Lessons of Buying Growth Companies Doubling Their Revenues

Health and Healthcare

Published: August 26, 2013 8:05 am

Amgen Inc. (NASDAQ: AMGN) wants to regain its status as the largest publicly traded biotech in the U.S. The company formalized a buyout of cancer drug maker Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) for about $10.4 billion over the weekend. Amgen is seeking to reinitiate some growth and to bolster its pipeline, and we cannot help but point out that Onyx is one of the few companies we identified as one that aims to double its sales and then some in the next couple to few years.

The move will marry the anemia leadership position and Kyprolis, Onyx’s multiple myeloma drug that is expected to become a blockbuster drug. Amgen also will get a new stream of revenues from the liver and kidney cancer called drug Nexavar, which is shares with Bayer under an existing deal that Onyx has had in place. And Amgen is gaining royalty revenues from a colon cancer drug called Stivarga from Bayer.

Again, this acquisition is a simple purchase of growth, even if a $10-plus billion merger in biotech is not exactly the most common sort of deal. Amgen’s Aranesp and Epogen possibly have peaked and have been under some pressure in prior years due to costs, and Amgen will start facing a patent cliff of its own on several key drugs starting in about two years. This puts Amgen’s $79.5 billion pre-merger market cap at a lot of risk, hence the need to pay up for huge growth.

As far as the pipeline of growth, cancer drugs have been the source of many buyouts because cures are elusive and treatments have very high costs that the drug markets get to enjoy. The $125 per share buyout is a 4% premium to what was originally a $120 price target.

Unfortunately, this price will fall short for some Onyx shareholders who got in late in the game hoping for a higher price. Onyx shares are indicated up over 5% at $123.30 or so, against a 52-week trading range of $68.12 to $136.87.

Amgen said that the deal will be accretive to its earnings starting in 2015, and the merger is expected to close some point in the fourth quarter of 2013.

Here are 10 well-known companies looking to double their revenues in the next two to four years.

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