Investors did an about-face Monday, showering Amgen's proposed $16.8 billion acqusition of Immunex Corp. with approval after punishing Amgen the previous week amid worries that the world's largest biotechnology company would pay too much for the rights to the blockbuster arthritis drug Enbrel.
Analysts remained lukewarm toward the deal, however, raising questions about whether Amgen's profit growth will slow as a result.
"Immunex shows very high revenues," said Fariba Ghodsian, an analyst with Los Angeles-based Roth Capital Partners. "But its profits aren't as high as you would expect."
Thousand Oaks-based Amgen will pay about $14.8 billion in stock and about $2 billion in cash, valuing the Seattle-based Immunex at more than $30 a share.
While the value of the deal rose from its initial $16 billion on Monday's investor enthusiasm, it was still shy of the $18 billion number tossed around at the end of last week, when investors sent Amgen down 13 percent on rumors of talks.
In trading Monday, Amgen rose $3.46, or 6 percent, to $59.49 on the Nasdaq Stock Market, where shares of Immunex rose $3.44, or 13 percent, to $29.06.
Ghodsian said Amgen will likely see profits grow by only 10 percent next year because of the purchase.
Amgen chief executive Kevin Sharer conceded that earnings growth will slow next year from the 20 percent it projected before the deal, he said it shouldn't be too severe maybe 15 percent growth.
"I don't want anybody to think this is going to be easy or a walk in the park," Sharer said during a conference call. "We don't imagine that."
Immunex expects $750 million in sales this year from its rheumatoid arthritis drug Enbrel, whose profits it shares with American Home Products Corp. of Madison, N.J.
However, Ghodsian estimates that American Home takes 44 percent of Enbrel profits. Immunex declined to disclose the details of its arrangement with American Home.
American Home, which owns 41 percent of Immunex, said it favored the deal, which will leave it with about 8 percent of Amgen stock.
Other analysts, including Dennis Harp of Deutsche Banc Alex. Brown Inc. , expressed concern that several other companies are developing rheumatoid arthritis drugs that could compete with Enbrel and eat into profits.
The FDA last month approved Amgen's own rheumatoid arthritis drug, Kineret. However, clinical studies showed Kineret to be less effective than Enbrel, and it wasn't expected to outsell Enbrel.
Analysts did say the two drugs could be sold together and cost savings could be found by combining the company's two rheumatoid arthritis sales forces. Sharer also said Amgen's drug-making expertise could help alleviate Immunex's struggles to keep up with the demand for Enbrel.
Despite the skepticism, Sharer expects Enbrel revenues will soar to $3 billion by 2005, surpassing the sales of Amgen's two existing blockbuster drugs: Epogen, used to treat anemia, and Neupogen, used to reduce infection in chemotherapy patients. Those two drugs accounted for a combined $3 billion in sales last year. Epogen had $1.9 billion in sales last year and Neupogen accounted for about $1 billion.
Since gaining Food and Drug Administration approval in 1998, Enbrel sales have been hampered by limits on production capacity, a problem Sharer said Amgen should be able to alleviate with its 12 years of manufacturing experience.
Amgen expects revenues to hit $5.5 billion and net income of more than $1.5 billion next year. Amgen now employs 7,000 worldwide and will add 1,400 Immunex employees if the deal is approved by shareholders of both companies and the Federal Trade Commission. Amgen intends to keep its name.
The deal is the latest in a flurry of planned biotechnology mergers. Two weeks ago, Millennium Pharmaceuticals Inc. announced it would buy COR Therapeutics for $2 billion and MedImmune Inc. said it planned to buy Aviron for $1.3 billion.
However, it is a major strategic departure for Amgen, which has been satisfied to grow internally and through small acquisitions such as its $170 million purchase of Kinetix Pharmaceuticals last year. Analysts said Sharer, who was named chief executive last year after serving eight years as Amgen's president, is putting his own stamp on the company.
Amgen, launched in 1981 with 20 workers, went by the name Applied Molecular Genetics and experimented with genetically engineered dyes, detergents and animal growth hormones. Much of that work went nowhere and the company teetered on bankruptcy until one of its scientists in 1983 cloned the protein erythropoieten, better known as Epogen. The FDA approved Epogen in 1989.