By Brady Huggett
In a December game of top-this ¿ a game in which MedImmune Inc. bought Aviron Inc. for $1.5 billion and Millennium Pharmaceuticals Inc. acquired COR Therapeutics Inc. for $2 billion ¿ Amgen Inc. placed its hand on the top of the bat, revealing it is buying Immunex Corp. and its fast-growing drug Enbrel for $16 billion in stock and cash.
Amgen, of Thousand Oaks, Calif., signed a definitive agreement to acquire Immunex, of Seattle, by exchanging each Immunex share for 0.44 shares of Amgen, plus $4.50 in cash per share. With those figures, the agreement translates into a deal consisting of 85 percent stock and 15 percent cash, and the largest biotechnology deal in the sector¿s 25-year history. Amgen¿s shareholders will own about 81 percent of the combined company with Immunex¿s shareholders possessing the remaining 19 percent.
Through the agreement, Amgen will acquire American Home Products Corp.¿s 41 percent stake in Immunex, for the same purchase price per share, thus supplying AHP with an 8 percent share of the merged entity. The merger is expected to close in 2002¿s second half.
Amgen¿s stock (NASDAQ:AMGN) fell 16 percent last week, ending Friday at $56.03, on rumors of the deal. Immunex closed the week at $25.62. Monday, Amgen rose $3.46 to close at $59.49. Immunex (NASDAQ:IMNX) climbed $3.44, or about 13 percent, to close at $29.06.
The combined company will sport some of biotechnology¿s most successful product names ¿ Epogen, Neupogen and Enbrel ¿ and will have a combined market capitalization of about $81 billion. Analysts agree that Immunex¿s Enbrel is a solid product with a bright future, but opinions on the deal itself and its gaudy price were somewhat mixed.
¿I think we¿ve been more bullish on it than some others,¿ said Joseph Dougherty, an analyst for Lehman Brothers in New York. ¿I think Amgen¿s numbers are a little more aggressive than ours are for Enbrel [sales]. But I¿ll say this: They have obviously done a large amount of due diligence at this point. [Amgen] has really done its homework here.¿
Janet Gearlds, analyst and portfolio manager for Private Asset Management, Wells Fargo, also looked at the deal favorably.
¿There are two things I really like,¿ she told BioWorld Today. ¿One, you are not talking about acquiring a product that is at the end of its growth phase. Two, this really puts to rest the fear that Amgen¿s pipeline wasn¿t as strong as it could be.¿
Fariba Ghodsian, director of health care research at Roth Capital Partners in Los Angeles, was more conservative with her assessment, saying she was ¿not convinced this was the best acquisition for [Amgen].¿
¿In the long term, I don¿t see so much synergy,¿ she said. ¿There was some talk that they could combine Enbrel and [Amgen¿s] Kineret, but I didn¿t get that feeling after the [conference] call. Enbrel is a really good drug, but is it worth $16 billion?¿
There¿s the rub. Enbrel is a blockbuster drug in reputation even if it has not yet had the actual numbers to warrant that. Through the first three quarters of 2001, Enbrel, a treatment for rheumatoid arthritis launched in 1998, generated $545.6 million, a 19 percent increase over the same period the previous year, even though sales have been hurt somewhat simply because Immunex was not able to manufacture enough Enbrel to meet demand.
Immunex addressed those manufacturing needs on its own over the past year by bringing aboard a production facility in Rhode Island and is constructing a second plant, as well. That will certainly help, but to reach what Kevin Sharer, Amgen¿s CEO and chairman, called Enbrel¿s peak of ¿$3 billion or more in annual sales,¿ Enbrel will have to continue to grow.
Gearlds expects it will, if for no other reason than the aging population of the United States that is living longer and more often dealing with afflictions such as rheumatoid arthritis. And Dougherty said that any competition that arrives for Enbrel might come too late.
¿Everyone believes [Enbrel] would have been well over $1 billion [this year] if [Immunex] had been able to make enough drug,¿ he said. ¿They were just caught by the rapid success of the product.¿ In the market, Dougherty added, Enbrel will ¿only be competing with Remicade [Centocor Inc., of Malvern, Pa.]¿ and ¿will do very well.¿ By the time other rheumatoid products are available, he said, ¿Amgen and AHP will have been calling on rheumatologists¿ for some time and getting doctors to switch will be difficult.
Amgen recently released its forecast for 2002, predicting 20 percent growth. Following the merger news, Amgen readjusted, saying it will have pro forma revenues of about $5.5 billion in 2002 and net income in 2002 in excess of $1.5 billion. The acquisition will be dilutive in 2003 at less than 5 percent but accretive in 2004, on a cash earnings-per-share basis, Amgen said.
AHP signed to market Enbrel in North America in 1997 in a deal valued at up to $100 million. Ghodsian said the deal is structured so that Immunex receives 56 percent of the profits from North American sales and AHP 44 percent. AHP has agreed to vote its shares in favor of the transaction. (See BioWorld Today, Sept. 29, 1997.)
In the third quarter alone, Amgen¿s product backbone of Neupogen, Epogen and Aranesp pulled in about $880 million. Epogen, the anemia therapy for patients on dialysis, and Aranesp, its next-generation anemia treatment, accounted for $520 million of that. Aranesp was approved in September, and Kineret, a second-line treatment for rheumatoid arthritis, was approved in November. At that point, Ghodsian said, the merger would have made more sense to her; it would have given Amgen a needed product and addressed Immunex¿s manufacturing problems.
¿They started the talks maybe a year ago and it made a lot of sense,¿ she said. ¿[Amgen] didn¿t have approval of both Aranesp and Kineret. It was not at this 20 percent growth. And Immunex had this manufacturing problem, so there were problems [then] that could bring them together.¿ But at this point, because of the short-term dilution involved and the competitive TNF landscape, Ghodsian said she ¿wasn¿t very excited about the deal.¿ However, she maintains her buy rating for the company, although she has dropped her price target for next year from $70 to $63.
Sharer will remain CEO and chairman of the combined company. Immunex Chairman and CEO Edward Fritzky will join the Amgen board. Immunex officials Peggy Phillips and Doug Williams will become executive vice president and senior vice president, respectively. Both will join Amgen¿s executive committee.
December has seen three major mergers in the biotechnology sector. Whether this trend continues, whether this is a consolidation inclination, is unclear.
¿I think, as with some of the pharma companies, this may be a trend in the near term,¿ Gearlds said. ¿I don¿t know if you will see consolidation en masse, but with some of the larger companies, you may continue to see this.¿
¿I think we may see more of this,¿ Ghodsian said. ¿When the large become larger, the smaller may also think they need to get larger.¿
¿I think that something that is encouraging about this is that COR, Aviron and Immunex had already done substantial partnering of their products,¿ Dougherty said. ¿It¿s encouraging to see that companies that are doing this can still be bought at substantial valuations.¿
Analysts may argue over the cost if they wish. But this is clear: Enbrel has potential and this deal is biotechnology¿s biggest to date.
¿Amgen and Immunex are in a very strong place and I think this is a smart move for both companies,¿ Gearlds said.