Amgen Stirs the Pot in the Cancer-Related Sector
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Several companies are fighting to be the first to release a treatment or cure for cancer that is a game-changer, and this battle has created a field where firms are looking to take any competitive advantage. The company that does manage to make the breakthrough that millions are waiting for will not only change the world, but also make a lot of shareholders very rich.
Amgen (NASDAQ: AMGN) in its mission to have a major stake in that breakthrough, offered to buy Onyx Pharmaceuticals (NASDAQ: ONXX), several newspapers reported on July 1. The offer sent shares skyrocketing, and it certainly stirs the pot on the sector.
Amgen looking to make an acquisition
Amgen bid $120 per share for Onyx. Amgen is valued at $72 billion and looks to be set for growth, putting other cancer-fighting pharmaceutical firms on the radar for possible acquisitions. But the offer was refused. It would have been a 38% premium on the stock's closing price at the time it was rumored to be made.
However, I see the offer as a sign of strength at Amgen. The firm is shopping for at least one cancer-fighting pharmaceutical, and this shows determination in playing for a major stake in a cancer breakthrough. Amgen is committed to strengthening its offerings of drugs, and this dedication will likely fuel profits. Already, in approximately the last month, Amgen has strengthened its position in Japan by agreeing to develop five drugs with Astellas Pharma. Also, the company signed a deal with Cytokinetics to increase a licensing agreement on the omecamticv mecarbil drug. The exposure to the Japanese market likely means big things for Amgen.
Onyx feels it is worth more
Not long after the offer from Amgen, Onyx sent a press release stating the offer, but added that the price was too low to accept. The 38% premium indicates the company could be close to a major cancer-fighting breakthrough, and Amgen sees that coming. However, the surge in price since the announced offer has potentially put the company out of range if you're looking to invest in it now. Prior to the announcement, the stock was at around $86, but was trading at over $135 the day after the announcement. I expect the hype to simmer, and any possible deal as well. However, the $120 offer per share, and then the refusal, is a sign that this company is strong or perhaps close to a major breakthrough.
Pharmacyclics is similar to Onyx
Pharmacyclics (NASDAQ: PCYC) could be in for a ride, and a possible buy if one of the larger pharmaceutical companies show interest in the firm's assets. The company is similar to Onyx, as it is in the same cap range and focuses largely on creating cancer treatments. The firm has several unproven cancer drugs, and a major breakthrough could mean soaring profits. In February, U.S. regulators gave the company a "breakthrough" status. That led to a large increase in share price.
Wall Street analysts have called the company's Ibrutinib cancer treatment promising. This optimism has turned this company from a penny stock, to now trading around $85 in just a few years. While the company could very well produce a major breakthrough cancer treatment, it appears to be too heavily weighted on one product, making it a risky venture. However, many of the larger firms could see this progress as a time to buy.
What it all boils down to
Basing your decision to buy a stock on speculation about possible takeovers is a recipe for disaster. While Pharmacyclics appears similar to Onyx, many variables could mean firms such as Amgen aren't looking elsewhere for a possible deal. However, buying a company that is fundamentally strong will increase your chances of securing a winner that could be the subject of a buyout. This is how two of my former pharmaceutical picks ended up, and they were both bought at major premiums, netting me a tidy sum.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!