Amgen, Onyx Shake Hands, Close Deal at $125 per Share
By Marie Powers
In the end, Amgen Inc. and Onyx Pharmaceuticals Inc. got the deal done.
The companies disclosed Sunday evening that the boards of directors of both companies unanimously approved Amgen’s acquisition of South San Francisco-based Onyx for $125 per share in cash for a purchase price of $10.4 billion, or $9.7 billion net of Onyx’s estimated cash.
The agreement brought to a close a transaction that played out as much in the public press as in private negotiations from the time Amgen made its initial offer, for $120 per share, in late June. (See BioWorld Today, July 2, 2013.)
In the ensuing weeks, shares of Onyx (NASDAQ:ONXX) – which zoomed 51 percent, from $86.82 to $131.33, after Amgen’s first offer – bounced from a 52-week high of $136.87 to as low as $108.40 after enthusiasm dimmed for competing bids that analysts predicted could top $140 per share. Additional suitors never materialized, with the price of Onyx’s stock and qualms over delayed reporting of clinical data said to discourage some prospects. (See BioWorld Today, Aug. 8, 2013.)
Predictably, Onyx shares, which closed Friday at $116.96, rose approximately 6 percent, within striking distance of the deal price, closing at $123.49 for a gain of $6.53. Shares of Thousand Oaks, Calif.-based Amgen (NASDAQ:AMGN), which closed Friday at $104.60, enjoyed a bit more buoyancy, advancing 7.7 percent to close at $113.75, a gain of $8.15.
In a conference call early Monday morning, Robert A. Bradway, Amgen’s chairman and CEO, confirmed the basics of the deal but was short on specifics.
“Attractive acquisition opportunities are rare in our industry, so this is a big day for us and, we hope, for our shareholders,” Bradway said. “We felt this opportunity was strategically compelling.”
Bradway and Jonathan Peacock, executive vice president and chief financial officer, said Amgen plans to finance the acquisition with $8.1 billion in committed bank loans carrying five-year terms and the balance with cash. The loans carry an average interest charge of three-month floating LIBOR (London Interbank Offered Rate) plus 104 basis points, amounting to approximately 1.3 percent at current interest rates, according to Peacock. The deal is expected to be accretive to revenues from the outset and accretive to earnings in 2015, and Peacock expressed confidence that Amgen also could improve on the effective tax rate for the Onyx assets.
“We feel we were able to acquire the company at a valuation that will generate a return for our shareholders while maintaining our strong balance sheet and commitment to an increasing dividend,” Bradway said.
The transaction will be conducted through a tender offer that will filed this week, along with Hart-Scott-Rodino filings. If all goes well, the transaction could close as early as the week of Sept. 30, subject to customary conditions, according to Peacock, who said the deal can close with 50 percent plus one share voting approval.
“We’re very optimistic that we’ll be able to close this deal quite quickly,” Bradway said.
‘A Good Deal’ but Not ‘Fantastic’
Reuters and other news outlets reported Saturday afternoon that the deal was imminent and cited the final terms. At the time, ISI Group analyst Mark Schoenebaum wrote in an email that, “according to our model, the [net present value] breakeven price for ONXX to AMGN is $130-$140 per share. Thus, at $125 per share, AMGN has left a bit of NPV on the table for its shareholders. And the Onyx management team exits after having created substantial and dramatic value for its shareholders.”
In terms of dollar value, the transaction ranks 15th among M&A deals involving pharmas and biotechs since 1998, according to data compiled by Schoenebaum. Roughly half of those deals included mergers between major and/or specialty pharmaceutical companies. Of the M&As involving biotechs, the deal fell well short of the $45.3 billion acquisition of Genentech Inc. by Roche Holdings AG in 2009 and Sanofi SA’s $21.0 billion Genzyme Inc. buy in 2011. In fact, the purchase price was shy even of Amgen’s first major M&A, the $15.9 billion Immunex Corp. buy in 2001 – at the time, hailed as the biggest deal in biotech. (See BioWorld Today, Dec. 18, 2001 , March 13, 2009, and Feb. 17, 2011.)
On a call Monday afternoon, Schoenebaum characterized the deal as “a good deal both for Amgen and for Onyx but probably not a great or fantastic deal for either one.” Tellingly, he said Onyx’s first-year and second-year multiples of 16.3 and 11.9 times revenues, respectively, represented the highest of any biotech deal of $5 billion or more since 1998, excluding the Perrigo Co. acquisition of Elan Corp. plc in July. (See BioWorld Today, July 30, 2013.)
Amgen’s buy thesis is that Onyx offers current and downstream value, beginning with the multiple myeloma franchise anchored by Kyprolis (carfilzomib), which gained accelerated approval last year in the U.S. for patients who failed at least two prior therapies, including treatment with multiple myeloma staple Velcade (bortezomib, Millennium: The Takeda Oncology Co.) and an immunomodulatory therapy, and demonstrated disease progression on or within 60 days of completion of the last therapy. (See BioWorld Today, July 23, 2012.)
Excluding Japan, Onyx holds global rights to Kyprolis, which has an orphan drug designation in the U.S. The drug has exclusivity until July 2019, and patents in the U.S. will extend its useful life until at least 2025.
Kyprolis garnered sales of $61 million in the second quarter of 2013. But Amgen contended it can do better.
“Kyprolis is at an early stage in its life cycle, and that’s important to us because we feel this is at the point where we can still help maximize full potential of the product by virtue of our experience in the global oncology markets,” Bradway said, noting that Amgen hopes to expand access to the drug through its existing commercial infrastructure. Oncology sales account for 40 percent of Amgen’s revenues, he maintained, “and we have multiple sales forces that cover the oncologists that treat multiple myeloma patients.”
FOCUS, ASPIRE Data Are Key
Data from the ongoing FOCUS and ASPIRE studies could be key to fulfilling Amgen’s broader acquisition strategy. FOCUS, which enrolled 302 relapsed or refractory patients who had failed three or more lines of therapy, is expected to yield overall survival data next year – a delay from late 2013 that was not disclosed until Onyx’s second quarter earnings call earlier this month. If positive, those results would support the European Union filing in relapsed/refractory multiple myeloma. The ASPIRE study, which is the confirmatory trial for full U.S. approval as well as a registration-enabling study for relapsed multiple myeloma in the U.S. and EU, is expected to report interim progression-free survival data next year. Should Kyprolis gain approval in first- and second-line therapy and in Europe, peak sales could exceed $2 billion, according to consensus estimates.
Onyx also has Nexavar (sorafenib), partnered with Leverkusen, Germany-based Bayer AG. The oral kinase inhibitor is approved in the U.S. for unresectable hepatocellular carcinoma and advanced renal cell carcinoma. The drug recorded sales of $1.1 billion in 2012, with about $300 million of that going to Onyx.
Stivarga (regorafenib), Bayer’s oral multiple kinase inhibitor, also gained FDA approved for patients with metastatic colorectal cancer previously treated with fluoropyrimidine-, oxaliplatin- and irinotecan-based chemotherapy and for patients with locally advanced, unresectable or metastatic gastrointestinal stromal tumor. Meanwhile, palbociclib, an oral, small-molecule cyclin-dependent kinase 4/6 inhibitor under development by Pfizer Inc., of New York, is in a Phase III trial for ER+, HER2-negative advanced breast cancer.
Onyx also has multiple oncology compounds in various stages of clinical development, including nine late-stage candidates expected to report data from registration trials by 2016.
In addition to Schoenebaum, other analysts were quick to weigh in, with most citing support for the deal. Deutsche Bank’s Robyn Karnauskas raised Amgen’s price target to $138, calling the Onyx acquisition at $125 per share “a value creator” that should add 20 percent annually to earnings per share beginning in 2018.
Jefferies LLC analyst Eun Yang agreed, viewing the deal as “positive (oncology franchise expansion) and accretive to AMGN.” Yang also raised the company’s price target to $130 from $123.
Amgen plans to provide additional details when reporting its third quarter financial results the week of Oct. 21.
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