Shares of engineered therapeutics specialist Ambrx Biopharma (NASDAQ:AMAM) skyrocketed on Monday following a major announcement. Pharmaceutical and medical technology stalwart Johnson & Johnson (NYSE:JNJ) will buy out the company, which should strengthen its oncology unit. Subsequently, AMAM stock doubled in price thanks to the win-win proposition.
According to the accompanying press release, J&J will acquire all outstanding shares of Ambrx for $28 a pop in cash. That represents a 105% premium to the closing price of AMAM stock on Jan. 5. Further, the total equity value of the deal comes out to approximately $2 billion.
On the scientific front, Ambrx’s proprietary Antibody Drug Conjugate (ADC) technology combined the advantages of high specificity, potent chemotherapeutic payload and efficient elimination of cancer cells, all without the prevalent side effects typically associated with traditional chemotherapy.
Such a groundbreaking achievement naturally caught the eye of J&J, which has a long legacy of innovation in oncology. Looking ahead, J&J scientists intend to work with Ambrx researchers, thus potentially accelerating its early stage therapeutic study targeting advanced prostate cancer. In addition, the pharma giant will also develop Ambrx’s pipeline of novel product candidates.
Per the press release, the transaction — which received unanimous approval by Ambrx’s board of directors — should close in the first half of this year.
AMAM Stock Drives Higher on the Comprehensive Win
For stakeholders of AMAM stock, the J&J buyout represented a rare comprehensive win. Not only did recent shareholders see a 100% premium against Friday’s close, but anyone who bought AMAM since its initial public offering in June 2021 benefited. That includes those who bought shares during the July 2021 peak and held on to Monday.
Unsurprisingly, Ambrx expressed joy for the buyout. “We are excited to reach this agreement with Johnson & Johnson for advancing scientific research to treat cancers with high unmet needs,” said in part Ambrx CEO Daniel J. O’Connor.
On the other end of the deal, JNJ faded modestly, perhaps on investor concerns about the aforementioned premium. However, over the long run, the all-cash acquisition of AMAM stock appears enticing.
In the third quarter of 2023, J&J’s Innovative Medicine segment posted revenue of $13.89 billion. That came out to a 5% increase from the $13.21 billion generated in the year-ago quarter. In particular, the company’s oncology unit reported $4.53 billion in sales, representing a 12% year-over-year lift. Thus, the Ambryx buyout should help fuel momentum in an obvious winner for J&J.
Why It Matters
Prior to the acquisition disclosure, AMAM stock carried a consensus analyst view of strong buy. Interestingly, at the time, the average price target came out to $24.50, which is not far from the acquisition price. On the other hand, JNJ is looking at a moderate buy assessment with a $178.08 price target, implying about 11% upside.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
