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Amgen to Buy Celgene's Otezla for $13.4B: Is it a Good Buy?

Zacks Equity Research

Amgen AMGN has agreed to acquire global commercial rights to Celgene’s CELG blockbuster psoriasis drug, Otezla, which the latter had to divest to complete its impending merger with Bristol-Myers BMY.

Amgen has agreed to pay Celgene $13.4 billion in cash or approximately $11.2 billion net of anticipated future cash tax benefits for Otezla and certain related assets and liabilities.

Amgen’s shares were up more than 3% on Monday in response to the news indicating that investors were mostly optimistic about the deal though a group of analysts found it expensive. Shares of Amgen have risen 5.5% this year so far against a 3.4% decrease registered by the industry during this period.

 

 

We believe buying Otezla is a smart strategic move by Amgen as it strengthens its existing inflammation franchise, which includes blockbuster drug, Enbrel. The drug is approved to treat several chronic inflammatory diseases like rheumatoid arthritis, plaque psoriasis, psoriatic arthritis and ankylosing spondylitis and accounted for almost 23% of product sales in the first half of 2019. However, pricing pressure and stiff competition are hurting sales of Enbrel, one of the main drivers of Amgen’s revenues. The declining trends in Enbrel demand continue in 2019 as well.

With Enbrel reeling under pressure, Otzela will strengthen Amgen’s portfolio of inflammatory drugs. Amgen expects this non-biologic treatment to record at least low double-digit sales growth, on average, over the next five years. Amgen expects the transaction to be accretive to its earnings per share on an adjusted basis immediately after the deal’s completion.

Otezla, approved to treat psoriasis, psoriatic arthritis and oral ulcers associated with Behçet's disease, recorded sales of $1.6 billion in 2018 and has been one of the key growth drivers for Celgene. Amgen can grow the drug from here with the help of its experienced sales force that promotes Enbrel and Amgevita, its biosimilar version of AbbVie’s ABBV blockbuster inflammatory disease drug, Humira which it launched in Europe in 2018. Otezla enjoys U.S. patent exclusivity through at least 2028.

The transaction is expected to close by the end of this year. Back in June, Bristol-Myers announced plans to divest Otezla, to be able to close the acquisition of Celgene on a timely basis in light of concerns expressed by the U.S. Federal Trade Commission (FTC). The sale of Otezla should now make it easier for Bristol-Myers to get FTC’s approval and will also fund a part of its massive $74 billion cost of buying Celgene. So, the deal looks like a win-win one for Bristol-Myers as well.

The closing of Amgen’s purchase of Otezla, however, is contingent on the FTC's approval and satisfaction of other closing conditions of the Bristol-Myers-Celgene merger. Bristol-Myers also expects the merger to close by the end of this year.

Amgen currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
 
AbbVie Inc. (ABBV) : Free Stock Analysis Report
 
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