Biotech Buyout

Biotechnology market leader Amgen Inc. is buying rival Immunex Corp. for $16 billion in stock and cash in a deal that will add a blockbuster arthritis drug to its roster of medicines.

The deal announced Monday would give Amgen of Thousand Oaks control of Seattle-based Immunex's rheumatoid arthritis drug, Enbrel.

Immunex's two other big drugs are Leukine, which stimulates infection-fighting white blood cells, and Novantrone, which kills cancer cells and reduces inflammation that contributes to worsening forms of multiple sclerosis.

Amgen already makes Epogen, used to treat anemia, and Neupogen, used to reduce infection in chemotherapy patients.

Amgen will pay about $14 billion in stock and about $2 billion in cash, valuing Immunex at about $30 a share. In afternoon trading Monday on the Nasdaq Stock Market, Immunex shares were up 10.1 percent, or $2.60 a share, at $28.22; Amgen shares also rose, gaining $1.66 to $57.69.

American Home Products Corp. of Madison, N.J., owns 41 percent of Immunex's publicly traded stock and has agreed to the Amgen takeover. American Home Products also shares significantly in sales of Enbrel.

The combined market capitalization of both companies is about $72.5 billion. South San Francisco-based Genentech Inc., the second largest biotechnology company, has a market capitalization of $28 billion.

"This is a compelling strategic transaction and an excellent opportunity for the shareholders, employees and partners of both companies, and we expect it will generate significant benefits for hundreds of thousands of patients around the world," said Kevin Sharer, Amgen's chairman and CEO.

The deal is the latest in a flurry of announced 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.

Immunex's Enbrel is expected to account for about $750 million in sales this year and could reach $3 billion annually by 2005, Sharer said. Last year, Leukine accounted for $88.3 million in sales, and Novantrone accounted for $59.9 million.

Since gaining Food and Drug Administration approval in 1998, Enbrel sales have been hampered by production capacity, a problem analysts say Amgen might be able to alleviate with its 12 years of manufacturing experience, analysts said.

On the other hand, the analysts said the deal will hurt Amgen's ambitious growth goals in the near term. Amgen had expected to grow earnings by 20 percent annually.

The Food and Drug Administration 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 said the two drugs could be sold together.

"There is a synergy there," said Fariba Ghodsian of Roth Capital Partners in Los Angeles. "Immunex's sales force is more experienced with rheumatoid arthritis than Amgen's.

Amgen's two flagship drugs accounted for a combined $3 billion in sales last year. Epogen had $1.9 billion in sales, while Neupogen accounted for $1 billion in sales.

Amgen shares Epogen revenues with Johnson & Johnson of New Brunswick, N.J. under a 16-year-old arrangement. Amgen received FDA approval for Epogen competitor Aranesp earlier this year and hopes the new drug, which it owns exclusively, will ultimately outsell the older drug.

The deal also 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 Amgen's Kevin Sharer, who was named chief executive last year after serving eight years as company president, is putting his own stamp on the company.

Amgen, launched in 1981 with 20 workers, now employees 7,000 worldwide. It 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.

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