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Almost a couple of months after news regarding biotech major Amgen’s (AMGN - Analyst Report) interest in acquiring Onyx Pharmaceuticals, Inc. first surfaced, the companies have finally entered into an agreement under which Amgen will acquire Onyx Pharma for $125 per share in cash.

This comes to about $10.4 billion or $9.7 billion net of Onyx Pharma’s cash. The deal is slated to close in early fourth quarter 2013 and will be financed by committed bank loans of $8.1 billion and cash available in the U.S. 

Onyx Pharma had rejected a $120 per share takeover bid by Amgen In Jun 2013. At that time, Onyx Pharma had said that the offer significantly undervalued the company and announced that it was on the lookout for potential bidders.

The $125 offer price represents a premium of almost 44% to Onyx Pharma’s closing price on Jun 28, a day before the initial offer was announced. Onyx Pharma’s shares closed at $116.96 on Aug 23.

What Does Amgen Gain?

With this acquisition, Amgen will be strengthening its presence in the oncology market. Onyx Pharma basically focuses on developing and commercializing treatments for cancer. Marketed products include Kyprolis (relapsed and refractory multiple myeloma), Nexavar (liver and kidney cancer) and Stivarga (metastatic colorectal cancer and metastatic gastrointestinal stromal tumor). Advanced pipeline candidates include palbociclib (phase III - ER+, HER2-negative advanced breast cancer) and oprozomib (phase Ib/II - multiple myeloma). Nexavar is currently under regulatory review in the EU and U.S. for thyroid cancer.

Kyprolis, currently marketed in the U.S., is already off to a solid start and represents significant commercial potential. It has orphan drug status in the U.S. until Jul 2019 and is currently in several studies including the ASPIRE (interim analysis in 2014) and FOCUS (data in 2014). Results from these studies would support EU filing. Kyprolis sales were about $125 million in the first half of 2013. Sales should be driven by launch in additional countries and expansion into additional indications.

With key products in Amgen’s portfolio slated to lose exclusivity in the coming years, contributions from Onyx Pharma’s products should help make up for a part of the revenues that will be lost to generic competition.

Our Take

We are positive on this deal which makes strategic sense. Amgen, which already has a strong presence in the oncology market, is in a position to use its expertise and experience to develop Onyx Pharma’s pipeline candidates and to ensure that Kyprolis’ maximum commercial potential is realized in the U.S. as well as other countries.

Apart from driving revenues, the acquisition will also boost Amgen’s oncology pipeline. Moreover, the deal is expected to be accretive to adjusted net income in 2015.

Amgen currently carries a Zacks Rank #3 (Hold). At present, companies like Biogen Idec (BIIB - Analyst Report) and Gilead Sciences, Inc. (GILD - Analyst Report) look well-positioned with both being Zacks Rank #1 (Strong Buy) stocks.

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