Onyx Snubbing Amgen Paves Way for 89% Premium: Real M&A

Onyx Pharmaceuticals Inc., which surged more than 50 percent after rejecting a bid from Amgen Inc., is betting that potential suitors from Bayer AG to Bristol-Myers Squibb Co. are willing to offer even more.

Onyx said the $120-a-share bid “significantly undervalued” the company’s prospects for its cancer therapies and that it’s in contact with other possible acquirers. Bayer, which already partners with Onyx on two drugs, could be among those interested, while Amgen still may come back with a higher offer, Maxim Group LLC said. For Bristol-Myers or Novartis AG, buying Onyx would bolster their efforts to build blood-cancer treatment franchises, Jefferies Group LLC said.

Onyx rejected Amgen’s proposal because management sees it as too low compared with other recent deals in the industry, according to a person familiar with the matter. While $120 was 37 percent more than Onyx’s 20-day average before the bid was disclosed, the stock soared past that price yesterday, signaling investors expect competing offers. Onyx should be valued at $130 to $165 a share in a takeover, as much as an 89 percent premium, according to analysts’ estimates compiled by Bloomberg.

“I would guess there’s going to be more than one bid and that’s great for Onyx shareholders,” Phil Nadeau, a New York-based analyst with Cowen Group Inc., said in a phone interview. “The oncology space is of such strategic importance to large pharmaceutical and biotech companies.”

Soliciting Interest

Onyx said June 30 that it turned down an all-cash offer from Amgen last week and asked its financial adviser to contact other potential acquirers. Since then, the company has solicited interest from at least two pharmaceutical companies involved in oncology, according to a person familiar with the matter who asked not to be identified because the discussions are private.

Lori Melancon, a spokeswoman for Onyx, declined to comment further, as did Christine Regan of Thousand Oaks, California-based Amgen, which has a market value of about $72 billion.

Onyx shares rose 51 percent yesterday to $131.33, exceeding Amgen’s bid and valuing the South San Francisco, California-based company at $9.55 billion.

Today, Onyx climbed an additional 3.2 percent to $135.58, a new record-high closing price.

“It’s a good offer,” Michael King, an analyst with JMP Group Inc. in New York, said in a phone interview. But “obviously the market thinks it’s low, and I would agree.”

Onyx reported $362 million of revenue in 2012, with 80 percent coming from two drugs it sells in partnership with Leverkusen, Germany-based Bayer -- Nexavar for liver and kidney cancer, and Stivarga for stomach cancer.

‘Always Attractive’

Kyprolis, a blood-cancer treatment that Onyx markets on its own, is projected to have sales topping $2.3 billion in 2019, up from $257 million this year, according to the average of analysts’ estimates compiled by Bloomberg. Overall, the company’s revenue growth through 2015 is forecast to outpace its closest peers including Regeneron Pharmaceuticals Inc. and Alexion Pharmaceuticals Inc., the data show.

“Onyx has Kyprolis, an unencumbered, approved asset in cancer, so that’s always attractive,” Robyn Karnauskas, a New York-based analyst at Deutsche Bank AG, said in a phone interview. “Onyx is a mature company, they have a sales force built, they have less clinical risk. People understand where this product fits into the marketplace.”

Onyx’s management sees Amgen’s bid as insufficient based on premiums fetched in recent, comparable health-care deals, such as Gilead Sciences Inc.’s takeover of Pharmasset Inc. announced in 2011, said a person familiar with the matter.

Biotech Appeal

Gilead paid 94 percent more than Pharmasset’s average price in the 20 days before the deal was announced, data compiled by Bloomberg show. Applying that premium to Onyx’s 20-day average stock price before the Amgen bid was disclosed would yield an offer for almost $170 a share.

“This kind of reminds people that biotech companies with good assets do get taken out for good prices,” Cowen’s Nadeau said.

Nadeau said it’s likely that Onyx gets acquired for at least $130 a share, while Salveen Richter, an analyst at Canaccord Financial Inc., estimates as much as $165 apiece. Deutsche Bank’s Karnauskas said Onyx could fetch $140 to $148 a share in a takeover.

While Echo He, a New York-based analyst at Maxim Group, values Onyx at as much as $140 a share, she said a buyer could justify paying more than that by cutting costs after a deal and consolidating Onyx’s sales force with its own. A 15 percent reduction in selling, general and administrative expenses could add $10 a share to Onyx’s value, He said.

‘Makes Sense’

Bayer, because of its partnership with Onyx, may emerge as a bidder, according to He. In addition to splitting profits on Nexavar, Onyx receives a 20 percent royalty from the $89 billion drugmaker on global net sales of Stivarga.

“It makes sense from that standpoint to bring those royalties in-house,” Biren Amin, a New York-based analyst at Jefferies, said in a phone interview. “Bayer has publicly disclosed that they believe Stivarga will be one of their blockbuster assets.”

Novartis, a Basel, Switzerland-based pharmaceutical company with a market value of $193 billion, and New York-based Bristol-Myers, a $74 billion drugmaker, are developing treatments for multiple myeloma, the blood cancer Onyx’s Kyprolis is approved to treat. They could seek to acquire Onyx to help build a franchise around those drugs, Amin said.

Pfizer Drug

Pfizer Inc., with a market value of $197 billion, is developing a therapy for breast cancer called palbociclib on which Onyx would receive an 8 percent royalty if approved, making the New York-based company a potential interested buyer, according to Cory Kasimov, an analyst with JPMorgan Chase & Co.

Christian Hartel, a spokesman at Bayer, Julie Masow of Novartis, Fred Egenolf of Bristol-Myers and Pfizer’s Joan Campion said the companies don’t comment on market speculation, when asked whether they’re considering bids for Onyx.

Onyx’s collaboration with Bayer may be a hurdle for other suitors, Maxim Group’s He said. Still, it didn’t stop Amgen, which could boost its offer, according to Karnauskas of Deutsche Bank.

Amgen Chief Executive Officer Robert Bradway didn’t say $120 a share was its final offer, and Onyx believes there could be a new bid, a person familiar with the matter said.

“Amgen could very well come back,” Karnauskas said.

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