The biotech firm Amgen Inc.
AMGN
has agreed to buy Five Prime Therapeutics Inc.
FPRX
, a clinical-stage biotechnology company focused on developing immuno-oncology and targeted cancer therapies, for $1.9 billion.
Per the terms of the deal, Amgen will pay $38 per share in cash for each Five Prime share outstanding, marking a 78.7% premium over its closing stock price of $21.26 on Mar 3. The transaction, which was approved by the Boards of Directors of both companies, is expected to close by the end of the second quarter (read:
A Guide to Biotech ETF Investing Amid the Coronavirus Crisis
).
The acquisition will bolster Amgen’s pipeline of gastric cancer drug candidates. This is especially true as it will give Amgen access to First Prime’s lead drug, bemarituzumab, a promising stomach cancer drug which is ready to begin phase 3 testing. The treatment had shown improved overall survival and reduced risk of cancer progression in a mid-stage study. The addition of the drug will help Amgen to compete against Bristol Myers Squibb
BMY
in treating deadly stomach cancers.
Gastric cancer is one of the world’s most common forms of cancer and is particularly prevalent in the Asia-Pacific region, where Amgen expects to generate significant volume growth in the coming years. According to Jefferies analyst Michael Yee, gastric cancer afflicts about 680,000 patients in China each year compared to about 25,000 people in the United States.
The deal also supports Amgen’s international expansion strategy. Amgen plans to leverage its presence in Japan and other Asia-Pacific markets to maximize bemarituzumab’s potential. Amgen Chief Executive Robert Bradway called the Five Prime buyout a “compelling opportunity” for his company (read:
5 Global ETFs Riding on Best Winning Streak in 17 Years
).
Market Impact
Following the news, shares of Five Prime soared 78.7% to close the day. The stock crushed its average volume as nearly 33.1 million shares moved hands compared with 937,000 on average. Meanwhile, shares of AMGN were down 0.9% to close the day.
This has put the spotlight on some ETFs, which could be the best ways for investors to tap the opportunity arising from the proposed Amgen-Five Prime deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks.
VanEck Vectors Biotech ETF
BBH
This fund offers exposure to 24 companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment by tracking the MVIS US Listed Biotech 25 Index. Amgen takes the top spot accounting for 12.3% in the portfolio. BBH has amassed $501.9 million in its asset base and charges 35 basis points in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
iShares Nasdaq Biotechnology ETF
IBB
This fund provides exposure to 282 U.S. biotechnology and pharmaceutical companies by tracking the Nasdaq Biotechnology Index. Amgen occupies the top position with 7.8% share. IBB is the most-popular fund in the biotech space with AUM of $10.6 billion and expense ratio of 0.46%. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read:
5 ETF Investing Areas for March to Boost Returns
).
Invesco Dynamic Pharmaceuticals ETF
PJP
This fund offers companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. It follows the Dynamic Pharmaceuticals Intellidex Index and holds 29 stocks in its basket with AMGN taking the fifth spot at 5.3% share. The product has AUM of about $367.3 million and charges 56 bps in fees and expenses. It has a Zacks ETF Rank #3 with a High risk outlook.
iShares Evolved U.S. Innovative Healthcare ETF
IEIH
This actively managed ETF employs data science techniques to identify companies with exposure to the innovative healthcare sector. Holding 251 stocks in its basket, AMGN is the eight firm with a 4.1% allocation. The product has accumulated $34.4 million in its asset base and charges 18 bps in annual fees (see:
all the Healthcare ETFs here
).
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