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Amgen to acquire small biotech firm for $2.2B

Biotechnology titan Amgen Inc. said Wednesday it has agreed to acquire Abgenix Inc. for $2.2 billion in cash and the assumption of debt.
/ Source: The Associated Press

Biotechnology titan Amgen Inc. said Wednesday it has agreed to acquire Abgenix Inc. for $2.2 billion in cash and the assumption of debt.

Abgenix, based in Fremont, Calif., is a small biotechnology company that genetically engineers mice to produce potential cancer drugs.

If the deal is approved by both companies' boards and regulators, Abgenix shareholders will receive $22.50 a share — a 54 percent premium over its closing stock price of $14.65 Wednesday.

"That's a bargain," said Matt Murray, an analyst with Rodman & Renshaw. If Abgenix shareholders and regulators approve the deal, Amgen will acquire all rights to a promising colon cancer drug the two companies are developing.

Amgen said Wednesday that it believes sales of the still-experimental drug called panitumumab could exceed $2 billion a year.

"We think Amgen's low balling," said Murray, who believes annual sales could reach $3.2 billion.

Amgen CEO Kevin Sharer said the company made the offer after the colon cancer drug was found to worked better than expected during a large human trial last month.

"We paid a strong premium because we see significant upside," Sharer said. He said the deal will be profitable for Amgen once panitumumab sales reach $1 billion.

But Sharer declined to predict when he expected the cancer drug to reach those lofty goals. Sharer was reminded during a conference call with analysts Wednesday afternoon that he predicted a key Immunex drug called Enbrel would reach $3 billion in sales by this year. Enbrel will miss that mark by about $300 million.

"It's hard to know to put a date around it," Sharer said.

The results showed the drug slowed the progression of the disease by 46 percent in those receiving the drug compared to those who didn't in the 463-patient experiment. A skin rash was the most common side effect.

The companies had expected the disease to progress 33 percent slower in those receiving the drug.

Sharer said Amgen will submit an application to the Food and Drug Administration "within days." He also said the company is optimistic the drug will be effective against head-and-neck cancer.

Panitumumab is produced by mice genetically engineered with human genes to make molecules that help prevent the cancer from growing in patients. Abgenix had earlier sold half the drug's future profits to Immunex Corp., which Amgen acquired in 2002. Abgenix is also developing an osteoporosis drug and several other experimental drugs. But Amgen's chief scientist, Roger Perlmutter, said panitumumab was "the key driver of the transaction."

Amgen said it hopes the deal will close in the first quarter next year and expects it to reduce adjusted earnings in 2006 and 2007 by 5 cents to 10 cents a share.

The amount of debt Amgen will assume was not disclosed. Abgenix had about $450 million of outstanding notes, as of Sept. 30, according to a regulatory filing.