Amgen may join Gilead as biotechs seek acquisitions to grow
By Meg Tirrell, Ryan Flinn and Jeffrey McCracken Bloomberg News
NEW YORK - Amgen Inc., which has a facility in West Greenwich, and Celgene Corp. may dive into deal-making this year as the biggest biotechnology companies seek to return to the industry’s high-growth roots.
Amgen and Celgene are trying to boost investor returns that have lagged behind peers and may have to compete with traditional acquirers from the pharmaceutical industry, such as New York-based Pfizer Inc. and Bristol-Myers Squibb Co. In the past five years, the Nasdaq Biotechnology Index has increased 36 percent while Amgen, the world’s largest biotechnology company, fell 6 percent and Celgene gained 18 percent.
The biotechs have historically been less active than their pharmaceutical industry counterparts. Bristol-Myers has completed 17 acquisitions since 2007, a period in which Amgen had nine and Celgene three.
“We expect the large biotechs to be active acquirers in 2012,” said Henry Gosebruch, managing director of health-care mergers and acquisitions at JPMorgan Chase & Co. “Investors have rewarded strategic acquisitions that enhance long-term growth and companies that continue their history of developing innovative therapies, as opposed to turning into dividend-paying, share-repurchase type low-growth stocks.”
Amgen, based in Thousand Oaks, Calif., will see a smorgasbord of potential targets next week at the 30th annual J.P. Morgan Healthcare Conference in San Francisco.
The meeting will draw 8,000 attendees and 395 presenting companies, according to its host. Bristol-Myers and Pfizer, the world’s largest drugmaker, will join Amgen, Celgene, based in Summit, New Jersey, and Biogen Idec Inc., of Weston, Massachusetts, in scouting trips that often pack 200 meetings into the week.
“It’s certainly a good time to meet not just with investors, but other companies that may become partners,” said Patrick Mahaffy, chief executive officer of Boulder, Colorado- based Clovis Oncology Inc., which will present at the conference for the first time.
The meeting, which Mahaffy described as the health-care industry’s “Lollapalooza,” is a chance for smaller companies to impress the crowd, he said.
Companies looking to buy assets or forge partnerships attend the start-of-the-year conference with new budgets and fresh investment track records, JPMorgan’s Gosebruch said. Biotech and medical-device companies use presentations to set expectations for the year, and investor reaction can be a barometer of their ability to stay independent.
“It’s always a bit of a temperature check on how people feel about the year,” Gosebruch said. “People pay pretty careful attention to what those companies will say at the conference about their objectives and milestones.”
Gilead Sciences Inc.’s $10.8 billion purchase of Princeton, N.J.-based Pharmasset Inc., announced Nov. 21, was the highest valuation on record for drug-industry acquisitions greater than $500 million, according to data compiled by Bloomberg. Gilead agreed to pay 70 times the net assets of Pharmasset, a maker of hepatitis C drugs, 94 percent higher than the company’s 20-day trading average.
“That’s what we’re starting to see now,” said Raghuram Selvaraju, an analyst with Morgan Joseph TriArtisan Group in New York. “There’s much more willingness for big companies to pay enormous premiums to get control of high-value assets.”
Michael Yee, an analyst with RBC Capital Markets, suggested Amgen should be shopping. The biotech had $17.7 billion in cash and short-term investments as of Sept. 30, compared with $8.2 billion held by Bristol-Myers, according to data compiled by Bloomberg.
Amgen, with a market value of $56.5 billion, declared its first quarterly dividend last year, and announced a $10 billion buyback program, promising to return more value to stockholders. It’s not enough for investors, RBC’s Yee suggested.
“This company has not had a successful history of business development,” Yee said in an interview after Amgen announced Dec. 15 that CEO Kevin Sharer would be replaced in May by Chief Operating Officer Robert Bradway.
“Amgen needs to go on an aggressive business development spree to in-license and partner high-impact new drugs in Phase 2 so they can have Phase 3 read-outs over the next three to five years,” Yee said.
Amgen’s largest deal in the past five years was its $425 million purchase of BioVex Group Inc. in 2010 for its experimental cancer drugs. One of the BioVex drugs, Oncovex for skin cancer, is in late-stage testing along with trebananib, for ovarian cancer, and ganitumab, a therapy for pancreatic cancer, according to data collected by Bloomberg.
Mary Klem, an Amgen company spokeswoman, said, future acquisitions by the company “will be borne out of our growth strategy, including our desire to expand our global footprint.”
Companies with market values of $3 billion to $10 billion may be the most likely targets for larger biotechs, JPMorgan’s Gosebruch said. That’s a shift from 2010, when French drugmaker Sanofi pursued Genzyme Corp., the largest maker of medicines for rare diseases, in a deal worth $20.1 billion that closed last April.
Celgene’s largest buy was its $2.8 billion purchase of Pharmion Corp. in 2007. The company, with a market value of $30.4 billion, also has completed seven other equity or partnership deals, according to data compiled by Bloomberg.
“We’re constantly out there canvassing what’s going on in hematology and oncology to make sure we’re on top of technology and compounds that are in development,” said Chief Financial Officer Jacqualyn Fouse, in an August interview. “If the right thing comes along, we can and will do it.”
Celgene has two experimental drugs, including the cancer treatment pomalidomide, in Phase 3 testing, the last of three stages usually required for U.S. regulatory approval. Four existing products are in late testing for additional uses, said Brian Gill, a Celgene spokesman.
“Celgene has been very active on the business development front and will continue to work in partnerships with companies,” he said yesterday in a telephone interview.
While biotechnology stocks outperformed the broader market last year, newly public drugmakers and companies trying to sell new products found conditions more difficult, ripening their takeover prospects.
The Nasdaq Biotechnology Index gained 12 percent in 2011, compared with little change in the Standard & Poor’s 500; however, Dendreon Corp. and Human Genome Sciences Inc. brought their first drugs to the market with disappointing early sales, and dropped 78 percent and 69 percent, respectively.
Some newly public biotechs are in a similar position. Eleven of 20 drugmakers to have initial public offerings since 2010 have declined, with six falling 60 percent or more, according to data compiled by Bloomberg.
“There are a lot of biotech companies that have become public over the years that really were either not prepared, or the kind of companies that weren’t well-positioned to be public entities,” Robert Moore, general partner at Frazier Healthcare Ventures, said in an interview. “They were going public because it was their least costly form of capital they could raise.”