Onyx Takeover Was Expected

| About: ONYX Pharmaceuticals, (ONXX)
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In November 2011 Prohost posted an article titled “Deal or no deal, time for a payoff”. All that was prophesized in that article about Onyx’ (NASDAQ:ONXX) drugs and prospects has materialized and the final item, a takeover, seems to be on the verge of happening.

On Friday June 29, after market hours, news spread that the Canadian newspaper Financial Post announced that Amgen (NASDAQ:AMGN) has offered to buy Onyx for $120 per share in cash. ONXX soared about 30 percent after the market closed. The newspaper said that Amgen had sent material to Onyx in which it would propose a cash acquisition worth about $10 billion and requested due diligence and a document review period. The Financial Post said Amgen forwarded its documents to Onyx about two weeks ago. Amgen had sales of $17.3 billion in 2012, while Onyx brought in revenue of $362 million.

According to the Financial Post, the documents sent to Onyx said that Amgen was prepared to "move quickly to negotiate and execute a combination with you" and that the proposal did not have financing conditions on it. "Although we have reviewed Onyx extensively, our review has been limited to publicly available information. We would propose a focused, confirmatory due diligence and document review period," the documents said, according to the Financial Post.

In our article of November 2011, we noted that following a blind rule of thumb; investors had caused a selloff in the stock, which led to ONXX plummeting from a 52 weeks high of over $36, to around $20 following Onyx’ takeover of the firm Proteolix to get to its multiple melanoma second-generation drug Carfilzomib. We expressed our disappointment from the stupid rule of thumb that causes automatic biotech stock selling at the sight of paying any money, regardless of the advantages of what the money has been spent on. We predicted the drug will be approved and will prove it is a blockbuster. The drug was in fact approved, and sold since under the trade name Kyprolis®. It is generating over $360 million/year.

The odds are in favor of Amgen’s takeover of Onyx. This statement is based on the fact that Onyx has expressed its intention to be acquired by a good biotech firm, or pharmaceutical Company. That’s exactly what made us keep the stock and advocate buying it on weakness-- in case it happens, in spite of the fact that the stock soared from $35.90 the stock price in March 18, 2011, the day Prohost picked it and added it to its #1 portfolio (see Prohost tables) to over $96 in May 2013.

Following Friday's news, the stock soared to $109.01 UP $22 after market hours. It is up to our subscribers who bought the stock at $35.90 or over this price later on to make their own decision of whether to keep the stock or sell it at this price, or around it.

In a new development, Onyx confirmed Amgen's offer in the same release that announced rejecting it. Indeed, Onyx has rejected Amgen's unsolicited proposal that suggests acquiring Onyx' outstanding shares and share equivalents for $120 per share in cash, subject to due diligence and other conditions.

Why the rejection?

According to Onyx' press release, consulting with its financial and legal advisors, Onyx Board concluded that Amgen's proposed offer significantly underestimates the firm's value and prospects and was not in the best interest of the Company or its shareholders.

It seems that other entities had expressed interest in Onyx, as following Onyx' decision to reject Amgen's offer the company's Board has immediately authorized its financial advisors Centerview Partners, LLC and Goodwin Procter, LLP to contact potential acquirers in order to reach a transaction that would be in the best interest of Onyx shareholders. The firm's press release hinted to the presence of interested third parties.

On Monday, Onyx' shareholders will wake up facing the following choices:

  • Selling the stock that appreciated by 30% in a couple of minutes on Friday at $109.
  • Waiting for a third party offer that might make a higher offer than the $120 offered by Amgen.
  • Waiting in expectation that Amgen might come back with a much better offer.
  • Relying on the firm's estimation of its much higher value and stay with ONXX.

Difficult choices, we know. It is not easy for shareholders to accept $109 when an offer was made at $120. The other choices are more promising, but are yet to be made. Amgen might indeed come back with another better offer if it is convinced that adding the two firms' products and investigational pipeline products will, indeed, enhance its growth potential.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.