Amgen Inc. (AMGN) is adding to its stable of profitable drugs with the announcement that it will acquire the global rights to Celgene Corp.'s (CELG) oral psoriasis treatment Otezla for $13.4 billion in cash as Celgene looks to clear the way for regulators to approve its acquisition by Bristol-Myers Squibb Co. (BMY) .
"The acquisition of Otezla offers a unique opportunity for Amgen to provide patients an innovative oral therapy for psoriasis and psoriatic arthritis that fits squarely within our portfolio and complements our Enbrel and AMGEVITA brands," Amgen CEO Robert Bradway said in a statement. "We will take advantage of our 20 years of experience in inflammatory disease to realize the full global potential of Otezla as an affordable option for patients with these serious, chronic inflammatory conditions."
Otezla currently is the only oral, non-biologic treatment for psoriasis and psoriatic arthritis, which led Amgen management to spend more than half its $21 billion cash pile for the drug.
"Sales of Otezla in 2018 were $1.6 billion, driven by strong volume growth," an Amgen statement said. "Amgen has stated previously that it will focus on medicines that can deliver sustained, long-term volume-driven growth and the company believes there is a significant opportunity to grow Otezla through global expansion and new indications, with expectations for Otezla to realize at least low double-digit sales growth, on average, over the next five years."
Otezla has patent protection until 2028 as well, meaning its profitable status is not under any near-term threat. The deal is expected to close before the end of the calendar year, giving Amgen nearly a decade of patent-protected profits.
Jefferies had noted last week that the deal for Otezla could make sense in light of Amgen's ability to pay in cash, the long-term path and patent protection for Otezla, and Amgen's stated interest in acquiring either drugs or competitors, spurring recent speculation about a possible Alexion Pharmaceuticals (ALXN) deal.
Still, there is some concern about the Otezla purchase as the price Amgen is paying came in well above the expected value of a deal given the necessity for Bristol-Myers Squibb (BMY) to offload the drug and close its own blockbuster takeover of Celgene.
$CELG $BMY to Divest OTEZLA to $AMGN for $13.4 Billion. Much higher than street expected.
— Andy Biotech (@AndyBiotech) August 26, 2019
That hefty price tag is likely accounting for the dichotomous stock moves of the involved parties, with Amgen shares down about 2% before Monday's opening bell while Bristol-Myers saw shares surge around 5% in pre-market tading.
A conference call to explain the transaction is underway. Click here to tune in as analysts ask management about the rationale.
Still, for longer-term shareholders, Jim Cramer's Action Alerts PLUS team noted that there are a number of data points that investors can consider in coming weeks about Amgen, which is a holding of Cramer's Action Alerts PLUS charitable trust.
"Shareholders should mark their calendars for Sept. 8, because that's when management is expected to provide a lung cancer progress update on its AMG 510 compound at the 2019 World Conference on Lung Cancer," the team said. "A few weeks later or Sept. 28, management will give colorectal cancer data to the European Society for Medical Oncology. This compound has blockbuster potential, and many on the Street see it as a $2 billion annual product."
Finally, the team noted that Phase III asthma data related to Amgen's joint effort with AstraZeneca (AZN) to develop Tezepelumab is due in the second half of 2020, which could coincide with further information on the BiTE antibody construct cancer treatment.
For a look at the full pipeline, click here.
"I feel confident that this cancer program is a winner and you can be in the stock here," Cramer commented on the floor of the New York Stock Exchange late last week.
With that catalyst in mind, the addition of another profitable drug could be a nice bonus as that pipeline progresses, even if the price reaction on Monday morning isn't overly positive.
