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This $2.7 Billion Deal Is A Shot Across the Bow for Big Pharma – And A Sign of What’s to Come

By Matt McCallNov 05, 2019


Talk about a massive opportunity.

Last week, U.S. biotechnology giant Amgen (AMGN) announced it was buying approximately 20% of Chinese biotech company BeiGene (BGNE) for $2.7 billion in cash.

Investors pounced on the news, sending shares of BeiGene soaring over 30% on Friday.

Those folks who haven’t been paying attention to the absolutely huge potential happening in the biotechnology sector right now – both in the U.S. and other parts of the world – have been put on notice.

Beijing-based BeiGene, which is focused on developing drugs to treat cancer, has been steadily building out its portfolio of treatments with its 600-person clinical development group. Cancer is a health crisis in China.

Last year, the company raised $903 million through a Hong Kong listing. And it has served as a sort of gateway for western firms looking to enter into China’s potentially lucrative market, especially for much-needed cancer medications.

The granddaddy of U.S. biotechnology companies just walked through that gateway.

According to terms of the deal, BeiGene will commercialize Amgen’s Xgeva, a treatment for giant cell tumors of the bone, within China. It will also commercialize Amgen’s Kyprollis, a treatment for patients with multiple myeloma, as well as Blincyto, another late-stage development for patients with relapsed or refractory acute lymphoblastic leukemia.

The commercialization for these treatments will last for five to seven years, and Amgen and BeiGene will split both profits and losses. After that period winds down, BeiGene will retain one of the three Amgen marketed drugs and receive royalties on sales in China for an extra five years on the products it didn’t keep.

Meanwhile, BeiGene will develop 20 Amgen oncology pipeline assets globally, including targeted small-molecule agents like AMG 510 and BiTE antibodies for solid and hematologic malignancies.

BeiGene will put in up to $1.25 billion worth of development services and cash over the course of the collaboration.

Amgen has been looking for an opportunity like this in China’s huge market for years, establishing a Chinese affiliate in 2012 and opening a research and development center at ShanghaiTech University in 2014. That center is now located in a permanent lab at Zhangjiang Hi-Tech Park.

The firm won approval to market its first drug — Repatha, which is used by adolescents and adults with homozygous familial hypercholesterolemia — in China last year.

A Blazing Hot Market

Biotech has been on fire lately, as the industry is expected to generate $301 billion globally this year and ramp up to $796 billion by 2026.

With that kind of potential, Amgen wasn’t the only company to make the headlines in recent days.

Regeneron Pharmaceuticals (REGN) reported adjusted income of $6.67 per share on $2.05 billion in sales during its third quarter, crushing analysts’ estimates. Revenue was up from $1.66 billion in the year-ago period, beating consensus estimates of $1.98 billion. The company’s earnings beat estimates of $6.40 per share and were up from $5.87 a year prior.

The company’s board also gave the nod to a $1 billion share buyback with no time limit.

The Nasdaq Biotechnology Index has risen 13.3% this year as the sector has seen increasing mergers and acquisitions, more use of artificial intelligence, and overall positive trial results. It’s still lagging the major stock indices in 2019, but my view is that 2020 will be the year of biotech breakthroughs and major moves higher.

The beginning of the year kicked off with the $74 billion mega-merger of Bristol-Myers Squibb (BMY) and Celgene (CELG), two cancer drug leaders that are joining forces to try to dominate the space.

Another big deal that’s getting a lot of attention is Alexion Pharmaceuticals’ (ALXN) purchase of biopharma company Achillion Pharmaceuticals (ACHN) for $930 million that’s supposed to close in the first half of 2020.

The tuck-in acquisition is designed to build out the pipeline of treatments for rare diseases, like paroxysmal nocturnal hemoglobinuria.

It’s an exciting and important time for investors looking at the sector. Some of the world’s next-generation treatments are being developed in these companies’ laboratories. And when the right combination of discovery, experience, and timing align, it can mean a windfall for their stocks.

Of course, it takes time for companies to reach their potential – especially biotech firms, whose success is based on drug approvals that sometimes take years.

But that’s how you make massive profits. Think about early private investors in Uber Technologies (UBER) who sat on their investment for years waiting for the stock to go public. Or early investors in Facebook (FB) who also had to be patient until it went public.

I believe we’re staring at another shot at life-changing gains here. But there’s a lot still to consider. I’ll show you what I’m talking about here in MoneyWire in the coming days, so be sure to check back.

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