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Offloading Otezla to advance BMS acquisition of Celgene
08-27-2019
by Jeffrey Bouley  |  Email the author
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THOUSAND OAKS, Calif.—As we reported in late June, Bristol-Myers Squibb Co. (BMS) and Celgene Corp. were mostly set to finalize a merger and acquisition deal at that time, minus some objections from one of the larger shareholders and the nagging issue of anti-trust concerns. Those concerns were centered on the potential competition between a BMS drug in late-stage trials and Celgene’s Otezla (apremilast), currently the only oral, non-biologic treatment for psoriasis and psoriatic arthritis.
 
The Otezla issue at least seems to have a resolution now, with news on Aug. 26 that Amgen had entered into an agreement with Celgene to acquire worldwide rights to Otezla for $13.4 billion in cash, or approximately $11.2 billion net of the present value of $2.2 billion in anticipated future cash tax benefits.
 
Amgen says that the acquisition of Otezla offers many benefits, including:
  • A strong strategic fit with Amgen's long-standing expertise in psoriasis and inflammation
  • A differentiated, oral therapy complementary to Amgen's existing inflammation franchise of innovative biologics and biosimilar products
  • At least low double-digit Otezla sales growth, on average, over the next five years
  • Acceleration of Amgen's near- and long-term revenue growth
  • Intellectual property exclusivity through at least 2028 in the United States
  • Worldwide rights which fit well with Amgen's international presence and global expansion objectives
  • Support of increased R&D investment in 2020 to advance Amgen's innovative pipeline of first-in-class molecules
  • No interruption in deployment of Amgen's capital allocation priorities.
"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," stated Robert A. Bradway, chairman and CEO at Amgen. "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 is the leading treatment in the post-topical, pre-biologic segment in its approved indications. Otezla is currently approved for three indications in the United States: the treatment of patients with moderate-to-severe plaque psoriasis who are candidates for phototherapy or systemic therapy; adult patients with active psoriatic arthritis; and adult patients with oral ulcers associated with Behçet's Disease. Otezla is approved in more than 50 markets outside the United States, including the European Union and Japan.
 
Sales of Otezla in 2018 were $1.6 billion, driven by strong volume growth. 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.
 
According to analysts at Zacks Investment Research, “We believe buying Otezla is a smart strategic move by Amgen as it strengthens its existing inflammation franchise, which includes blockbuster drug, Enbrel.”
 
As the analysts noted, Enbrel is approved to treat several chronic inflammatory diseases like rheumatoid arthritis, plaque psoriasis, psoriatic arthritis and ankylosing spondylitis—and it accounted for almost 23 percent of product sales in the first half of 2019.
 
“However, pricing pressure and stiff competition are hurting sales of Enbrel, one of the main drivers of Amgen’s revenues. The declining trends in Enbrel demand continue in 2019 as well,” Zacks explained. “With Enbrel reeling under pressure, Otzela will strengthen Amgen’s portfolio of inflammatory drugs. Amgen expects this non-biologic treatment to record at least low double-digit sales growth, on average, over the next five years. Amgen expects the transaction to be accretive to its earnings per share on an adjusted basis immediately after the deal’s completion.”
 
Jefferies analyst Michael Yee was also positive, calling it a “smart deal” for Amgen in an investor note. Even though the price went up in a competitive process, he wrote, Amgen is an excellent buyer of Otezla, as the Enbrel salesforce could help grow it around the world.
 
Analysts at SVB Leerink LLC are on the same page, remarking that "The transaction makes it easier and more likely that Bristol-Celgene will close, by eliminating one of the most significant obstacles to Bristol’s acquisition. The consideration paid by Amgen is higher than we would have expected by $2-3bn, but cash and tax considerations (plus competitive bidding) may have driven it higher."
 
Code: E08281901

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