DUBLIN – Amgen Inc. is picking up Celgene Corp.'s oral phosphodiesterase 4 (PDE4) inhibitor Otezla (apremilast) for $13.4 billion, in a move that strengthens its hand in inflammatory disease, while paving the way for Bristol-Myers Squibb Co. to complete its $74 billion cash-and-shares acquisition of Summit, N.J.-based Celgene.

The latter transaction has been delayed by Federal Trade Commission (FTC) objections that the combined company would exert too much control in the market for oral psoriasis drugs, given the expectations attached to its first-in-class phase III selective tyrosine kinase (Tyk2) inhibitor BMS-986165, which has already delivered stellar phase II data in patients with moderate-to-severe psoriasis. (See BioWorld, Sept. 14, 2018.)

New-York-based BMS bowed to those concerns in June, when it agreed to seek a buyer for Otezla, a drug that attained sales of $1.6 billion in 2018 and which is still on an upward growth trajectory. The ultimate net cost to Amgen will be $11.2 billion, as it expects to avail of tax benefits associated with the asset acquisition.

Even so, it may still have overpaid for the molecule, according to SVBLeerink analyst Geoffrey Porges. The deal is "in our opinion positive for Bristol investors, based on the price being higher than expected and marginally negative for Amgen investors, since it values at Otezla at more than 6.7 times expected full-year 2019 sales, which is higher than we would have expected the product to sell for," he wrote in a flash note.

The market concurred, pushing BMS's stock (NYSE:BMY) as much as 6% higher in premarket trading Monday, while shares in Thousand Oaks, Calif.-based Amgen (NASDAQ:AMGN) dropped by as much as 2.7% in premarket trading.

Brian Abrahams, analyst at RBC Capital Markets, also found the price on the high side. "We had estimated Otezla could fetch $8 billion to $10 billion in sale and believe this assumption represented a consensus price tag – so the $13.4 billion acquisition price represents a bullish scenario in our view," he wrote in a flash note.

Amgen has – obviously – done the math, and CEO Bob Bradway stood over its calculations on an analyst call Monday. "While it's a blockbuster already, it still has great room to grow," he said. "When we look at transactions like this we start with wanting to have an understanding of what the net present value is. We focus carefully on cash flows and we try to make sure we do transactions at values we believe our shareholders will benefit, which means that the IRR [internal rate of return] of our investment needs to exceed our cost of capital. So we think we will achieve that with this deal," he said.

Jefferies analyst Michael Yee adopted a supportive stance, characterizing the transaction as "a positive and smart deal" that will be "very, very accretive." Yee and colleagues estimated that Otezla will attain revenues of $2.2 billion in 2020 and will drive a 17% accretion in earnings per share thereafter.

Also on the call, Amgen's executive vice president of R&D David Reese outlined the opportunities for further growth. "There are a number of ongoing programs that we think can lead to expanded indications and label enhancement. These would include, importantly, mild-to-moderate psoriasis, an area currently we believe [is] underserved, scalp and genital psoriasis, as well as various pediatric indications, such as moderate-to-severe psoriasis, juvenile idiopathic arthritis and Behçet's." There is also some scope for geographical expansion, particularly into some of the larger European markets and into Japan. Otezla has so far only been launched in 32 of the 54 countries in which it has gained approval.

Otezla originally gained FDA approval in March 2014 for treating adults with active psoriatic arthritis and gained a line extension the following September in moderate-to-severe plaque psoriasis. Just last month, it received a third approval, for treating oral ulcers associated with Behçet's disease. Amgen is forecasting $1.9 billion in sales for the present year and has attached low double-digit sales expansion over the next five years.

The drug is positioned for patients who are no longer experiencing an adequate response to topical therapies or disease-modifying antirheumatic drugs (DMARDs), but who are yet not considered eligible for biologic therapies. It's a cohort that is more widely recognized in the U.S. than in other countries. The U.S. accounted for over 80% – or $399 million – of Otezla's Q2 sales total of $493 million.

The transaction offers an obvious fit for Amgen, given its strategic interest in inflammation, and it comes after a recent court ruling that staves off – for now at least – potential biosimilar competition from the Sandoz unit of Novartis AG for its venerable tumor necrosis factor alpha (TNF-alpha) inhibitor Enbrel (etanercept). (See BioWorld, August 13, 2019.)

For its part, BMS will use most of the proceeds to pay down debt, while also increasing the scale of a planned repurchase of stock, from $5 billion to $7 billion, subject to completion of the Celgene transaction. It now expects to close the deal by the end of 2019.

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