Onyx Pharmaceuticals, Inc. (ONXX), Amgen, Inc. (AMGN): Will This Biotech Bidding War Lead You to Larger Gains?

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AstraZeneca plc (ADR) (NYSE:AZN)’s CEO Pascal Soriot has already said he wants to focus on core research areas like cancer. Therefore, investors assume Onyx is the acquisition target. AstraZeneca plc (ADR) (NYSE:AZN) does have a large hole left by the generic introduction for its blockbuster schizophrenia drug Seroquel, and its ulcer drug Nexium, which will expire next year. In 2010, Nexium and Seroquel combined for more than $10 billion in revenue. Therefore, Onyx’s revenue potential could be attractive to AstraZeneca plc (ADR) (NYSE:AZN).

How High Could the Bidding Go?

Bristol-Myers and AstraZeneca joined forces to purchase the diabetes drug maker Amylin Pharmaceuticals for $7 billion. Fellow Fool Sean Williams found that Amylin’s lead drug, Bydureon, had peak sales of just $1.5 billion, which represented a price/sales ratio of 4.6.

If Deutshe Bank is right with their $140 price target, then Onyx would sell for $10.2 billion, or a price/sales ratio of 3.4. This ratio would be significantly less than the premium of Amylin.

With the exception of Pfizer, I think any of the noted companies could acquire Onyx. I also think there are several dark horses such as Gilead or Celgene that might bid. Celgene is already a cancer research leader. Gilead’s anti PD-1 cancer therapeutic had a good showing at this year’s ASCO. Gilead could build on its cancer-fighting pipeline.

With that said, I think it is highly unlikely that Onyx is sold for 3.4 times peak sales. In fact, I think Onyx could easily see the same 4.6 times peak sales that was paid for Amylin. Therefore, I think a price closer to $175 is reasonable and that you might want to explore a potential investment as big pharma goes to war to acquire Onyx.

In regards to who acquires Onyx, I think Amgen wants the growth badly. Amgen, Inc. (NASDAQ:AMGN) has already tested the water, is the only company to make a public bid, and now it’s time to jump in. Amgen has over $20 billion in cash, making it a rather uncomplicated acquisition. Nonetheless, I think the Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) drama is far from over, and that more gains are to come.

The article Will This Biotech Bidding War Lead You to Larger Gains? originally appeared on Fool.com and is written by Sherrie Stone.

Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Sherrie 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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