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Amgen to Buy Celgene’s Otezla for $13.4B: Is the Deal Good for Amgen Stock?

Investors boosted Amgen stock after the deal was announced

Amgen (NASDAQ:AMGN) has agreed to acquire global commercial rights to Celgene’s (NASDAQ: CELG) blockbuster psoriasis drug, Otezla, which the latter had to divest to complete its impending merger with Bristol-Myers (NYSE:BMY).

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Amgen has agreed to pay Celgene $13.4 billion in cash or approximately $11.2 billion net of anticipated future cash tax benefits for Otezla and certain related assets and liabilities.

Amgen stock was up more than 3% on Monday in response to the news, indicating that investors were mostly optimistic about the deal though, a group of analysts found it expensive. Amgen stock has risen 5.5% this year so far against a 3.4% decrease registered by the industry during this period.

Buying Otzela Is Smart

We believe buying Otezla is a smart strategic move by Amgen. as it strengthens its existing inflammation franchise, which includes a blockbuster drug, Enbrel. The drug is approved to treat several chronic inflammatory diseases like rheumatoid arthritis, plaque psoriasis, psoriatic arthritis and ankylosing spondylitis and accounted for almost 23% of product sales in the first half of 2019. However, pricing pressure and stiff competition are hurting sales of Enbrel, one of the main drivers of Amgen’s revenues and of Amgen stock. Demand for Enbrel has continued to drop in 2019.

With Enbrel reeling under pressure, Otzela will strengthen Amgen’s portfolio of inflammatory drugs. Amgen expects this non-biologic treatment to record at least low double-digit-percentage sales growth, on average, over the next five years. Amgen expects the transaction to be accretive to its earnings per share on an adjusted basis immediately after the deal’s completion.

Otezla, approved to treat psoriasis, psoriatic arthritis and oral ulcers associated with Behçet’s disease, generated sales of $1.6 billion in 2018 and has been one of the key growth drivers for Celgene. Amgen can grow the drug going forward with the help of its experienced sales force that promotes Enbrel and Amgevita, its biosimilar version of AbbVie’s (NYSE:ABBV) blockbuster inflammatory disease drug, Humira. AMGN launched the biosimilar in Europe in 2018. Otezla enjoys U.S. patent exclusivity through at least 2028.

The Deal Is Positive for BMY, Too

The transaction is expected to close by the end of this year. Back in June, Bristol-Myers announced plans to divest Otezla, so it could close the acquisition of Celgene on a timely basis. The U.S. Federal Trade Commission (FTC) had expressed concerns about BMY retaining the drug following its purchase of Celgene.  The sale of Otezla should now make it easier for Bristol-Myers to get the FTC’s approval for the deal and will also fund a part of the massive $74 billion cost of buying Celgene. So, the deal looks like a win for Bristol-Myers as well.

The closing of Amgen’s purchase of Otezla, however, is contingent on the FTC’s approval and the closing of the Bristol-Myers-Celgene merger. Bristol-Myers expects the merger to close by the end of this year.

Amgen currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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