In Amgen Inc.'s (AMGN, Financial) recent agreement to buy small cancer drug developer Five Prime Therapeutics Inc. (FPRX, Financial) for nearly $2 billion, there seems to be a message for investors in other small biotechs: stay the course.
Investors who bailed out the San Francisco-based cancer company's stock when it cratered to under $2 last March are undoubtedly kicking themselves. But you can't blame them for dumping the shares. For years, Five Prime had been plagued by a series of setbacks, culminating in disappointing data for a drug it was developing with Bristol-Myers Squibb Co. (BMY, Financial).
Shareholders who hung in through the tough times are going to pocket $38 a share, an 80% premium to what the stock was at before the deal was announced. Still, that's a long way off from the $60 the shares were at in November 2016.
Evaluate called the takeover a "rags to riches" fairy tale, noting the pivotal moment came when Five Prime decided to put its resources behind the cancer drug bemarituzumab. When the company reported outstanding test results that indicated the drug would be a first-line treatment in advanced gastric and gastroesophageal junction cancers, the stock soared 300%.
Gastric cancer is the third most common cause of cancer death globally, and patients have suffered from a dearth of new drugs, according to Pharmaphorum. It is now more than a decade since the Food and Drug Administration approved a new front-line treatment.
Amgen sees bemarituzumab as the crown jewel of the deal, but wouldn't say whether it will try for accelerated approval. It's likely the phase 3 study of the drug will be patterned after the phase 2 testing. The company also sees bemarituzumab as one of the medications that will spearhead Amgen's expansion into Asia-Pacific markets, where gastric cancer is particularly prevalent. In November 2019, Amgen took a roughly 20% stake in Chinese biotech company Beigene Ltd. (BGNE, Financial).
The Five Prime acquisition is Amgen's first significant public company buyout since the $10 billion purchase of Onyx Pharmaceuticals in 2013. That deal gave Amgen three cancer drugs, none of which have emerged as big sellers. In its quest to catch up with competitors in the cancer field, Amgen indicated it's seeking other deals.
"The Five Prime purchase is a fairly small transaction for Amgen relative to our expectations for the year and Amgen's capabilities for M&A, so we believe there could be more to come to further build out the pipeline," Geoffrey Porges, an analyst at SVB Leerink, wrote in a note to clients.
Disclosure: The author has a position in Amgen and Bristol-Myers.
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