Mergers and acquisitions appear to be continuously reshaping the pharmaceuticals industry. One of the latest initiatives involved British drug maker AstraZeneca plc (ADR) (NYSE:AZN), which announced this May 28 that a definitive agreement has been reached for its acquisition of Princeton, NJ-based Omthera Pharmaceuticals Inc (NASDAQ:OMTH).
Notably, this development came just a month after Omthera’s IPO, a market debut that had the company’s share with an initial $8 per share tag price. Following the acquisition announcement, Omthera Pharmaceuticals Inc (NASDAQ:OMTH) shares more than doubled and now trade at around $13. Investors also appeared warm on AstraZeneca plc (ADR) (NYSE:AZN)’s impending acquisition, as the company’s shares advanced or 2.4% in pre-market.
Buy, sell, and collaborate
The Omthera purchase follows AstraZeneca plc (ADR) (NYSE:AZN)’s acquisition of the biotechnology company Ardea in June last year. This $1.26 billion deal, described as the biggest acquisition of AstraZeneca in five years, brought in to the company’s product portfolio the drug lesinurad, which is in the advanced Phase III of clinical trials for gout treatment.
In July last year, Bristol Myers Squibb Co. (NYSE:BMY) purchased from AstraZeneca plc (ADR) (NYSE:AZN) its San Diego, CA-based Amylin unit for about $5.3 billion. Bristol-Myers and AstraZeneca also agreed to jointly develop and commercialize the products of Amylin, which are primarily drugs for diabetes. The deal gave Bristol Myers Squibb Co. (NYSE:BMY) a robust pipeline to Amylin’s type-2 diabetes drugs. These include the first ever once-a-week therapy for patients with type 2 diabetes.
Growth drivers
AstraZeneca’s initiatives are part of its market growth strategies which involve accelerating the company’s efforts to secure on-market or late-stage product licensing, acquisition, and opportunities at peer collaboration. The positive results from these recent efforts, however, have yet to show in the company’s bottom line as its EPS fell 31% to $0.81 during the first quarter, primarily because of growing competition from generics. Bristol Myers Squibb Co. (NYSE:BMY)’ first-quarter net earnings, likewise, declined to $0.37 a share from $0.64 a year earlier.
Nevertheless, the outlook appears brighter moving forward for both companies. In particular, Bristol-Myers is optimistic on the groundbreaking type-2 diabetes drugs that it is working with AstraZeneca plc (ADR) (NYSE:AZN) to bring to patients outside the U.S. Also encouraging is a recent analysis that a $10 billion to $35 billion incentive is in store for the pharmaceutical industry as a result of President Obama’s Affordable Care Act.
For AstraZeneca, its Omthera acquisition shall further bolster the company’s product portfolio addressing cardiovascular conditions. In the immediate horizon is Omthera Pharmaceuticals Inc (NASDAQ:OMTH)’s fish oil-based treatment, Epanova, for which late-stage testing has been completed and will be submitted to U.S. regulators’ approval by middle of the year.
In addition to cardiovascular remedies, AstraZeneca plc (ADR) (NYSE:AZN) also derives revenue from its drugs addressing gastrointestinal, respiratory, autoimmune, metabolic, infection, inflammation, oncology, and neuro diseases. This diverse portfolio is matched by its extensive global footprint which covers not only Europe, but also the Americas and Asia-Pacific.
Wrap up
Income investors, to wrap it all up, will likely tilt in favor of AstraZeneca compared to Bristol-Myers valuation-wise. The latter’s current trailing 12-month P/E ratio of 55 looks too steep, tempting though it maybe considering Bristol-Myers’ annualized dividend of $1.40 and current yield of 2.95%. In comparison, AstraZeneca has an 11.81 P/E ratio, a $3.80 annualized dividend, and a 7.29% current yield.
The article This Pharma Company Is Making the Right Moves originally appeared on Fool.com and is written by Arturo Cuevas.
Arturo Cuevas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Arturo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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