by James Brumley | July 2, 2013 9:56 am
What’s biopharma company Onyx Pharmaceuticals (ONXX) worth?
More than $10 billion, if you ask its board. That’s the amount Amgen (AMGN) offered to pay for Onyx in what would have been a friendly acquisition. Onyx politely declined, apparently seeking out bigger offers.
Any time a suitor announces it’s willing to pay a 38% premium to purchase a company (as Amgen did), heads turn. Any time a company rejects an offer to pay a 38% premium, questions understandably arise … and this instance is no exception.
The two top questions investors are asking of Onyx Pharmaceuticals now are, (1) what was Amgen going to get for its $10 billion, and (2) if not Amgen, who’s most likely to cough up the money ONXX is looking for?
The offer from Amgen was a sweet one. The bid was $120 per share, or a total of $10 billion. The deal would bring three new cancer drugs into the Amgen fold — Nexavar, Stivarga and Kyprolis. Two of the three are sold in partnership with Bayer (BAYRY), and royalties from these three drugs made up the vast majority of Onyx’s $362.2 million in revenues last year.
A $10 billion offer for a company only generating $360 million in sales per year? There’s more to the story.
Two of those three drugs were only approved last year and have yet to develop their full sales pace. Some analysts say newcomer drug Kyprolis, for multiple myeloma, could generate $2 billion in annual sales. Colon cancer drug Stivarga — also only approved by the FDA in 2012 — is targeting the smaller third- and fourth-line markets. Industry experts foresee annual sales of less than $200 million. Liver and kidney cancer treatment Nexavar has been around since 2005. That’s ample time to fully develop its full momentum, making last year’s total revenue of $1 billion a fair representation of its potential going forward.
Better than a dozen more cancer treatment trials are underway as well, including palbociclib, which could generate annual sales in a range of $2 billion to $5 billion if approved to treat other cancers aside from breast cancer. Although Onyx must split sales of two key drugs with Bayer (any suitor must do the same), their potential plus the upside of the pipeline is impressive.
In that light, the $10 billion offer still is frothy, sure, but not out of line — especially in this environment of pipeline-hungry pharma companies.
Yet according to Onyx, it still wasn’t enough.
So if not Amgen, what’s the right company, and who’s actually willing to come up with the right bid? Nobody has a crystal ball, but there are some frontrunners. The best-fit and most-willing candidates are (from most-likely to least-likely):
While talk of stock-pumping buyouts are fun, just because a company rejected a nice offer and has put itself up for sale doesn’t always mean other buyers are interested enough to trump the already-frothy bid.
In the same sense that excessively worried economists have predicted seven of the past four recessions, the market has predicted seven of the past four corporate acquisitions. It’s entirely possible no new suitor will emerge — at least not right now — with a projected price tag of anywhere between $140 and $200 per share. Many would-be buyers might want to wait on Europe’s approval of Kyprolis, which should be announced later this year.
With or without good news from the European Medicines Agency though, with the stock priced around $131 per share, ONXX is now priced at seven times its forecast 2015 revenue. Some biopharma acquisitions have commanded a bigger premium, but not many.
Odds are, we’re already pretty close to the maximum price the market will bear for ONXX. The target prices near $200 are very long shots.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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