Bristol Myers Squibb Co. (BMY), Merck & Co., Inc. (MRK): Is AstraZeneca plc (ADR) (AZN)’s Recent Acquisition Bigger Than Onyx?

Any one of these three biologics has the potential to could become a blockbuster. If that were to happen, AstraZeneca plc (ADR) (NYSE:AZN)’s $275 million in milestone payments (included in the $500 million price tag) would be a steal. Consider that Amgen, Inc. (NASDAQ:AMGN) purchased Onyx for $9.7 billion — 19 times as much as Amplimmune — to get its hands on Kyprolis, which could eventually generate up to $2.2 billion in annual sales. The drug is on pace to bring in about $250 million to $300 million in 2013, so there is quite a way to go.

Nonetheless, let’s say that sales do ramp to more than $2 billion at their peak and assume that AstraZeneca plc (ADR) (NYSE:AZN) pays an additional $1 billion developing each of these three drugs. Amgen, Inc. (NASDAQ:AMGN) would have paid $9.7 billion for Onyx and AstraZeneca would end up paying $3.5 billion for three early stage, next-generation drugs. Even assuming only one makes it to market and becomes a blockbuster, I think a solid argument can be made in favor of AstraZeneca plc (ADR) (NYSE:AZN)’s deal over Amgen, Inc. (NASDAQ:AMGN)’s. The former just has a more laborious road ahead of it.

Foolish bottom line
Given the abysmal rates of success for pipeline drugs investors have to consider that the company rolled the dice on an extremely risky bet, albeit for a relatively cheap $500 million (cash on hand at the end of 2Q13 tallied $9 billion). In addition, even in a best-case scenario AstraZeneca plc (ADR) (NYSE:AZN) may become the fourth company to get a PD-1 therapy approved, although it could target cancers other than advanced melanoma — perhaps a smart move given the high bar seemingly set by competing therapies. However, if the PD-1 pathway proves to be an effective way to supercharge the body’s immune system, then the company could be looking at billions of dollars in annual revenue potential in the long term. That would make it a more efficient and lucrative buy than Onyx and serve as yet another example of why it pays to take a long-term approach with your investments.

The article Is AstraZeneca’s Recent Acquisition Bigger Than Onyx? originally appeared on Fool.com and is written by Maxx Chatsko.

Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio or his CAPS page, or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and biotechnology.The Motley Fool has no position in any of the stocks mentioned.

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