Amgen Prevents Biotechs from Reaching Profitability

If sales of Amgen's (AMGN) anemia drugs hadn't fallen so much last year, the American biotechnology industry probably would have turned its first profit in history. That's one of the main conclusions of Ernst & Young's comprehensive annual report on the sector that came out Tuesday.

E&Y acknowledges it thought 2007 was gonna be the year biotech crossed that all-important threshold. But the safety cloud over AMGN's Aranesp and Epogen kept it from happening. The report points out that Amgen alone makes up more than one-fifth of the revenue for publicly traded biotechs in the U.S.

E&Y says big deals like AstraZeneca's (AZN) purchase of the profitable MedImmune also factored into biotech remaining in the money-losing column.

"The sector's aggregate net loss was less than $300 million--less than one half of one percent of its revenues," the report says. "The industry came closer to profitability than it ever has before."

E&Y still thinks the industry will turn the corner by the end of this decade, but it's not predicting exactly when. In the meantime, look for more wheelin' and dealin'. "One or more mega acquisitions of mature biotechnology companies...is likely," E&Y concludes.

And the report gets specific about the structure of such deals: "Given the valuations of the top-tier biotech companies and shareholder expectations for a healthy premium, such a transaction will likely not be all cash, so the valuation of a potential acquirer's stock will matter."

Amgen has been mentioned recently by at least a few analysts as a potential takeout target. One of the promising drugs an acquirer would be getting is the osteoporosis drug D-mab, which Amgen announced positive test results on late Tuesday.

Comments

[Ketan Desai]

"E&Y acknowledges it thought 2007 was gonna be the year biotech crossed that all-important threshold".

Gonna be? Time for a remedial course in English writing.

[MD]

Who could afford to acquire Amgen? Pfizer? Merck? That would certainly be a mega-blockbuster, almost on the scale of the oil mergers in the late 90's.

Steve
magicdiligence.com

[R J Steffens]

They can spend billions for the bloated company of a few promising drugs, or invest under $100 million to partner with a small biotech with a promising pipeline. Why do they always get it wrong?

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