Amgen bided its time to beat rival bidder in $3.7B ChemoCentryx buyout

Amgen spent two years to eventually scoop up rare disease drugmaker ChemoCentryx. In this case, patience was a virtue.

Amgen was initially only considering a potential partnership instead of a full-on acquisition of ChemoCentryx, a securities filing (PDF) shows. But as biotech valuations cooled down late into the pandemic, the California drugmaker changed its mind.

“We highlight that this serves as an example for deals that may have lacked traction during the pandemic to pick back up now as valuations have settled and there is relatively more certainty with the market now,” RBC Capital Markets analysts wrote in a Wednesday note.

ChemoCentryx’s search for a transaction started in March 2020, even before a new drug application for what would later become the company’s first commercial product, Tavneos, in the rare autoimmune disease of anti-neutrophil cytoplasmic antibody-associated (ANCA) vasculitis.

At the instruction of the board, ChemoCentryx’s management team tapped Goldman Sachs as its agent for deal talks. At that time, ChemoCentryx’s stock price was around $39.

For the following three months, Goldman Sachs contacted 13 companies to gauge their interest in a deal. Amgen, along with four other companies, expressed interest. But none of them wanted a complete takeover.

The reason? “[A]n acquisition of ChemoCentryx would be challenging in light of the state of the market and ChemoCentryx’s recent stock price,” the filing shows. As part of a biotech financial market rally, ChemoCentryx’s stock price had surged to $61 per share at the beginning of June 2020.

A company coded “Party D” in the filing was the first to come forward, but it quickly backtracked its acquisition language merely four days after saying it was working toward such a plan.

Without a deal, ChemoCentryx opted for a stock sale to raise about $283 million. This was still in June 2020.

Amgen brought the discussions to the next level after Tavneos’ FDA approval in October 2021, indicating that its CEO Bob Bradway ought to have a phone call with ChemoCentryx chief Thomas Schall, Ph.D.

The call between the two bosses took place in December 2021. In January and February 2022, the two companies’ exec teams visited each other’s headquarters, both in California. ChemoCentryx offered a review of its pipeline and Tavneos’ launch progress, while Amgen touted its commercial capabilities. During the meeting, ChemoCentryx made one thing clear to Amgen: The Tavneos maker wasn’t interested in single-program deals.

In three subsequent calls, Bradway told Schall about Amgen’s potential interest in an acquisition of ChemoCentryx.

March 3, Bradway gave Schall Amgen’s first proposal—to acquire ChemoCentryx at a per-share price of $42.50. The closing price of the small biotech that day was $24.40.

Of course, ChemoCentryx didn’t jump on Amgen’s first offer. An acceptable price would be above $50 per share, Goldman Sachs told Amgen in response to Amgen’s repeated request for valuation guidance.

Amgen dialed up its offer to $52 after additional due diligence research.

Just as Amgen was working through a better bid, the CEO of another company, “Party E,” called Schall on July 13 and provided an unsolicited purchase price at $36 per share. Scholl told his counterpart right there that he thought the price was too low. ChemoCentryx’s closing price that day was $23.

Upon receiving an official rejection from ChemoCentryx, Party E increased its per-share offer to $40. But ChemoCentryx declined further engagement, citing the same $50-plus price range it had provided to Amgen.

Party E then proposed $44 and indicated it might reach out to ChemoCentryx stockholders directly with its offer. But after ChemoCentryx once again insisted on the $50-plus price before providing access to any due diligence information, Party E went quiet and never responded to a nondisclosure agreement.

ChemoCentryx also contacted several other companies, including those that had expressed initial interest in partnerships in 2020. But none of them brought forward a formal buyout offer.

So ChemoCentryx’s Schall decided to push his luck with Amgen. In a phone call Aug. 2, Schall told Bradway that a per-share price of $54.50 would “generate interest” from the board to approve a transaction. But the Amgen chief executive said $52 was the company’s final offer.

Considering the unappealing, $44 offer from Party E and lack of additional competitive bidders, ChemoCentryx accepted Amgen’s $52 price, which marked a 116% premium to the company’s stock price before the two publicly announced the deal Aug. 4.

Industry watchers generally agreed that ChemoCentryx was a nice fit for Amgen’s inflammatory disease portfolio, which has fast-growing oral psoriasis med Otezla and freshly FDA-approved, AstraZeneca-partnered asthma therapy Tezspire. And rare disease represents an appealing market with less competition or pricing pressure than general medicines.

By ChemoCentryx’s estimate, Tavneos, in its currently approved ANCA vasculitis indication, could cross the blockbuster threshold in 2031 and reach peak sales of $1.14 billion in 2034, according to an analysis included in the securities filing. Tavneos’ other potential indications and ChemoCentryx’s two lead pipeline drug candidates could reach $2.18 billion peak sales in 2034, the filing shows.