Biotech Values

[DewDiligence]

A Biotech Prowls for Biotechs

[AMGN hasn’t done a big acquisition since the Immunex deal almost seven years ago.]

http://www.bloomberg.com/apps/news?pid=20601087&sid=an00ESi9Yekw

›4-Nov-2008 16:10 EST
By David Olmos

Nov. 4 (Bloomberg) -- Amgen Inc., with more cash than all but two U.S. pharmaceutical industry rivals, is seeking to snatch up distressed biotechnology companies at bargain prices.

Amgen sees ``attractive opportunities'' in the ``challenging environment for biotech companies needing to raise cash,'' said David Polk, an Amgen spokesman, in a Nov. 3 e-mail. The company has $9.76 billion in cash and marketable securities, according to data compiled by Bloomberg. That puts it in place to compete for purchases with Pfizer Inc., Bristol-Myers Squibb Co. and Wyeth, three drugmakers that pledged last month to step up their acquisition activity.

Amgen's sales rose 3.5 percent in 2007 after a 15 percent jump a year earlier as safety concerns cut demand for the company's anemia drugs. Investors say they would support an acquisition push, and Shiv Kapoor, an analyst with Morgan Joseph & Co. in New York, said the world's biggest biotechnology company has an advantage in landing smart deals.

As a biotech, ``they are sort of the frontrunners in being able to value technology from other companies,'' Kapoor said in an Oct. 28 telephone interview. ``As one of the largest companies out there with a large amount of cash, I believe they are in a unique position to be acting.''

Pfizer, Wyeth Cash

Only New York-based Pfizer with $26.2 billion and Wyeth of Madison, New Jersey, with $13.5 billion have more cash and marketable securities on hand among the five biggest U.S. pharmaceutical companies. [NVS had a lot of cash too, but it recently spent a huge amount to buy a 52% stake in Alcon.]

…One Amgen target may be Cytokinetics Inc., a South San Francisco, California-based company, said Christopher James, an analyst at Rodman & Renshaw in New York. Amgen paid $33 million to acquire a 9 percent stake in January 2007. Amgen also agreed to pay $50 million for an option to develop the company's experimental heart-failure treatment, currently in clinical trials, and as much as $600 million more in milestone payments.

It could cost ``several hundred million dollars'' to conduct a final-stage clinical trial for the Cytokinetics drug, James said. That may force it to consider help from an acquirer like Amgen, he said.

``I think that would be an attractive deal,'' James said.

Cash Available

About one in four of 370 publicly held U.S. biotechnology companies has less than six months' cash on hand, according to the Biotechnology Industry Organization, a Washington-based trade group.

``Disarray'' among biotech companies in a tough economic climate works to Amgen's advantage, said Jordan Schreiber, managing director of BlackRock Investment Management's Healthcare Fund, which holds 4.8 million shares. Acquisitions could help Amgen reignite sales and broaden its product pipeline, he said in a telephone interview.

Amgen could combine its financial muscle and its knowledge of the biotech culture to land bargains, said Mark Oelschlager, a portfolio manager at Oak Associates Ltd., an Akron, Ohio, investment adviser that holds almost 1.1 million Amgen shares.

``There are opportunities out there where they could pay a lot less today for some of the small biotechs than they would have paid a few months ago,'' Oelschlager said in an Oct. 21 telephone interview.

Previous Acquisitions

Amgen has spent more than $20 billion on acquisitions and licensing agreements since its 2002 purchase of Immunex Corp. for $16.8 billion. [They mean more than $20B including the Immunex deal.] That brought Amgen the rheumatoid arthritis drug Enbrel, which generated $3.2 billion in sales last year. The company's $2.2 billion purchase of Abgenix Inc. in 2006 added the cancer medicine Vectibix, a $170 million seller.

Sales of Amgen's best-selling anemia drug Aranesp fell 25 percent last year and 13 percent in the first nine months this year after studies linked high doses of anemia drugs to heart attack and stroke.

Analysts don't expect brisk revenue growth to return until at least 2011, when Amgen's experimental osteoporosis drug denosumab may boost annual sales by $500 million or more. The company plans to seek regulatory approval of denosumab in the U.S. and Europe early next year.

Paring Debt

Besides acquisitions, the company may seek to use the cash to pare some its $11.2 billion in debt. The company has $1 billion in floating-rate notes due in November. Amgen may need to refinance an additional $3.5 billion in borrowing that is due by 2011, Mark Schoenebaum, an analyst at Deutsche Bank in New York, wrote in a note to investors on Oct. 7.

Michael Cuggino, portfolio manager for Pacific Heights Asset Management in San Francisco, which holds 315,000 Amgen shares in its funds, said he would like to see Amgen use some of its cash for paying a dividend. Amgen hasn't paid a cash dividend since its initial public offering in 1983.‹