Amgen (AMGN) has been in the news primarily due to the dilly-dally that kept going on for months on the acquisition of Onyx (ONXX). Now that it is a done deal, the focus has shifted to discussions on the company's entry into the blood cancer market. The acquisition is a good opportunity in a new market not only because it marks the entry of Amgen into the blood cancer space, but also because Amgen needed it badly.
Amgen's entry into the multiple myeloma market
Amgen paid $10.4 billion primarily for Onyx's main, and the only fully-owned multiple myeloma (MM) drug, Kyprolis. MM is a cancer of the plasma cells, a type of white blood cell. Amgen has ten products in the market for treatment of various diseases including cancer, rheumatoid arthritis and osteoarthritis, but none in the blood cancer space. The company is currently evaluating candidates in four modalities - antibody, cancer immunotherapy, small molecules and protein/peptibody (a flexible alternative format to antibodies).
The disease remains incurable as nearly all patients suffer a relapse or develop resistance to the medicine. The MM market has seen great advancement in the last ten years with a number of new drugs being approved by the FDA. Still, Kyprolis had a dream launch after approval in July last year.
The drug was able to capture 10% market share with sales of $18.6 million in the quarter it was launched. This was way above $7-15 million that the analysts had forecast. In the first six months of 2013, sales touched $125 million. Net sales for Q2 2013 were $61 million, plus $10 million deferred revenue on account of inventory at distributors waiting to be shipped to physicians and hospitals.
Kyprolis was approved with a specific condition that it is to be a third line treatment, meaning it can be given only to patients who do not respond to other MM drugs - Velcade of Johnson & Johnson (JNJ) and Revlimid from Celgene (CELG). Additionally, the disease must have progressed after a therapy had been stopped within the last 60 days.
Kyprolis is expected to get stiff competition from Celgene's Pomalyst, approved for MM in February 2013, and which, like Kyprolis, is also a third line treatment.
Amgen is the world's largest biotechnology company with $17.27 billion annual revenue and a net income of $4.35 billion or $5.93 per share. The Onyx deal is the fifth largest in the history of M&As in the biotechnology industry, and despite a strong balance showing more than $22 billion in cash and cash equivalents, Amgen had to borrow $8.1 billion in 5-year loans on an average interest rate of 1.3%. Actually, it makes sense and is in line with what most cash rich companies with overseas presence normally do. Most of Amgen's cash reserves are stacked abroad with its overseas subsidiaries and it will have to pay tax if the money is brought back to the U.S.
The Onyx acquisition is a big plus and marks Amgen's first foray in treatment of MM, the second most common blood cancer. The National Cancer Institute estimates that there are roughly 21,700 MM patients in the U.S. and nearly 10,710 deaths every year from the disease.
Cancer drugs command a high price in the market. At the recommended dose for an average sized patient, Kyprolis costs $10,000 per 28-day cycle. That makes Kyprolis the most expensive MM drug. Depending upon the frequency of dosage, Velcade costs anything between $4,000 and $8,000. Revlimid, on the other hand, costs $7,900.
Along with Kyprolis, Amgen also gets Onyx's two other cancer drugs - Nexavar and Stivarga - where Onyx partners with Bayer. Together, both partnership agreements contributed nearly $92 million to Onyx's revenue in the quarter ended June 30, 2013.
Just what the doctor ordered for Amgen
Over the years, Amgen has grown through M&As. In 2001 it acquired Immunex and through it the rheumatoid arthritis drug Enbrel. Currently, Enbrel is among Amgen's topline products.
Amgen needed an Onyx-like acquisition badly. For one, sales of Aranesp and Epogen, its flagship drugs for anemia, are dropping on concerns of safety, and loss of monopoly in 2012 to Affymax (AFFY), which received FDA approval for a rival anemia drug. (Note though, that after Omontys was recalled this year, that problem is resolved for Amgen.) Secondly, four of its top selling products go off patent in 2015.
Amgen deserves inclusion in every biotech portfolio. It is a dividend paying company, yielding 1.69% at CMP, with a fair potential for growth due to the Onyx acquisition and its pipeline drugs.