• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Otezla Price Under Microscope -- but Look Closely and It Checks Out

Sure, Celgene, in its tie-up with Bristol-Myers Squibb, had to sell to meet merger requirements, but look at the future pay off for Amgen.
By TIMOTHY COLLINS
Aug 26, 2019 | 12:17 PM EDT
Stocks quotes in this article: AMGN, CELG, BMY, GILD, REGN, JNJ, BMRN, NBIX, ALXN

Amgen ( AMGN) is making a splash Monday by buying the prescription drug Otezla from Celgene ( CELG) . The deal will clear a merger hurdle set out by the Federal Trade Commission on the tie-up between Bristol-Myers Squibb ( BMY) and Celgene.
 
The $13.4 billion price tag surprised many on Wall Street as Otezla wasn't expected to fetch a value that high.
 
Otelza, an oral treatment for psoriasis and psoriatic arthritis, expands Amgen's dominance in this arena. The company already holds a blockbuster injectable treatment in this area with Enbrel; therefore, adding an oral option creates a strong duo. I'd view it as creating a vertical integration of sorts in terms of treatment options. Add in a cream blockbuster, and Amgen will hold the trifecta.
 
The question becomes: Did Amgen overpay? Given Celgene-Bristol had to sell to meet merger requirements, this should have been a situation where the pair struggled to get market value. We're talking about a forced seller rather than a desperate buyer, but I don't think the numbers are as bad as what headlines would have you believe.
 
Otezla had sales of $1.6 billion after 26% year-over-year growth. Amgen paid $13.4 billion but after tax benefits, that number will net out more like $11.2 billion. That means Amgen paid around seven times revenue on the net cost. The company also said it expects low double-digit growth on sales over the next five years. If we were to assume 15%, then the cumulative sales over the next five years should land around $12.4 billion, which means Amgen is paying less than six-times revenue as measured over the next five years. By comparison, Bristol is paying around 3.67-times Celgene sales, net of Otezla sales and sale proceeds.
 
While the multiple may be high compared to the Bristol-Celgene deal, Amgen currently trades around five-times sales. With a market cap north of $120 billion, this buy barely changes that overall multiple. Sure, names like Gilead ( GILD) , Regeneron ( REGN) , and Johnson & Johnson ( JNJ) trade at 4.5-times or less, but we could also examine other names like BioMarin ( BMRN) or Neurocrine Biosciences ( NBIX) trading at nine-times to 15-times sales. But Alexion ( ALXN) makes the most sense.
 
Alexion was a name just last week rumored to be a potential Amgen acquisition. Alexion trades at 6.15-times sales and that number would require a seven-times or higher reading for a buyout to happen. In comparing the two, buying Otezla, even for more than the market-deemed "right" price makes more sense on an integration and valuation standpoint than Alexion.
 
Examining the current technical picture on Amgen should give bulls some optimism and clarity.
 
A weekly close over $205 should draw momentum traders in on the long side, while anything under $195 should be a stop or an area to aggressively hedge a long position. I'd keep a close eye on the Full Stochastics.
 
If this downturn swing picks up speed, then I'd expect muddled or even bearish price action for the next few months. Overall, though, I like Amgen and I don't think this is a bad deal. I view it more as a fair deal for both sides; therefore, if I were bullish on Amgen this would give me no reason to change my opinion. The same can be said for those with a bearish view. I lean more toward the bull side on this one.
 
 

Amgen and Johnson & Johnson are holdings in Jim Cramer's Action Alerts PLUS member club.

 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Timothy Collins had no position on the securities mentioned.

TAGS: Mergers and Acquisitions | Investing | Stocks | Pharmaceuticals | Stock of the Day

More from Stocks

When it Comes Time to Sell, Will You Act or Will You Freeze?

James "Rev Shark" DePorre
Jan 16, 2021 10:00 AM EST

Why don't more people embrace the ease and power of selling stocks? Why do they freeze and do nothing as losses build?

Hungry Traders and Stock Opportunities Aren't Likely to Go Away Soon

James "Rev Shark" DePorre
Jan 15, 2021 4:40 PM EST

It doesn't take much time for stocks with strong momentum to reset and continue on their way.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

United Parcel Service Is Testing Key Support

Bruce Kamich
Jan 15, 2021 2:30 PM EST

A look at the charts of UPS.

A Buy and Hold Play With Hennessy Capital V

Timothy Collins
Jan 15, 2021 2:24 PM EST

HCICU hit the public markets today.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • 08:35 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/13/2021

    Lower highs... SPX (Long-Term View) The 1/8/2...
  • 08:07 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 1/12/2021

    Watch if the recent trend of lower highs continues...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login