Replacing the revenue drop from losing market exclusivity on the mega blockbuster Lipitor isn’t going to be done in one fell swoop. But Pfizer (NYSE:PFE) may try to soften the blow by expanding its cancer franchise through acquisition.
The New York-based pharmaceutical giant is rumored to have its eyes on Onyx Pharmaceuticals (NASDAQ:ONXX). Investors and speculators must think that where there’s smoke, there’s fire, bidding up the shares of the San Francisco-based biotech nearly 13% to $44.40 since Monday. Onyx is trading near its 52-week high of $46.07.
Yet there seems to be plenty of upside to the stock, according to Gene Mack, a New York-based analyst at Mizuho Financial. He thinks the company could command $70-$80 a share in a takeover.
That’s a hefty premium, but it may be well worth it for anyone in Big Pharma that deals in oncology or wants a footprint in the therapeutic area. “What sets it (Onyx) apart is they have very, very rich near-term revenue opportunities, which is important to pharmaceutical companies. This makes it easy for pharma companies to pay a premium,” said Mack in a telephone interview with Bloomberg.
Acquiring Onyx would give a buyer the drug Nexavar, a kidney-cancer treatment that’s been approved in more than 100 countries worldwide. Global Nexavar sales, which are recorded by Onyx’s collaborator, Bayer, were more than $250 million for the third quarter 2011, an increase of 11% from a year earlier. During this year’s third quarter, Onyx reported revenue from the collaboration agreement of $75 million compared to nearly $64 million for the same period in 2010.
However, the bigger prize in the Onyx portfolio is clearly the blood cancer drug carfilzomib, which could be cleared for marketing by March if the FDA assigns “fast track” status to its new drug application, according to Andrew Berens, a senior health-care analyst for Bloomberg Industries. The designation is used to “expedite the review of drugs to treat serious diseases and fill an unmet medical need,” according to the FDA’s website.
Driven by carfilzomib, analysts estimate Onyx will generate more than $1 billion in total company revenue by 2016 vs. an estimated $443 million this year, data compiled by Bloomberg show.
Drugmakers are “in the market for transactions and new drugs,” Walter Todd, co-chief investment officer at Greenwood Capital in Greenwood, S.C, said in a telephone interview with Bloomberg. “You have huge patent expirations. Cancer is an area that a lot of companies are focused on. Large companies are looking for growth opportunities and these smaller names are going to be attractive.”
While Todd said GlaxoSmithKline (NYSE:GSK) could also benefit from acquiring Onyx, the most prominent name being mentioned besides Pfizer is Takeda, Asia’s biggest drugmaker.
Takeda would make sense for two main reasons: First, Takeda’s best-selling diabetes treatment, Actos, will begin facing generic competition starting in August. Second, Onyx would complement Takeda’s Velcade drug, a blood-cancer medicine that it acquired from Millennium Pharmaceuticals in 2008. Velcade will top $1 billion in revenue by 2016, analysts’ estimates compiled by Bloomberg show. Mizuho’s Mack estimates peak sales for Onyx’s carfilzomib of more than $2 billion.