Although Amgen is the world’s biggest biotechnology company, the drug maker has been mostly absent from one of the industry’s biggest and fastest-growing markets: cancer drugs.
It took a big step to fix that on Sunday, agreeing to buy Onyx Pharmaceuticals for about $10.4 billion in cash to gain access to the company’s three anticancer treatments.
Under the terms of Sunday’s deal, Amgen will offer $125 a share in cash through a tender offer for Onyx’s shares. The transaction is expected to close at the beginning of the fourth quarter, subject to regulatory approval.
Sunday’s takeover is the latest within the health care industry, one of the busiest sectors for deal makers as companies seek to gain greater scale. Drug makers have been among the most prolific buyers, seeking new medicines that will refresh aging product lines.
Amgen’s purchase ranks among the five biggest-ever takeovers of a biotechnology company, according to data from Standard & Poor’s Capital IQ. Among the larger transactions were Sanofi-Aventis’ $20 billion acquisition of Genzyme and Gilead Sciences’ $11 billion purchase of Pharmasset, both announced in 2011.
It is also one of the two biggest takeovers in Amgen’s history, trailing only the company’s $17 billion deal for Immunex in 2002.
Though many drug makers and their advisers have spoken of a continuing hunger for more takeovers, the deal machine has actually slowed a little this year. One reason is that biotechnology companies’ stocks have risen strongly, reducing potential sellers’ desire or need to sell.
Though the bid is higher than the $120-a-share proposal from Amgen that Onyx rejected two months ago â€" about 38 percent above its stock price at the time â€" the offer is lower than the $130 a share many analysts had expected. A number of pharmaceutical companies had shown interest during the sales process that Onyx’s bankers ran, but ultimately Amgen showed the most persistence in pursuing a deal, people briefed on the matter have said. On Friday, shares of Onyx closed at $119.96; Amgen closed at $105.60.
The crown jewel of Onyx, which is based in South San Francisco, Calif., is Kyprolis, which was approved in the United States last July as a last-ditch treatment for multiple myeloma, a bone marrow cancer.
The drug recorded sales of $125 million in the first six months of this year. But many analysts see annual sales growing to $2 billion in several years if the drug wins approval in Europe, and wins approval to be used earlier in the course of treatment.
“Amgen has a unique opportunity to add value to Kyprolis, a product which is at an early and promising stage of its launch,†Robert A. Bradway, chief executive of Amgen, based in Thousand Oaks, Calif., said in a statement Sunday.
Mr. Bradway, a one-time investment banker who took over as chief executive in May 2012, is under some pressure to increase Amgen’s sales, which were $17.3 billion last year. Much of the company’s revenue comes from older drugs whose sales are no longer growing rapidly or, in the case of the anemia drugs Aranesp and Epogen, are falling.
Some of Amgen’s older drugs are facing competition in Europe from near-copies, known as biosimilars, and might face the same in the United States in the coming years. Late this year, Teva is expected to begin selling a near-copy of Amgen’s Neupogen, a drug that helps prevent infections in cancer patients undergoing chemotherapy.
Amgen has huge sales of drugs that help patients cope with chemotherapy and counter some of the effects of cancer, but it has long wanted drugs that directly attack the tumors themselves. Those are among the most popular in the pharmaceutical industry because they can fetch prices as high as $10,000 a month.
Amgen sells one such drug, Vectibix for colorectal cancer, but sales have been disappointing. The company has some others in clinical trials.
The acquisition of Onyx is not without risk. The multiple myeloma market is now very competitive, led by Celgene, which sells the blockbuster Revlimid. Celgene won approval earlier this year for another drug, Pomalyst, that has been competing with Kyprolis as a last-ditch treatment.
There is also the issue of cost. If Kyprolis is approved for use earlier in the course of treatment, it is likely to used in combination with another drug like Revlimid. That could run into resistance on reimbursement, particularly in Europe.
Onyx obtained Kyprolis through one of its own acquisition, that of privately held Proteolix, in 2009 for $276 million upfront, with up to $575 million more dependent upon achievement of various milestones.
The deal was considered a gamble for N. Anthony Coles, who had become Onyx’s chief executive a year and a half earlier. But it transformed the company. It was not announced Sunday what role, if any, Dr. Coles will have after the merger is completed.
Kyprolis, known generically as carfilzomib, inhibits the action of the proteasome, which is sort of a garbage disposal system for cells. That inhibition somehow hurts cancerous cells more than healthy ones. It is the same mechanism of action of Velcade, a myeloma drug sold by Takeda Pharmaceutical and Johnson & Johnson that was approved in 2003.
Onyx’s two other products on the market are Nexavar for liver and kidney cancer and Stivarga for colon cancer and a gastrointestinal tumor. Onyx sells both of those drugs with Bayer. Onyx also has the rights to an 8 percent royalty on sales of a promising breast cancer drug, palbociclib, that Pfizer is developing. The company reported revenue of $362 million in 2012, mostly from drugs it shares with Bayer.
Amgen has plenty of financial resources to support its purchase. It has lined up $8.1 billion in bank loans, and will finance the balance with some of its $22 billion in cash and short-term investments on hand as of June 30. The company expects to retain its investment-grade credit rating and plans to continue raising its dividend.
