Amgen (Nasdaq: AMGN) Deal Shows How to Find Biotech's Best Investments

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Amgen

On Sunday, the world's largest independent biotechnology company, Amgen Inc. (Nasdaq: AMGN), bought Onyx Pharmaceuticals Inc. (Nasdaq: ONXX) in a $10.4 billion dollar deal – making it the fifth-largest biotech deal in history according to Standard & Poor's Capital IQ.

The Amgen deal with Onyx highlights where insiders – and investors – see the best investments in the biotech industry.

I'm talking about cancer therapy – a multibillion dollar industry that will be the biggest M&A driver – and profit producer – for biotech investors.

In fact, Citigroup analysts estimate that the cancer immunotherapy market will generate $35 billion per year over the next 10 years as existing drugs grow market share and new therapies enter the market.

That means profits for anyone who picks the best investments to play this trend…

Booming Market for Cancer Therapy Drugs

Around 25% of biotech industry deals greater than $100 million presently involve cancer – more than any other disease, according to JPMorgan Chase & Co.

It's no wonder why there are so many zeros behind that estimate…

The American Cancer Society projects 1,660,290 Americans will be newly diagnosed with cancer in 2013. Of that group, 580,350 are projected to die of the disease; that's 1,600 people per day.

The fact is cancer remains the second-most common cause of death in the United States, accounting for almost one in every four deaths per year. The demand for a new wave of cancer treatments is in full throttle.

Onyx

Enter Onyx. 

The San Francisco-based biopharma specializes in developing therapies that target the molecular mechanisms that cause cancer. 

Right now, it notably owns three anticancer treatments: Nexavar for liver and kidney cancer, Stivarga for colon cancer, and most famously Kyprolis, a last-ditch treatment of multiple myeloma (bone marrow cancer) that gained FDA approval last July.

Kyprolis has enjoyed $125 million in sales in the first six months of 2013. Analysts further project annual sales growing to $2 billion if the drug both gains approval overseas and can be used in earlier-stage treatments of the disease.

Meanwhile, Amgen's highest-grossing drugs are being threatened by new competition as their patents expire.

Enbrel, a rheumatoid arthritis treatment, grossed $1,075,249 in 2013 Q1 sales, but its patent expired in October 2012. The top-selling Neupogen and Neulasta franchise, which helps patients cope with the side effects of chemotherapy, facilitated $17.3 billion in Amgen revenue in 2012 alone. Both patents are due to expire in December.

Kyprolis is expected to buttress sales as its aging blockbusters prepare to face the open-market competition. Onyx should also help Amgen gain a higher profile in oncology, and its products play well with Amgen's existing cancer support medications.

"Amgen has a unique opportunity to add value to Kyprolis, a product which is at an early and promising stage of its launch," Robert A. Bradway, chief executive of Amgen, said in a statement Sunday.

Amgen will offer $125 per share in cash through a tender offer for Onyx's shares. The deal is expected to close at the beginning of the fourth quarter.  For now, Onyx shares rose 5.58% to $123.49 and Amgen jumped 7.7% to $113.75.

And they aren't alone in delivering for shareholders – there are more of these best investments in the biotech M&A trend…

Join the conversation. Click here to jump to comments…

  1. Julia Petrova | August 28, 2013

    NASDAQ’s Flash Freeze bears a resemblance to Knight Capital’s own trading malfunction, last year. The Knight Capital story is dramatically described in the book Knightmare on Wall Street; full of details and insights.

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