Amgen in Talks to Buy Immunex
Amgen Inc., the world’s largest biotechnology company, is in talks to buy rival Immunex Corp. for about $17 billion in cash and stock, people familiar with the negotiations said Thursday.
The deal, if completed, would put some of the most promising biotechnology drugs today under one roof and would combine Amgen’s manufacturing capability with Immunex’s scientific expertise in the growing field of anti-inflammatory drugs.
It would be the first major acquisition for Amgen and a departure from a conservative strategy built on internal growth. Some analysts questioned whether the combination of the two companies made sense, especially at the price Amgen appears willing to pay.
The merger would rank as the largest biotechnology deal ever in a high-risk industry that is rapidly consolidating as firms try to fill their pipelines with new drugs.
In recent weeks Millennium Pharmaceuticals Inc. said it planned to acquire Cor Therapeutics for $1.71 billion, MedImmune Inc. announced a deal to buy vaccine maker Aviron for $1.29 billion and Bristol-Myers Squibb Co. agreed to pay $1 billion for 20% of ImClone Systems Inc., a maker of a promising cancer drug.
Negotiations, which began several weeks ago, aren’t complete and could unravel, though people close to the talks considered that possibility remote. Still under discussion are certain aspects of American Home Products’ marketing relationship with Immunex.
The broad outline of the terms with American Home, which owns 41% of Immunex, is expected to keep marketing rights to Enbrel, Immunex’s blockbuster rheumatoid arthritis drug. AHP has exclusive rights outside the U.S. and co-promotes Enbrel with Immunex in the U.S. And AHP, under terms being discussed, will sell its stake to Amgen for the same price being offered other shareholders. Other details are being worked out.
Amgen, based in Thousand Oaks, is expected to pay a price in the low $30-per-share range for Immunex, 75% of it in stock and the rest of it in cash, sources said.
Representatives of Amgen, Immunex and AHP declined to comment.
The deal would represent a huge gamble for Chief Executive Kevin Sharer, a one-time rising star in the telecommunications business who took over the top spot at Amgen in May 2000. Sharer took charge of a conservatively run company seeking to become a full-fledged pharmaceutical firm.
Amgen’s growth has been fueled by two blockbuster drugs that had combined sales of nearly $3 billion last year.
One of the two drugs, a version of the naturally occurring protein erythopoietin, is the world’s best-selling drug. Amgen took in $1.9 billion in sales from the drug last year, which it co-markets with Johnson & Johnson. The drug, which spurs red blood cell production, is used to treat anemia in patients who don’t produce enough erythopoietin, or EPO.
Amgen is betting its second-generation anemia drug, approved in September, will emerge as its next blockbuster and shatter even EPO’s record. But the success of the drug, called Aranesp, depends on Amgen’s ability to compete in the lucrative oncology-related market where its estranged partner, Johnson & Johnson, has a virtual lock.
A deal with Immunex instantly adds a potential blockbuster to Amgen’s stable of drugs. Sales of Immunex’s Enbrel are expected to reach $750 million this year, and could reach $4 billion by 2005. Immunex last year reported net income of $154.4 million, on revenue of $861.8 million. Amgen earned $1.13 billion on sales of $3.6billion last year.
Enbrel should bolster Amgen’s foray into the rheumatoid arthritis category with a less effective drug called Kineret, allowing both firms to achieve efficiencies in marketing and sales, according to analysts.
What Amgen believes it brings to Immunex, according to sources, is years of manufacturing expertise the Seattle-based company lacks. Indeed, Immunex has been struggling to expand manufacturing capacity for Enbrel to meet demand. Analysts said sales of Enbrel would easily be at $1 billion if Immunex had the ability to make enough.
Amgen doesn’t have unused capacity to devote to Enbrel. But it believes it can help Immunex get factories that are now under construction on line more quickly.
Negotiations between the two firms got underway several weeks ago when Sharer placed a call to his counterpart at Immunex, Chief Executive Edward V. Fritzky.
A driving force behind the discussions is Roger M. Perlmutter, Amgen’s executive vice president for research and development, an expert in immunology and inflammation and a former academic at the University of Washington. Perlmutter trained many of the scientists at Immunex, which is developing drugs in those areas.
Perlmutter, who recently joined Amgen from Merck, has been expanding Amgen’s presence in inflammation; Kineret, which blocks one source of joint inflammation, is one example.
But analysts were divided over whether the deal would make financial sense for Amgen, or even whether it could be accomplished.
Lloyd Greif, head of the Los Angeles investment banking firm Greif & Co., pointed out that Amgen would face the challenge of reaching agreements both with Immunex as well as AHP, which owns a controlling 41% stake in Immunex. “If AHP wanted to, they could be the spoiler” that blocks the deal, Greif said.
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Another potential obstacle is the cost Amgen would bear in absorbing Immunex. Last month, Amgen forecast its earnings would grow 20% annually over the next five years. Some analysts expressed doubt Amgen could live up to that goal if it acquired Immunex.
Steve Fossel, who owns Amgen stock in the Berger Large Cap Growth and Berger Balanced mutual funds, said his “back of the envelope” estimate is that the purchase could cut Amgen’s earnings by about 9% in the year after the deal is approved.
Fariba Ghodsian, managing director at the Los Angeles investment firm Roth Capital, noted Amgen’s stock fell $4.20 on Thursday to $60.19. Immunex shares rose $2.51 to $26.96, both on Nasdaq. Amgen “may take the market reaction today as a hint that they should not proceed,” she said.
But Amgen, according to a source, believes the deal will help it achieve its growth objectives and said that it will dilute earnings by no more than 5% next year.
At the same time, industry experts said the deal could turn Amgen into even more of a powerhouse in the biotech industry.
“This would elevate Amgen’s status to where it almost could compete as a full pharmaceutical company,” said Edward Klebanow, a health care industry analyst with Argus Research.
“One of the complaints against the biotech companies is that they’re one-horse ponies. The successful, profitable ones--of which they are only a few--have maybe one or two blockbuster products. This would give Amgen, which has two blockbusters, a third.”
Analysts said a possible motivation for AHP to cut a deal is to relieve the financial drain on the company stemming from the controversial fen-phen diet pill that it once sold. So far, the company reportedly has paid out more than $12 billion to plaintiffs.
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Times staff writer Josh Friedman contributed to this report.
