Onyx Pharma Is For Sale, for North of $10B

Updated with stock prices.

SOUTH SAN FRANCISCO ( TheStreet) -- Onyx Pharmaceuticals ( ONXX) is in play now that Amgen's ( AMGN) $10 billion offer has been rejected as too low, so how much will it cost Amgen or another suitor to acquire the company?

Amgen's initial offer of $120 per share in cash was a 38 percent premium to Onyx's closing stock price of $86.82 on Friday. Onyx rejected the offer Sunday, saying it "significantly undervalued" the company, but also said it would seek out competitive offers from interested suitors.

Onyx is worth about $110 per share as a standalone company today, but if a competitive bidding situation ensues, the company could be acquired for as much as $148 per share, Deutsche Bank analyst Robyn Karnauskas said in a research note published Sunday.

Onyx shares opened Monday trading up 51% to $131.

It's common for initial takeout offers to be raised over time. Sanofi ( SNY) first bid $69 per share for Genzyme. Following negotiations between the two companies, the final acquisition price bumped up to $74 per share plus a contingent value right tied to the performance of a Genzyme drug. Likewise, Roche ( RHHBY) was forced to raise initial offer for Genentech before closing the deal.

"In our opinion, this $120 per share offer could be Amgen's effort to bring both parties to the negotiation table," Karnauskas writes, suggesting Amgen isn't likely to give up on acquiring Onyx.

An Amgen offer for Onyx valued at $140 per share would be 5 percent dilutive to earnings in 2014 and mildly accretive in 2015, Karnauskas writes.

Onyx in partnership with the German drug firm Bayer sells the kidney and liver cancer drug Nexavar and the colon cancer drug Stivarga. On its own, Onyx sell Kyprolis, used to treat multiple myeloma.

Onyx reported 2012 revenue of $362 million. The company's revenue is expected to grow to $624 million this year, $881 million in 2014 and $1.2 billion in 2015, according to consensus analyst estimates compiled by S&P Capital IQ.

Onyx is expected to lose $1.85 per share on an adjusted basis this year but generate a profit of 51 cents per share in 2014 and $3.79 per share in 2015, according to consensus analyst estimates compiled by S&P Capital IQ.

Among its currently approved cancer drugs, Kyprolis is Onyx's most important growth driver with 2018 consensus sales of $1.9 billion.

Kyprolis is currently approved in the U.S. as a treatment for multiple myeloma patients who no longer respond to other therapies, but Onyx is conducting clinical trials to demonstrate the drug's efficacy in patients with newly diagnosed cancer. The company also intends to get Kyprolis approved in Europe.

Importantly but perhaps overlooked by many investors, Onyx also gets an 8 percent royalty on future sales of an experimental and very exciting Pfizer ( PFE) breast cancer drug known as palbociclib.

"The market opportunity for palbociclib is at least $2 billion in our view and perhaps much more," writes ISI Group analyst Mark Schoenebaum in an email to clients on Saturday. He estimates palbociclib could be approved sometime between 2015 and 2017.

Sanford Bernstein analyst Geoff Porges is even more bullish on palbociclib, forecasting 2019 global net sales of $3 billion, meaning Onyx's royalty would bring in $230 million.

That royalty revenue from Pfizer has no costs associated with it and is therefore is very valuable to Onyx -- or a potential acquirer -- because it flows directly to the bottom line.

"Strategically, this deal makes a great deal of sense for Amgen, in my opinion," Schoenebaum said in an email to clients. "As you may know, Amgen already has a very large cancer franchise. Aranesp, Neupogen, Neulasta, and Xgeva are all major cancer franchises for the company. However none of these drugs are direct anti-tumor agents. Thus, strategically, Onyx's drug Kyprolis would fit in exceptionally well with Amgen's existing sales and marketing infrastructure."

Over the weekend, Schoenebaum polled institutional investors for their thoughts on the Amgen-Onyx deal. Eighty-six percent of the 154 investors who responded to the poll said buying Onyx makes good strategic sense for Amgen.

On average, investors polled by Schoenebaum said the highest "fair" price Amgen should pay for Onyx is $130 per share.

-- Reported by Adam Feuerstein in Boston.

Follow Adam Feuerstein on Twitter.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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