Amgen Makes Bid To Acquire Abgenix For $2.2 billion (AMGN, ABGX)

Yesterday evening, Amgen (ticker: AMGN) announced its intention to acquire Abgenix (ticker: ABGX) for $22.50 per share plus assumption of debt, representing a 54% premium over Abgenix's closing stock price.

The acquisition of Abgenix by Amgen is not a surprise to most since they are partners in the development of panitumumab for colorectal cancer and AMG 162 in osteoporosis. Aside from future panitumumab and AMG 162 royalties, the deal provides Amgen with a solid platform for developing future products with Abgenix's monoclonal antibody technology.

In my opinion, the acquisition is a rational move by Amgen. As of the end of September, Amgen had over $5.5 billion in cash and is generating over $1 billion in free cash flow per quarter. The acquisition should contribute to future sales and earnings growth while providing a better ROIC than stockpiling cash.

As a result of the announced deal, there is considerable speculation on the Street as to what will be the next acquisition. Some of the rumors making the rounds today are: Bristol-Meyers (ticker: BMY) for Imclone (ticker: IMCL); Eli Lilly (ticker: LLY) for Amylin (ticker: AMLN); and Merck (ticker: MRK) for Sepracor (ticker: SEPR). I can't say who will acquire whom, but I think it bodes well for small cap biotech stocks and could result in small cap biotech stocks catching up to their big cap brethren. (The performance diverge between large cap and biotech stocks was discussed in this post on December 9th.)

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