Here's What We Know About The Brewing Bidding War For Onyx Pharmaceuticals

On Friday,The Financial Post,  a Canadian newspaper, reported that Amgen had made a $120 a share offer for Onyx Pharmaceuticals, the South San Francisco-based biotech whose stock  traded for almost $87 before news of the bid became public.

As reports of impending acquisitions go, the Post's account was unusual in its specificity. Usually press accounts of a possible merger are reported based on anonymous sources familiar with the deal. Instead, this article was specific and clear about the offer that Amgen made, without any information about Onyx's response. That left little doubt that an offer was made.

In after-market trading, Onyx shares rose as high at $109. In a note to investors, Robyn Karnauskas at Deutsche Bank says Onyx could be worth as much as $148 a share. On Sunday Onyx issued a press release acknowledging that it had received Amgen's offer, and calling it too low. Onyx said that it has authorized its financial advisor, Centerview Partners LLC, to contact other potential buyers. It's not clear who leaked the letter; for Amgen, it might have pressured Onyx to move on a deal. But for Onyx, it created the potential of finding other bidders who might pay more than the $10 billion Amgen is offering.

There are certainly other potential buyers, lured by Onyx's treatment for multiple myeloma, Kyprolis. Launched last year, it generated $64 million in its most recent quarter. Bayer , the German drug and chemicals giant, is one possible suitor. Bayer and Onyx share profits from Nexavar, used to treat kidney and liver cancer that generates $861 million in annual sales. New data for thyroid cancer could result in sales of several hundred million dollars more. Investors have discussed the prospects of a Bayer-Onyx buyout for just about forever. (On the other hand, Bayer has had years to buy Onyx if that's what it wanted to do.)

A potentially hotter prospect is Pfizer , which discovered a drug called palbociclib as part of a collaboration with Onyx. The medicine has shown promising results in breast cancer and has received a breakthrough designation, designed to speed its approval, from the Food and Drug Administration. It could eventually generate annual sales of $3 billion. According to Deutsche Bank, Onyx is due an 8% royalty on sales. In a survey of fund managers conducted by Mark Schoenebaum of International Strategy and Investment Group, one anonymous manager proposed that Pfizer could do the deal, keep palbociclib and Kyprolis, and sell Bayer the rest of the Nexavar rights. (This could also face antitrust issues; Pfizer already sells a kidney cancer drug, Sutent.)

But any big cancer company could see Onyx as a good fit at the right price. That includes Celgene (although, again, there might be antitrust issues because it sells multiple myeloma drugs), Bristol-Myers Squibb, or Novartis.

There are risks that could help keep the price bidders are willing to pay for Onyx down. The first is that Kyprolis has not yet received full FDA approval. It was granted an accelerated approval, used to approved drugs where there is a real medical need. Accelerated approvals can be revoked if results of larger trials don't pan out. Two larger trials of Kyprolis are due later this year, and it's possible many bidders wanted to wait for them to read out. It's widely expected these studies will support the expanded used of Kyprolis. But there are also worries about the drug's cardiovascular safety profile. If this proves an issue, it could mean that some doctors switch back to Takeda's Velcade, a similar drug that has been on the market for years. Most investors seem to believe the best about Kyprolis, but all these issues could make Big Pharma a little less willing to pay up.

Another factor to weigh in any betting about what happens next is Onyx's Chairman and Chief Executive, Tony Coles. He joined Onyx as chief executive from NPS Pharmaceuticals in 2008, and investors were initially skeptical. But he proved himself, particularly with the acquisition of Proteolix, the company that gave Onyx Kyprolis. Increasingly, he's been able to present himself as a big thinker about industry trends in addition to a skilled manager, and he's clearly signaled that he wants to keep building the company. He's also clearly a fighter. After leaving a job at Vertex Pharmaceuticals, he sued the company for lost severance saying he was pushed out. Coles doesn't seem to want to let the company go for cheap, and his public statements seem to indicate he thinks he could deliver shareholder value as a standalone company. That's not a bad negotiating stance.