The “people familiar with the matter” are out in full force spouting off about who’s bidding for Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), reports Reuters and The Wall Street Journal.
The insiders — most likely Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s bankers — release the confidential information to help drive up the price. You’ll recall that Amgen, Inc. (NASDAQ:AMGN) recently made an unsolicited bid for $120 per share that Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) rejected before putting itself on the auction block. The more potential bidders, the higher Amgen has to raise its bid, assuming, of course, that Amgen, Inc. (NASDAQ:AMGN) believes what’s reported in the press.
The news flow also encourages shareholders to hold the course; shares currently trade well above the $120 offer. The bidding process will take awhile, and if shares fall, it’s easier for bidders to justify a lower final offer.
Here’s a look at the potential suitors, assuming the bankers are telling the truth, of course.
Obvious
It’s not surprising to see Amgen, Inc. (NASDAQ:AMGN) in the mix of bidders given its initial interest. With its oncology focus, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) would be a nice fit. At $10 billion, buying Onyx would be the largest purchase Amgen has made since it bought Immunex more than a decade ago. With more than $20 million in the bank, though, Amgen can certainly afford it.
Big pharma
The two big pharma being mentioned by the insiders, Pfizer Inc. (NYSE:PFE) and Bristol Myers Squibb Co. (NYSE:BMY), are the two obvious choices given their focus on oncology.
Bristol Myers Squibb Co. (NYSE:BMY) has build much of its medicine bag and pipeline through acquisitions in a strategy it calls “string of pearls,” so acquiring Onyx would just be adding another pearl — albeit a rather large one. A knock on a big pharma company buying Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is that it would have to work with Onyx’s partner, Bayer, co-marketing their cancer drug Nexavar, but that shouldn’t phase Bristol Myers Squibb Co. (NYSE:BMY) given that it’s worked with Sanofi SA (ADR) (NYSE:SNY) selling Plavix and more recently hocking diabetes drugs with AstraZeneca plc (ADR) (NYSE:AZN).
Onyx would be an interesting fit with Pfizer. They’re competitors of sorts since Pfizer Inc. (NYSE:PFE)’s Sutent works in basically the same way as Onyx’s Nexavar. But the companies have found separate niches with Sutent getting most of its sales from kidney cancer and Nexavar focused on liver cancer, even though it’s also approved for kidney cancer. Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) and Pfizer Inc. (NYSE:PFE) also have a partnership for another cancer drug in development, palbociclib, so buying Onyx would save Pfizer the having to pay the royalty if the drug is approved.
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.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
