Amgen may not be the next biotech takeover target, analyst says

Amgen Inc.’ s 4.4-per-cent gain on Monday and its wide outperformance versus largecap biotech peers have investors thinking it may be a takeover target.

The rally was sparked by yet another mega-deal in the pharma space, with Teva Pharmaceutical Industries Ltd. agreeing to buy Allergan PLC’s generic drugs business for US$40.5 billion.

Amgen’s US$120-billion market cap aside, RBC Capital Markets analyst Michael Yee doesn’t think it’s in the cards just yet despite the market’s belief that it may be a target for consolidation. He thinks any potential buyer would want to see how well Amgen executes in the next 12 months before making a deal.

“Based on investor conversations, we conclude that it would be a shock if Amgen was acquired by a specialty pharma player — many fund managers just couldn’t envision this happening,” he told clients.

Yee noted that some see Amgen as more durable than others, particularly if its cardiovascular drug, which is aimed at lowering bad cholesterol, becomes a huge product.

The analyst pointed out that the company’s late-stage pipeline of osteoporosis, migraine and other drugs have much lower risk than those of peers such as Biogen Inc. and Celgene Corp. Amgen is also expected to be roughly in a net positive cash position by the end of the year.

Amgen has a lot going for it, including an expected second-quarter earnings beat and the potential to raise guidance, so Yee thinks other large-cap biotech names are more likely targets for specialty phama players.

For example, Biogen, which has a market cap of US$70 billion, trades at nearly no pipeline value, so that may lure potential buyers.

Celgene, which has a market value of US$105 billion, is attractive because of the high confidence in its Revlimid anemia and multiple myeloma treatment, valuable product pipeline, and the highest growth rate in largecap biopharma.

Gilead Sciences Inc., meanwhile, is much more likely to be a buyer given that it is now one of the biggest bio-pharma companies in the world, with a market cap of US$165 billion cap and a huge under-levered balance sheet.

He also thinks Vertex Pharmaceuticals I nc . could be a possible target, but noted that it is highly levered to one cystic fibrosis program, which could scare away potential acquisitors.