The Amgen, Inc. (AMGN)-Onyx Pharmaceuticals, Inc. (ONXX) Deal Should Make All Biotech Investors Happy

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As I’m sure you’ve probably heard by now, Amgen, Inc. (NASDAQ:AMGN) agreed to purchase Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) for $125 per share.

Amgen, Inc. (NASDAQ:AMGN)

While that’s certainly not what Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) investors were hoping for — at one point, after Amgen, Inc. (NASDAQ:AMGN) made its initial $120 bid, shares of the biotech topped $136 — the deal looks healthy for the sector in general.

M&A still an option for exit
Without a doubt, M&A is still the easiest way to make money in the biotech sector. Unlike the typical binary event, an acquisition only has upside potential; unless it’s a take-under, there’s no downside related to the M&A event. Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) investors who were holding before Amgen, Inc. (NASDAQ:AMGN)’s initial bid was announced are sitting on a nice 44% increase.

Without a doubt, it’s good news for the industry that Amgen, Inc. (NASDAQ:AMGN) would go after Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) and still raise its bid when it appears no one else was interested in buying the biotech. Investors in other biotechs should see an increase in value simply because there’s a possibility that they’ll be bought. I wouldn’t buy for that reason alone, but it’s nice to have a valuation bump as long as it doesn’t get out of control.

Partner shmartner
Conventional wisdom says having a big pharma partner makes a biotech less likely to be a takeout target because potential buyers won’t want to work with the partner. The most obvious buyer is the current partner, and it’s hard to get a bidding war going with just one bidder.

But Amgen, Inc. (NASDAQ:AMGN) was still willing to purchase Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), which markets Nexavar with Bayer. There’s more to Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) than Nexavar — its blood cancer drug Kyprolis was likely just as much a factor in the purchase — but the fact that Amgen, Inc. (NASDAQ:AMGN) wasn’t scared off by having to work with Bayer is a good sign for other commercial-stage biotechs with partners.

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), for instance, is partnered with Eisai for their obesity drug Belviq. While I doubt anyone would be interested in buying Arena right now given the lackluster launch, if the companies can overcome the challenges of selling obesity drugs, it’s not hard to see how someone would want to buy Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). The potential obesity market is huge (pun intended).

It’ll be interesting to see how far this “partners don’t matter” thought might go. Fellow Fool, Keith Speights, suggested that Seattle Genetics, Inc. (NASDAQ:SGEN) could be next, but the company has partnerships with 12 different companies. I’m not sure a big pharma would want to deal with that many of its competitors.

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