The year 2001 ended with a bang when biotech veteran Amgen (Thousand Oaks, CA) announced on December 16 that it would acquire Immunex (Seattle, WA) for $16 billion in shares and cash—the highest sum paid to date in a biotech–biotech acquisition. The Amgen–Immunex deal far outstripped other acquisitions made around that time, including Millennium Pharmaceuticals' (Cambridge, MA) purchase of COR Therapeutics (S. San Francisco, CA) and MedImmune's (Gaithersburg, MD) purchase of Aviron (Mountain View, CA). However, all three deals were made with a similar goal in mind—to acquire new products to help the companies accelerate earnings at the rates demanded by impatient investors. Whether Amgen paid too high a price remains in question.
Analysts have long predicted a wave of consolidation within the biotechnology industry. Few biotech companies are profitable, with most lacking marketed products or even the rich product pipelines needed for long-term survival. Following 2000's biotech “boom,” however, many companies now have substantial capital raised from public or private markets. Strategically savvy companies have waited until equity has returned to more realistic levels before making the much-needed acquisitions to achieve critical mass.
The key driver behind the Immunex acquisition is Amgen's need for a suitably profitable follow-up to its blockbuster anemia treatment, Epogen, to continue to provide the 20–30% growth in profits promised to shareholders. Although Amgen has other products on or close to the market, only Neupogen, Epogen, and the second-generation anemia treatment Aranesp are potential blockbusters. Immunex is essentially a one-drug company, its “golden egg” being the rheumatoid arthritis treatment Enbrel, which generated sales of $546 million in the last three quarters of 2001 alone, up 19% from the same period in the previous year. The drug, which mops up excess tumor necrosis factor (TNF), is on track to become a blockbuster in 2002. Amgen is optimistic that Enbrel, which could gain additional indications for the treatment of psoriatic arthritis, ankylosing spondylitis, and psoriasis, could reach peak sales of $3 billion by 2005.
Analysts appear to be split, however, over whether Amgen can achieve such sales and thereby justify the premium paid—some four times predicted peak sales. Geoffrey Harris, biotech analyst with UBS Warburg in New York, points out that Enbrel's profits will continue to be shared with American Home Products, a major shareholder of Immunex (and now holder of 8% of the new company), further increasing the relative premium paid (possibly some 8 times sales). Investors are also dubious, and Amgen's share price continues to trade around $54, some 15% lower than before the announcement. Inadequate manufacturing capacity has meant that the supply of Enbrel has not met demand, a problem that Warburg's Harris says Amgen cannot immediately alleviate. Although a new manufacturing facility has been completed, production cannot begin without FDA approval, which could happen later this year. In the meantime, existing competitor products, including Johnson & Johnson's anti-TNF antibody, Remicade, are gaining market share. Moreover, Abbott's D2E7 and Pharmacia's CDP-870, both anti-TNF agents, could reach the market late in 2003 and early 2004, offering further competition.
Joe Dougherty, biotech analyst at Lehman Brothers (New York), is more bullish, arguing that “with work” Amgen could indeed achieve $3 billion sales by 2005. Amgen has considerable expertise in the manufacture of proteins, and has not fallen foul of the many problems faced by other protein manufacturers, says Dougherty. For example, Johnson & Johnson recently sent a letter to European doctors warning them of a rare red blood-cell disorder in patients treated with erythropoietin. The side effect, which appears to occur with all formulations of erythropoietin, may be linked to an immune reaction to the drug, but has been seen less frequently with Epogen.
Whether or not Enbrel will fulfill Amgen's hopes of delivering sales growth in the mid-20% range annually, Amgen's acquisition of Immunex—85% of which will be paid in shares and 15% in cash—will create a biotech colossus with a market capital value of over $70 billion and potentially $5.5 billion in revenue in 2002. The Immunex acquisition will place Amgen in the same league as mid-cap pharmaceutical companies such as Astra Zeneca and American Home Products, while providing it an even greater valuation than Aventis and Schering-Plough (see Table). And at least for now, Amgen can enjoy this elevated status without facing one of the pharmaceutical industry's ongoing headaches—patent expirations. Amgen's earliest patent expiry is that of Epogen in Europe in 2004.
Amgen's acquisition of Immunex may be distinguished from other recent biotech deals in scale, but not in objective. Eric Schmidt, biotech analyst at SG Cowen (New York), points out that almost all large biotech acquisitions to date have been “product acquisitions and not company acquisitions.” Amgen will likely carve out the Enbrel component of the deal, paring off other overheads. Other recent deals follow a similar pattern: for example, on December 6, 2001, Millennium Pharmaceuticals announced it would buy cardiovascular specialist COR Therapeutics for $2 billion in shares, almost an 80% premium (Nat. Biotechnol. 20, 11, 2002). The COR deal provided Millennium with a badly needed blockbuster product, the anti-clotting agent Integrilin, and a sales and marketing team. Millennium had just one drug on the market, Campath, the rights to which it recently returned to its developer, Ilex Oncology. MedImmune likewise forked out $1.5 billion on December 4, 2001, for fellow vaccine developer Aviron, gaining the as-yet-unapproved nasal-spray flu vaccine FluMist (Nat. Biotechnol. 20, 11, 2002). MedImmune had just one marketed drug, Synagis, a treatment for serious respiratory tract infections in infants, whose sales are expected to plateau, according to Lehman Brothers.
The emphasis on product-focused deals might also explain why much of the acquisition activity has occurred in the United States and not in Europe. Many more US companies have drugs in later stages of development, which make attractive targets, says Schmidt. Other companies known to be considering becoming acquirers include Chiron, Biogen, and Genentech, which have weak product pipelines. Indeed, in early January Chiron (Emeryville, CA) purchased cancer drug manufacturer Matrix Pharmaceuticals (Fremont, CA), ostensibly for access to an experimental cancer drug tezacitabine, which will move into phase II trials.
The year 2002 could see considerably greater merger and acquisition activity within the sector.
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Nature Biotechnology (2002)