Four Potential Suitors for Onyx Pharmaceuticals, Inc. (ONXX)

Dark horse

Gilead Sciences, Inc. (NASDAQ:GILD) has six oncology drugs in the pipeline, but hasn’t gained FDA approval for an oncology drug yet. Purchasing Onyx would give it a couple of marketed products and thus a built in sales force.

Gilead Sciences, Inc. (NASDAQ:GILD) doesn’t have the cash to make the purchase, though. At the end of the first quarter, the biotech only had less than $2 billion in the bank. Of course, capital is still cheap, so issuing bonds to pay for the purchase is an option.

Buy?
I could see any of the companies mentioned eventually buying Onyx. Of all the companies, Gilead could benefit the most from purchasing Onyx, although I think it’s probably the least likely to pull the trigger.

The concern for shareholders of the potential buyers isn’t whether they should buy, but whether they’ll overpay. Getting in a bidding war for a company that’s already increased in value over 75% this year can be dangerous.

I think there’s probably some room to go higher. My Foolish colleague Sean Williams did a good job breaking down Onyx’s assets, coming up with a potential price of $145 per share based on 2.5 times peak sales, which seems reasonable to me, but whether a potential acquirer will see it that way remains to be seen. Jumping on for the 9% upside may not be worth the risk of acquirers deciding the valuation has gotten too steep.

The article 4 Potential Suitors for Onyx originally appeared on Fool.com is written by Brian Orelli.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences.

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