2 Biotech Acquisitions in 1 Day! Let's Throw a Party
"Merger Monday" has a new a rival.
The first day of the work week has typically been a hot day for mergers, acquisitions, and licensing deals because the investment banking folks have had all weekend to hash out the details.
But it seems getting a deal done before management has to talk to investors during an earnings call is also a pretty good self-inflicted deadline. Both Amgen (NAS: AMGN) and Celgene (NAS: CELG) announced acquisition deals yesterday ahead of their earnings.
Who knows if it'll catch on, though; I'm not sure "Before-Earnings Thursday" has the same ring.
Paying itself back
Amgen agreed to buy Micromet (NAS: MITI) for $1.16 billion, a 33% premium on the previous closing price. Amgen has been involved in the cancer field, but the move spreads its wings a little because Micromet's most advanced drug, blinatumomab, is being tested for acute lymphoblastic leukemia and non-Hodgkin's lymphoma. Amgen has always been more of a solid-tumor-treating type of company. Treating blood cancers is a slightly different animal.
The price seems a little rich for a compound that hasn't read out phase 2 data, but Micromet also has a platform, BiTE antibody technology, which the drug developer licensed out to other companies including Bayer, Sanofi (NYS: SNY) , Boehringer Ingelheim, and -- you guessed it -- Amgen. If Amgen's drugs using Micromet's technology turn out to work, it could save the purchase price and more in milestone and royalty payments that it won't have to pay Micromet. Blinatumomab and the drugs being developed by Micromet's other partners could turn out to be a bonus.
Oh yeah, and Amgen reported earnings, beating analysts' expectations on revenue, but falling short on the bottom line.
Leaving risk in the hands of the developers
Blood cancer specialist Celgene is staying within its comfort zone with the acquisition of privately held Avila Therapeutics. The company's AVL-292 targets Bruton's tyrosine kinase, which is involved in blood cancers such as non‐Hodgkin's lymphoma and B-cell chronic lymphocytic leukemia.
Celgene picks up the phase 1 compound, a drug discovery platform, and a few other pipeline drugs for just $350 million. The big biotech is on the hook for another $195 million in milestones tied to the development and regulatory approval of AVL-292, and another $380 million in potential milestone payments that are contingent on development and approval of drugs from the discovery platform.
I like this strategy a little more. All told, Celgene could end up paying almost as much as Amgen is for less-developed products, but the price tag will only get that high if Avila's products actually work.
And oh, yeah, Celgene reported earnings, but the cat was already out of the bag since the biotech announces preliminary earnings numbers at JPMorgan Chase's Health Care Conference.
Don't buy for the sale
If you haven't already, you're bound to see an article or ten spouting how these purchases, along with Roche's hostile bid for Illumina (NAS: ILMN) and all the activity in the hepatitis C space, is a sign that this company or that company will be purchased.
Hate to break it to you Fools, but M&A doesn't beget M&A. Sure, there are a few bidding wars, which can make drug development look like an arms race. But that's always been the case.
Plain and simple: Good companies get acquired. And it happens more often when good companies are ignored by investors, because that makes it cheaper for the acquirer. Roche didn't make a private offer for Illumina until earlier this month, after it had fallen more than 50% since mid-summer.
The kind of company that could be acquired is the same type of company that you'd want to own anyway. Buy for the right reason and think of the acquisition as an added bonus. Factoring it into your valuation is playing with fire.
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At the time this article was published Fool contributorBrian Orelliholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of JPMorgan Chase.Motley Fool newsletter serviceshave recommended buying shares of Illumina. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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