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.
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.
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.