Takeover Rumors Fuel Another Rise in Amgen Stock : Biotech: Pending $9.7-billion merger of two drug rivals prompts speculation that the area firm may be the next target.
More rumors of a possible takeover bid for Amgen Inc., the nation’s largest biotechnology company, have triggered another surge in the company’s stock.
Since spring, Amgen’s stock price has steadily climbed, from about $35 a share, to $53.88 per share as of Monday. Analysts say the latest surge was sparked by the pending $9.7-billion acquisition of American Cyanamid Co. by its giant rival American Home Products Corp. announced earlier this month. The merger, second-largest ever in the U.S. drug industry, has prompted speculation that Amgen may be the next drug company target.
“Amgen could make a good takeover candidate. What makes it attractive is two enormously successful products . . . and the cash flow it gets,” said Ed Hurwitz, senior biotechnology analyst with Robertson, Stephens & Co. in San Francisco. Major drug companies, including Bristol-Myers Squibb, Johnson & Johnson, Glaxo Holdings and Eli Lilly, have all been talked about as possible Amgen suitors, Hurwitz said.
It’s a familiar story for Amgen, which last year posted a profit of $383 million on sales of $1.37 billion on the strength of its two breakthrough blood-cell drugs used by cancer and kidney dialysis patients. Rumors that the firm might be ripe for takeover have been circulating since last year.
What’s different this time is that American Home Products’ deal for American Cyanamid began as a hostile takeover, thus breaking the tradition of only friendly acquisitions in the drug business, said David Stone, biotechnology analyst for Cowen & Co. in New York. “That just hasn’t been done in health care before--at least not in the pharmaceutical sector.”
American Cyanamid balked at American Home Products’ first offer, acquiescing only after the larger firm said it would proceed anyway with its tender offer. Last week American Cyanamid agreed to accept $101 a share, a 60% premium over its stock price before the takeover talk began. Stone added that the deal “opens the possibility of hostile tender offers in other areas.”
Some believe that turns up the heat on Amgen.
Amgen’s chief executive, Gordon Binder, has said at the company’s stockholders’ meeting in April that the company would not willingly be absorbed by a larger firm. His statements have cooled some takeover speculation, since few thought potential suitors would risk driving off talented scientists with a hostile takeover bid.
But with pressures continuing in the drug industry to control prices, companies may be more likely to abandon a custom of polite competition and resort to “guerrilla warfare” tactics such as hostile takeovers to acquire rival companies, Stone said.
Amgen spokesman David Kaye would not comment on the takeover rumors, and he repeated Amgen’s anti-merger philosophy: “We believe the best way to deliver shareholder value is to continue to operate independently.”
Amgen’s two blockbuster biotech drugs are Epogen and Neupogen. Epogen stimulates the production of red blood cells and is used by patients with kidney disorders. Neupogen stimulates white blood cells and helps fight off infections in cancer patients undergoing chemotherapy.
Judging by typical premiums for drug companies, Amgen might be purchased for about $80 per share, or about $11 billion, though the price could go higher, said Hurwitz, the Robertson, Stephens analyst.
Potential buyers might be attracted by the strength of Neupogen and Epogen sales, which have exceeded expectations and seemed poised for more growth, analysts say. Stone said his “strong buy” recommendation on Amgen’s stock is based solely on its earnings, which he predicts will grow by 17% per year. Amgen’s cash flow this year will also near $500 million.
Or a drug firm might purchase Amgen for its research on new products: Amgen now spends about $300 million per year on research and development. Increasingly, drug companies view the purchase of a biotechnology firm as cheaper than trying to find new products on their own, said Andre Garnet, senior biotech analyst at A. G. Edwards & Sons Inc. in St. Louis.
“Today, you can get incredible bargains in biotech. Drug companies know this very well, and they are shopping,” he said.
Increased price competition and the looming prospect of health-care reform are prompting drug companies to hurry their restructuring plans along. Companies that haven’t yet made a move are being watched expectantly, Hurwitz said.
These include drug giants such as Glaxo and Bristol-Myers, both of which are considered big enough to absorb Amgen. Like Amgen, both are also involved in cancer treatment. There are reports, however, that Glaxo may be preparing to acquire Eli Lilly. Another concern being watched is Johnson & Johnson, which owns some of the marketing rights for Amgen’s drug Epogen, Hurwitz said.
But takeover rumors are just that, rumors. “I wouldn’t take it too seriously,” said Matthew Geller, senior biotechnology analyst at New York-based Oppenheimer & Co. “Most acquisitions have been in companies where you can slash spending, but Amgen spends money on research, and you don’t want to slash that.”
And Stone added that consolidations work both ways: Amgen may be as likely to buy a smaller firm as it is to be bought by someone larger: “It’s the eat or be eaten theory,” he said.