquisition For All?

Page 2 of 2

Who’s In The Running?

As you can see, Gilead’s acquisition of Pharmasset has become a blessing, creating optimism and excitement in shares of the company. In an industry that is struggling with new generic drug introductions, these exciting acquisitions might be expensive, but do provide a spark.

With that said, the companies who are reportedly in the hunt to acquire Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) in the bidding war are Pfizer, Novartis, Bayer, AtraZeneca, Eli Lilly, and of course Amgen, Inc. (NASDAQ:AMGN). While all of these companies would be likely suitors due to the oncology pipeline expansion that Onyx would create, I think Gilead Sciences is yet another dark horse that might make a move.

Gilead Sciences has already proven that it is more than willing to make large offers, and after a one-year 100% gain, there is a lot of value for its stock to be used in a potential deal. The company has almost $2 billion in cash, has paid off more than $1.5 billion in debt over the last year, and has the financing available to make such an offer. After seeing the long-term performance of its stock – following the Pharmasset buyout – I wouldn’t be surprised if it arises as a lead bidder.

In my opinion, Amgen, Inc. (NASDAQ:AMGN) will also increase its bid, and will have no problem raising its offer. We often see companies in biotechnology make low ball bids at first to test the waters, and then come back with larger offers.

Amgen, Inc. (NASDAQ:AMGN) is one of the only companies that really needs Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX). Amgen has very few growth opportunities with a dwindling pipeline, and only one Phase 2 blood cancer product in its pipeline. Amgen, Inc. (NASDAQ:AMGN) currently trades at 4.20 times sales, and an acquisition of Onyx could boost its top-line by nearly 30% over the next five-six years; which could result in a higher multiple.

Final Thoughts

In the past, I have wrote about not chasing the rumors of an acquisition. I have shown how it almost always ends badly for retail investors, but in this case, we already know that Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is for sale and that there are interested buyers.

At $134 a share, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) could see a 20% premium on an acquisition, which could be a very nice short-term return.

Then, it also benefits large pharma, as the acquisition of Pharmasset proves the level of optimism that a high-profile big revenue generating acquisition can create. Thus, in this one particular case, an acquisition is good for all parties involved: the buyer and the seller!

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

The article Is This A Good Acquisition For All? originally appeared on Fool.com.

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

Page 2 of 2