Rumors that Amgen is looking to prop up its top and bottom lines by buying Alexion have been floating around for more than a year. Now, they’ve resurfaced, much to the delight of Wall Street analysts, who have been pressuring Amgen to do something to cushion the $2 billion in lost revenues it’s expected to suffer as key drugs like Neulasta and Sensipar fall to biosimilar competition.
On Wednesday, Spain’s Intereconomia reported that Amgen is on the verge of acquiring Alexion for $200 per share. The news site had been touting the potential for the tie-up since July, but some analysts had been skeptical about the source of the rumor. Still, Alexion’s stock rocketed up more than 7% to $123.49 on the news.
A spokesperson for Alexion declined to comment. Amgen said it doesn't comment on rumors.
The validity of the Amgen-Alexion rumor notwithstanding, “such a deal could make a ton of sense,” analysts for Piper Jaffray said in a note to investors on Thursday. Why? Because adding Alexion could boost Amgen’s earnings starting next year and lead to 20% earnings accretion by 2024, the analysts figured.
Alexion has long been on analysts’ lists of the most likely acquisition targets, but the company could be a particularly good fit for Amgen. Alexion makes the $3-billion-a-year drug Soliris to treat rare blood and neurological diseases and the next-generation product Ultomiris. That makes it big enough to provide an immediate boost, but not so big as to be unmanageable, Bernstein analyst Ronny Gal said when the rumor first emerged last summer.
In a year that’s seen a string of big biopharma mergers, it’s no surprise that Amgen is facing pressure to consummate a deal. During Amgen’s second-quarter earnings conference call, analysts pressed CEO Bob Bradway for answers as to why the company wasn’t jumping on the M&A bandwagon. Bradway said Amgen continues to “look at opportunities large and small” but that it has been “disciplined” in its approach.
That wasn’t acceptable to Mizuho Securities analyst Salim Syed. He wondered if Amgen might be shying away from big deals because of the Federal Trade Commission’s recent crackdowns—including its insistence that Celgene sell psoriasis drug Otezla in order to seal its $74 billion deal with Bristol-Myers Squibb. “Why haven't you done more M&A this year?” Syed asked. “Is it FTC, or do you truly believe that the highest [return on investment] you can get right now is just buying back your own stock?”
Amgen has struggled “to find transactions at prices that we think can earn a return for our shareholders,” Bradway said. “But again, we continue to look for opportunities and fully expect that by being disciplined we'll find ones that enable us to win for our shareholders and to invest in programs that can help us grow the company.”
One reason Alexion keeps floating to the top of the lists of the companies most likely to be acquired is its low valuation. The company’s share price has been mostly flat since Ultomiris scored its FDA approval late last year, even though Alexion has done a better-than-expected job of switching patients from Soliris to the new drug.
SVB Leerink analysts said in a note to investors that Alexion is undervalued, given that its annual revenues are expected to exceed $4.5 billion, with earnings growth in the mid-teens through 2024. “We believe there is a desperate scarcity of such assets across the industry, and for this reason, investors should anticipate a hefty premium, if a genuine acquirer materializes,” they said in a note to clients. The analysts expect acquisition discussions would start at a price of $150 per share.
That said, SVB Leerink analysts aren't convinced Amgen is the ideal match for Alexion. Amgen is in phase 3 trials of a biosimilar version of Alexion’s Soliris, which could indeed raise challenges with the FTC, the analysts wrote. What’s more, Amgen has traditionally steered clear of rare-disease drugs, choosing instead to focus on oncology, immunology and neurology.
Then again, Amgen’s priorities could very well change, SVB Leerink’s analysts concluded. “Amgen wouldn’t be the first company to update their strategy post hoc after making a high profile acquisition opportunistically,” they wrote.
Editor's note: This story was updated with a response from Amgen.