By Deena Beasley
July 19 Investors betting on a wave of big
biotechnology deals following Amgen Inc's $10 billion
bid for Onyx Pharmaceuticals Inc may well be
Shares of companies like BioMarin Pharmaceutical Inc
, Seattle Genetics Inc, Ariad Pharmaceuticals
Inc, Regeneron Pharmaceuticals Inc, Vertex
Pharmaceuticals Inc and Clovis Oncology Inc
have all rallied on news late last month that Onyx had spurned
Experts in the field agree that the bid, rejected as
inadequate by Onyx, confirms a healthy interest in small to
mid-cap biotechs, but said it does not raise the likelihood of
more deals in the already hot sector.
A major reason is that valuations have gotten very rich,
with the Nasdaq Biotech Index up more than 43 percent in
the past 12 months. Some of the companies concerned also have
existing drug development agreements with larger drugmakers,
making takeovers more complicated and potentially more
"People are being more disciplined and saying, yes I wish I
would have bought it for $2 billion a few years ago, but I'm not
going to turn that regret into overpayment now," said an M&A
lawyer familiar with the industry.
The sector-wide rally, while making it more difficult for
larger companies to put together an economically feasible deal,
has also eased the pressure on smaller companies who may not be
interested in being acquired.
Amgen's takeover interest in Onyx was followed by news last
week that Switzerland's Roche Holding AG sought
financing to mount a bid for Alexion Pharmaceuticals Inc
, sending the smaller company's shares up 10 percent.
With Alexion now valued at nearly $22 billion, chances for a
near-term deal have been further complicated.
"I don't think this will drive a biotech buying frenzy,"
said Morningstar analyst Karen Andersen. She noted that whoever
ends up acquiring Onyx might also have been the logical buyer of
a company like BioMarin, which develops high-priced drugs used
to treat rare genetic diseases.
Amgen's move highlights the appeal of oncology companies
like Onyx, which sells drugs for liver, kidney and colon cancer
in partnership with Germany's Bayer AG. The company's
crown jewel is considered to be Kyprolis, a blood cancer drug
fully owned by Onyx which was approved by regulators last year.
Alexion sells just one drug, but it is a premium-priced
treatment for a very rare disease that Deutsche Bank estimates
will achieve peak annual sales of $4.6 billion by 2018.
"I don't necessarily believe this puts every company in
play," said Clay Siegall, Chief Executive Officer at Seattle
Genetics, which has seen its shares rise 20 percent since
mid-June. "There will be more (deals) with time but I don't
think it changes the environment."
He said the focus at Seattle Genetics remains expanding use
of its lymphoma drug Adcetris. "Right now we are an emerging
company ... we have a great trajectory in the future," Siegall
said. "I believe that our big shareholders are supportive of
that. I don't have any pressure on me to try to run out and do
FEW REAL BIDDERS
The last major biotech deal was in 2011 when French
drugmaker Sanofi SA acquired Genzyme, another maker of
medicines to treat very rare conditions, or "orphan" diseases,
for $20 billion.
On June 30, Onyx rejected the unsolicited Amgen bid of $120
a share - a premium of about 38 percent to the company's share
price. Onyx said it would consider other potential buyers and
its shares have since soared nearly 47 percent. On Thursday,
sources familiar with the matter said that Pfizer Inc
had decided not to pursue a competing bid, leaving Amgen in the
pole position for a takeover and shares of Onyx fell back to the
The Onyx offer "says more about Amgen than it does about the
deal environment," said Sanford Bernstein analyst Geoffrey
Porges. "Onyx fits really well with what Amgen needs. Amgen has
a scarcity of near term growth opportunities and a surplus of
Onyx is fairly unique in its status as a biotech company on
the verge of becoming profitable. "The buyers recognize that and
I think they are really going to step up," Porges said.
BioMarin is also close to becoming a profit-making company,
but CEO Jean-Jacques Bienaime said earlier this year that he
would not consider a buyout offer for even a 25-30 percent
Shares of BioMarin, which topped Morningstar's 2013 list of
biotech takeover candidates, have gained nearly 8 percent in the
last month. Onyx was No. 4 on that list, which included
companies like Seattle Genetics and Regeneron.
Price is a potential obstacle for buyouts of other perennial
takeover targets. Andersen said an acquisition of Regeneron - up
more than 11 percent in the last month - has become more
problematic given the near doubling in its share price so far
this year. Sanofi also holds a big stake in Regeneron.
"Most of these companies would be in the high single-digit
or low double-digit billions, whereas with Regeneron you are
talking a market cap closer to $22 or $23 billion," Andersen
said. "Apply a premium to that ... you have a risky
Ariad, with shares up 11 percent since the Onyx news, has a
commercial product, leukemia drug Iclusig, but its revenue
potential is comparatively limited. It also has a pipeline of
experimental drugs that will require investment.
Others are encumbered by existing development deals with
larger companies. Medivation Inc - up 17 percent over
the past week - has partnered its promising prostate cancer drug
with Japan's Astellas Pharma Inc, while Pharmacyclics
Inc - up 18 percent - is developing leukemia drug
ibrutinib in partnership with Johnson & Johnson.
"Seattle Genetics is a very rational acquisition target,"
Porges said. "But the case of Seattle Genetics is nothing like
the case of Onyx where Onyx has already got the cash coming in.
Turn off the spending and it automatically becomes profitable."
Meanwhile, neither Roche or Alexion have commented on
whether they are in discussions, but some analysts have
questioned whether such a costly acquisition would make sense
for Roche, which is best known for its innovative cancer
medicines and diagnostics business.
"We haven't had a rally like this in more than 10 years -
where all the stocks go up and the valuations go out the
window," said Summer Street Research analyst Carol Werther.
"Once this trend reverses it is going to be very, very ugly."