Questions of Value Raised over Amgen Purchase of Onyx as Stock Slips

By Zachary Brennan

- Last updated on GMT

Questions of Value Raised over Amgen Purchase of Onyx as Stock Slips

Related tags Amgen

Investors on Tuesday seemed a little less sure of biopharma behemoth Amgen’s decision to purchase cancer specialist Onyx for more than $10B over the weekend. 

Amgen’s stock fell by almost as much as it gained on Monday, as it turns out Amgen will have to borrow money to pay for Onyx and as Fitch Ratings revised​ its view of the company from “stable” to “negative.”

Amgen will have to take out $8.1B in loans to pay for Onyx because most the company’s cash is not held in the US, according to MarketWatch​.

The acquisition is expected to increase the company's debt load by at least $8 billion; pushing total debt leverage to above 3.0x through 2015 – 2016​,” Fitch Ratings said.

This level of leverage leaves the company little flexibility within its 'BBB' rating category. However, Fitch expects the company will deleverage during the forecast period primarily through growth in EBITDA, with possibly some modest debt reduction​.”

William Blair analyst John Sonnier also seemed sceptical of the deal in a note released  Tuesday because of the competition in the multiple myeloma market.

Manufacturing Questions

The question of how Amgen, which is the largest biopharma manufacturer by revenue, will produce Onyx’s Kyprolis and other developing cancer drugs has also yet to be revealed.

Christine Regan, Amgen spokeswoman, told, “Onyx’s manufacturing is currently held with third-party contract management organization​,” though due to the “regulatory nature of the acquisition process that we are embarking on​,” the company cannot provide additional details.

With estimated capacity of 180,000 L at its manufacturing site in Rhode Island, according to a recent TriMark report, Amgen leads all other competitors in terms of site size.

However, it remains to be seen whether Amgen will contract out the manufacturing of Kyprolis, like it did with Enbrel in 2009 when the company turned to Boehringer Ingelheim to help with the blockbuster.

Regardless of the direction Amgen chooses in manufacturing, it seems Onyx is set for heavy cuts. Citigroup Given analysts said they anticipate that Amgen will cut 25% of Onyx’s R&D and 50% of its SG&A. 

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