Senior Staff Writer

Editor's Note: This is part two of a two-part series on large-scale biotech mergers and acquisitions. Part one ran in Tuesday's issue.

Analysts and investors can speculate and calculate to the best of their ability, but the best measurement for an acquisitions' worth is the passage of time.

"Certainly, the benefit of hindsight is the best prism through which to look at a deal," said Christopher Raymond, an analyst with Chicago-based Robert Baird & Co.

So was Amgen Inc. right in paying $10.3 billion for Immunex Corp. in 2002? What about Millennium Pharmaceuticals Inc.'s acquisition of COR Therapeutics Inc., or MedImmune Inc.'s purchase of Aviron Inc., that same year?

It's been more than four years since those deals were first announced within two weeks of each other, and time and revenues - or lack thereof - have cleared up the view.

"It's fun to look at the Amgen-Immunex transaction because it was so controversial when it happened, and now you can look at the numbers and actually see," said Joel Sendek, an analyst with Lazard Freres & Co. LLC in New York.

Those numbers show that Seattle-based Immunex's blockbuster rheumatoid arthritis drug Enbrel is approaching $3 billion a year in sales for Amgen, of Thousand Oaks, Calif. Most now think that buying Immunex was one of Amgen's better moves.

One thing Raymond looks closely at when evaluating a proposed merger is whether there is obvious strategic value. And, he added, "Usually, there's a sizeable premium that's paid. Can you justify that in working through the model?" (See chart, below.)

But, in 2002, many analysts didn't understand the $10.3 billion price - estimated at $16 billion when it was announced, based on stock prices at the time - or the strategic value of pairing the cancer company Amgen with one focused on inflammation. Some consider it a good history lesson, understanding that a few mergers, found to be wise years later, initially don't make sense.

"Every deal is really different," Sendek said. "It depends on what the company needs, what kind of gaps they have to fill, it if has an impact on [earnings per share] . . . If it is not profitable, how will it help the company build or maintain its franchises?"

He still is baffled by Amgen's purchase of Tularik Inc. in August 2004 for $1.3 billion. Tularik didn't have a product close to market, but Amgen wanted a presence in the South San Francisco area, as well as several early stage compounds to fill its pipeline.

"It seemed like a high price to pay just to establish a geographic footprint," Sendek said, adding that he thought "Amgen's pipeline was pretty full to begin with at that point."

But Amgen spokesman David Polk doesn't have "any regrets" - he said acquisitions have helped the company to bring important therapies in house, and it has recorded impressive growth. Total revenues have increased steadily over the last four years, climbing from $4 billion in 2001 to $12.4 billion in 2005.

After MedImmune-COR Merger, Disappointing Sales

Like the Amgen-Immunex merger, Gaithersburg, Md.-based MedImmune's purchase of Mountain View, Calif.-based Aviron for $1.5 billion was about acquiring products. Aviron's FluMist was considered to be a multi-$100 million product by analysts, but MedImmune believed the inhaled flu vaccine and its own Synagis for respiratory syncytial virus (RSV) each could be $1 billion drugs. Synagis met that expectation, bringing in $1.1 billion in 2005, but MedImmune posted FluMist sales of $21 million last year.

"I don't think they hit their goals, and I don't think they ever will," Sendek said. "I would chalk that one up in the column of an acquisition that didn't really meet its promises."

MedImmune's director of public relations, Jamie Lacey, emphasized that the buyout has led to several opportunities for the company - including a $170 million five-year contract focused on cell-based vaccines from the Department of Health and Human Services; Phase I trials of a combination vaccine for RSV and parainfluenzavirus, type 3 (PIV3); and its refrigerator-stable influenza vaccine, CAIV-T, which could reach the market in 2007.

"Most of the attention has been focused on FluMist, which was the product that was nearest to market when we purchased Aviron," Lacey said. "But Aviron was a vaccine development company, and there are other programs that have continued to move forward."

Phase III data of CAIV-T, a next-generation FluMist, has shown that it's 55 percent more effective than the flu shot in reducing influenza illness. Although it could be a "big seller," Sendek is doubtful. The Aviron acquisition, he said, has been "a very expensive ongoing commitment" for a vaccine that "doesn't have tremendous potential to generate revenue."

He noted that Emeryville, Calif.-based Chiron Corp.'s trouble producing vaccine due to the shutdown of its Liverpool, UK, manufacturing facility in 2004 provided a major opportunity for FluMist.

"That was kind of the proof that it wasn't as commercially viable," Sendek said. "We've had two consecutive seasons where there's been a shortage of standard injectable flu vaccine," yet "MedImmune has had to destroy excess FluMist at the end of the season."

Lacey said that FluMist, in its current frozen formulation, likely would not "be a meaningful contribution to our bottom line," but MedImmune plans to position CAIV-T as a vaccine that can be used in children younger than 5 years (unlike FluMist, which is for healthy people ages 5 to 49), and possibly as one that can be used in the case of a pandemic.

Another acquisition announced in 2001 - that of Cambridge, Mass.-based Millennium buying South San Francisco-based COR Therapeutics - also has been criticized by analysts.

Strategically, the $2 billion marriage did not make sense from the beginning, Raymond said, adding that there was very little synergy between COR's cardiovascular product, Integrilin, for acute coronary syndrome, and Millennium's cancer product, Velcade.

While Millennium's revenue from worldwide sales of Integrilin was $206.3 million in 2004, Millennium modified its relationship with 50/50 co-promotion partner Schering-Plough Corp., of Kenilworth, N.J., in September 2005, opting for a royalty-stream arrangement instead.

Integrilin still was a growing product, but its promise of driving growth in early emergency room treatment "never really materialized," Raymond said, noting that "there were inventory problems exceedingly every quarter, and a choppy revenue number."

The product, he said, was "not growing at a breakneck pace at all."

Insiders have suggested that the COR acquisition, which also involved bringing aboard a seasoned sales force, was more about Millennium launching Velcade - and to that degree, the merger worked. Approved for multiple myeloma in May 2003, Velcade sales have climbed from $59.6 million its first year on the market to $143.1 million in 2004 and to $192.1 million in 2005.