This summer saw quite a few large-scale pharmaceutical acquisitions and billion dollar agreements. Spearheaded by the numerous bids put in to buy Amylin Pharmaceuticals, ultimately going to Bristol Meyers-Squibb (BMY), each of the big players seem to throw some serious money somewhere. Now, as the summer nears an end, I'll examine how those large moves have fared so far, and where it seems like they'll be going.
Let's start with maybe the biggest headline. At the end of June, Bristol-Myers announced that it will acquire Amylin Pharmaceuticals for $5.3 billion. Amylin will provide drugs in the diabetes industry, a strong strategy as there are not a lot of diabetes assets in the industry at the moment. Obviously, this was the driving reason behind the bidding war. The deal was finalized last week.
There's more to the agreement than meets the eye, though. AstraZeneca (AZN) is supplying $3.2 billion to Amylin to help move diabetes treatment forward, and profits from this will be shared by AstraZeneca and Bristol-Myers. With the deal, Bristol-Myers has made an early payment of $1.26 billion to Eli Lilly (LLY). Amylin and Eli Lilly had been partners for more than a decade. The early payment boosted Eli Lilly's earning projection - and it now projects net earnings to be in the $3.29 to $3.39 range. Good news for investors there.
However, moving forward I think this deal might actually be best for AstraZeneca. It keeps a partner afloat and does not require the company to make quite as large of a commitment as Bristol-Myers did. As Stephen Simpson points out, Amylin has yet to really prove it's a company worthy of its price tag. Bydureon, its current diabetes drug, didn't coup the sales numbers that Amylin had hoped for, though Bristol-Myers give it some serious backing. There's a lot of pressure riding on Amylin, of which Bristol-Myers Squibb will have to shoulder.
AstraZeneca is also moving forward with another big deal, as it has acquired neuroscience assets from Link Medicine. This company has focused largely on autophagy, which is a field that can be applied to neurodegenerative diseases like Parkinson's and Alzheimer's. This goes well with previous moves from AstraZeneca, as it is working to increase its new neuroscience Innovative Medicines Unit. This shows that it is not merely moving forward with acquisitions and deals at random, as it is maintaining a consistent strategy, focusing on increasing this aspect of its company. This will strengthen AstraZeneca, and it still should benefit from an increase in Amylin's sales as well. With a reasonable stock price at the moment, I believe this would be a good investment. Therefore, I do recommend this stock.
Johnson & Johnson (JNJ) joined the ranks too, as it struck a deal this summer with British biotech company Genmab to develop bispecific antibody drugs. Johnson & Johnson will fund these projects to be completed by Genmab. Johnson & Johnson will provide an upfront payment of $3.5 million, but each product could result in milestone and license payments reaching as much as $175 million. This will not alter Genmab's 2012 financial guidance though, as this is not such a major deal. I'm not big on Johnson & Johnson for other reasons, though it's worth noting that while Genman has been struggling lately it has narrowed its negative margins and losses.
The smaller Verastem (VSTM) made multiple deals in a short stretch, making serious progress in strengthening its business. The company in-licensed Pfizer's (PFE) focal adhesion kinase inhibitor that it previously decided to stop developing after reviewing its portfolio. Verastem will provide an up-front payment of $1.5 million in cash and roughly $2 million in stock, and Pfizer could gain up to $125 million in milestones. Verastem will be entirely responsible for making the compound, so this is a good deal for Pfizer.
Soon after making this deal, Verastem made a deal with Eisai to engage in a 12-month collaboration on a Wnt inhibitor program. Verastem will have full ownership of resulting products. Eisai will be eligible to receive royalties, and it will have the right of first negotiation. Verastem seems to be in a better position with this than with the Pfizer deal, but the Pfizer deal just seems too risky for a company with only $41.07 million in cash. Although it is at a decent price right now, I find Verastem just too risky at the moment, so I do not recommend this stock.
As the summer nears a close, and we review some of the bigger moves in the pharmaceutical industry, I still like AstraZeneca's move above all else. It joined in on the big ticket item, Amylin, but with limited risk and the potential of solid reward. Even if the purchase Link's neuroscience assets doesn't work out, AstraZeneca didn't dump too much money into it ($465 million) - or at least not too much compared to its competitors and their moves. Yet, if it does work out, AstraZeneca could reap rewards, off of Alzheimer's treatment sales, that far exceed most of the other potential sales figures from these acquisitions. AstraZeneca is my summer winner of this bunch.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.