Onyx may be a precious gem right now for eager Big Pharmas

After rejecting a $10 billion unsolicited bid from Amgen, Onyx Pharmaceuticals puts itself up for sale officially and may spark a bidding war

Jeffrey Bouley
UPDATES July 9, 2013 -- Substantial updates throughout article
 
SOUTH SAN FRANCISCO, Calif.—On June 30, Onyx Pharmaceuticals Inc. acknowledged receipt of a $120-per-share unsolicited acquisition offer from Amgen Inc. and "concluded that the price proposed by Amgen significantly undervaluedOnyx and its prospects, and was not in the best interest of Onyx or itsshareholders." This sentiment was reportedly expressed back to Amgen two days earlier on Friday.
 
The very same press release that told that story, though, also noted that Onyx had "authorized its financial advisor to contact potential acquirers whomay have an interest in the company in a transaction that is in the bestinterest of Onyx shareholders." That refusal of Amgen and welcome of better offers sent the biotech's shares from around $86 to more than $130 per share in Monday trading.
 
"Onyx has tremendous momentum and, with the expansion of our pipelineand two successful product launches, the company and our talentedemployees have created significant value for Onyx shareholders," saidDr. N. Anthony Coles, chairman and CEO of Onyx. "The board and the managementteam remain focused on the opportunities in front of us, including thepotential to expand the use of our existing therapies in different typesof cancer and across different lines of therapy, as a result of severalongoing Phase III studies. We are actively exploring the potential tocombine Onyx with another company as an option to create additionalvalue for Onyx shareholders."
 
"There can be no assurance that an improved proposalwill be made by Amgen or any other entity," Onyx noted, or "that a definitive agreementwill be executed relating to any proposed transaction, or that anytransaction will be approved or consummated," Onyx noted, adding that it does not intend to communicate further regarding the Amgenproposal or the process by which the board of directors will considerother proposals. More than a week after the initial announcement, Onyx has stayed true to its word, and the company has been quiet while Wall Street and other market-watchers continue to chatter. Amgen has likewise kept mum, which makes for one of the quieter and calmer unsolicited acquisition bids in recent memory.
 
Reuters cited two unnamed sources close to the matter as saying that both Pfizer and Novartis had expressed interest in upping Amgen's ante, and several other companies have been noted as likely future suitors as a likely bidding war emerges.
 
"We believe that Amgen will continue to pursue Onyx as the acquisition ofthe latter will further strengthen Amgen's presence in the oncologyfield," noted Zacks Investment Research. "We believe that if the deal ultimately goes through it will do soat close to $130 per share."
 
But the opinions vary widely. Deutsche Bank analyst Robyn Karnauskas predicts the price could go to $148per share, while Geoffrey Porges at Sanford C. Bernstein thinks a company could easily be willing to spend as much as $180 per share to gain Onyx. Whether or not Amgen would be willing to go that high, if such a number becomes reality, remains to be seen, but Zacks doesn't see any reason why Amgen would give up this early in a process where the bidding war hasn't even broken out yet.
 
Onyx is engaged inthe development of novel cancer therapies that target the molecularbasis of the disease, Zacks notes, further writing that "The key drugs at Onyx are Nexavar (hepatocellular carcinoma or livercancer and advanced renal cell carcinoma or advanced kidney cancer),Stivarga (colorectal cancer and Kyprolis (multiple myeloma). Onyx isworking hard to expand the label(s) of its marketed products. Onyx isalso developing oprozomib for various oncology indications."
 
Leerink Swann, for its part, noted that it was increasing its pricetarget for Onyx (trading under the name ONXX) from $112 to $140 "based on the disclosed AMGN (Amgen) acquisition offer, disclosed interests from other third parties, andour preliminary modeling which suggests an ONXX acquisition could beaccretive to AMGN and other acquirers starting...in the $140per share range."
 
As the firm had discussed in a biopharma industry today July 1, "we believe ONXX is an attractive acquisition target as in ouropinion ONXX is among a limited number of small to mid-cap companieswith a wholly owned product and big enough revenue base and potential tomove the needle for large biopharma companies. We see a particularlystrong strategic rationale for the proposed acquisition of ONXX by AMGNand we believe an acquisition of ONXX by AMGN makes sense even at ahigher valuation than the currently disclosed offer of $120/share."
 
One interesting twist in this otherwise quiet acquisition tale is a small soap-opera style drama triggered by the U.S. Securities and Exchange Commission (SEC). On July 3, the SEC obtained an emergencycourt order to, as it noted in a new release, "freeze the assets of traders using foreign accounts toreap approximately $4.6 million in potentially illegal profits bytrading in advance of the Sunday, June 30, 2013 announcement that OnyxPharmaceuticals Inc. had received, but rejected an acquisition offerfrom Amgen Inc."
 
The SEC alleges that unknown traders took risky bets that Onyx'sstock price would increase by purchasing call options on June 26, 27 and28, the three trading days before the announcement. Through quick,cross country coordination between the agency's Los Angeles and New Yorkoffices, the SEC says it ook emergency action to freeze the traders' assetsbefore courts closed for the holiday.
 
"This action demonstrates that the SEC will not hesitate tofreeze the assets of suspicious foreign traders when the timing and sizeof their trades indicate that they were misusing inside information,and use of foreign accounts will not dissuade us," said Michele WeinLayne, director of the SEC's Los Angeles Regional Office.
 


Jeffrey Bouley

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