Analysis: Amgen, holding billions overseas, looks for deals

LOS ANGELES (Reuters) - Amgen Inc (AMGN.O), the world's largest biotechnology company, is cash rich and on the prowl for acquisitions -- possibly companies outside of the United States that would expand its international footprint.

Amgen Chief Executive Kevin Sharer, speaking at an investor conference in June, said the company was "aggressively" looking at acquisitions, particularly at ones to expand internationally.

"How do we invest our growing offshore cash position intelligently, which tends to be ex-U.S. kind of acquisition thinking?" he said.

The California company, which 30 years ago developed blockbuster anemia drug Epogen and in June launched sales of osteoporosis drug Prolia, had a cash pile of $14.5 billion at the end of June.

Of the total, $12.3 billion is held being held offshore and potentially subject to a 35 tax rate imposed on profits repatriated to the United States.

Amgen, which declined comment for this story, has surfaced as a potential suitor for Genzyme Corp GENZ.O, but sources do not expect it to bid against Sanofi-Aventis (SASY.PA), which offered $18.5 billion for the Massachusetts-based biotech. They say Genzyme is likely to attract a competing bid from a pharmaceutical company looking to beef up its revenue and pipeline.

"They might look to buy an existing pharmaceutical company in Japan, Europe or Latin America," said Cowen & Co analyst Eric Schmidt.

Overseas acquisition targets that come to mind for some are Belgian pharmaceutical group UCB SA (UCB.BR), French drugmaker Ipsen SA (IPN.PA) or Actelion VX (ATLN.VX), Europe's largest biotech company. But not all industry watchers are convinced Amgen is solely looking outside its home turf.

"We think none of those make strong sense," said RBC Capital Markets analyst Michael Yee. "Ipsen has some overlap in therapeutic categories (oncology, hematology, diabetes) but the assets are not a highly strong fit. Actelion is a PAH (pulmonary arterial hypertension) cardiovascular orphan drug based company, that for example, would not be a strong strategic target."

He suggested that Sharer might be employing "game theory strategy" to disguise any interest in U.S.-based companies.

Smaller U.S. companies named as potential Amgen targets include Human Genome Sciences Inc (HGSI.O) and Dendreon Corp (DNDN.O), each with market values of just over $5 billion.

Dendreon recently launched sales of its novel prostate cancer vaccine Provenge. Human Genome has filed for regulatory approval of a drug that could become the first new treatment for lupus in more than 50 years, and it has a deep pipeline of experimental drugs for cancer and other diseases.

Glen Giovanetti, head of Ernst & Young's global biotechnology practice, expects to see more takeovers of smaller biotech companies -- deals in the $1 billion to $2 billion range -- as many get to the stage of launching a first drug and Wall Street starts evaluating them as a revenue-generator rather than a development-stage company.

"How do you continue to invest in a pipeline? The board may decide that it is an opportune time to sell," the consultant said.

He said the jury is still out on whether M&A is the best path for drug companies to secure overseas networks, particularly in emerging markets like India and China.

"The concern is are you going to buy a bunch of risks? A company that operates to local standards, but not quite to U.S. standards?" Giovanetti said.

Terry Hisey, leader of U.S. Life Sciences at Deloitte LLP, said attention has shifted away from the purely scientific evaluation of new drug prospects to looking at whether a medicine would be adopted in the marketplace.

The bar has been raised as patents expire on existing drugs and lower-cost generic versions enter the market.

"I would expect to see over the next 12 months an increased level of M&A around biotechs," Hisey said, noting that financing options for smaller companies remain thin in the wake of the global financial crisis. "People are running out of dough."

RBC's Yee does not expect a major deal from Amgen until early 2011, after it releases key results from a trial of its bone drug denosumab in cancer patients and sales of its flagship anemia drugs stabilize once a new Medicare reimbursement policy takes effect in January.

"Based on our discussions with investors and our own analysis, we continue to think HGSI (Human Genome Sciences) makes the most sense," Yee said.

(Reporting by Deena Beasley; Editing by Steve Orlofsky)