Bristol-Myers Squibb (BMY) is angling to become a top-six biopharma after putting up a $74 billion bid to acquire biotech giant Celgene (CELG) early Thursday.
XBut that's only if the deal comes to fruition. Leerink analyst Geoffrey Porges suggested that Bristol's shareholders could reject the deal if Bristol stock continues toppling. On the stock market today, Bristol stock plunged 13.3% to close at 45.12. Celgene stock flew 20.7% to finish at 80.43.
Porges said the deal provides Celgene investors with immediate upside. He urged them to "take it!"
"This transaction dilutes investors' exposure to Celgene's patent cliff, relieves Celgene investors of the trials of the company's management decision-making and offers immediate upside that would otherwise take many months, or even years, to be realized," he said in a report to clients.
The deal also prompted BeiGene (BGNE) stock to dive 5.7% to close at 128.30. Celgene has a deal with BeiGene to develop its cancer treatment, tislelizumab, in solid tumors outside Asia, expect Japan. Tislelizumab rivals Bristol's Opdivo, so it's possible Celgene will no longer need BeiGene's drug.
Bristol Stock Plunges On The Deal
The cash-and-stock deal initially valued Celgene shares at $102.43. The deal offered a 51% premium to the 30-day weighted average closing stock price of Celgene. It was also a 54% premium to the closing price of Celgene stock on Wednesday, Bristol said in a news release.
But the actual value of the deal will be contingent on Bristol stock. Celgene shareholders will receive one Bristol share and $50 cash for each share of Celgene. So the Bristol stock plunge will reduce the effective deal value.
Celgene shareholders will also receive one tradable Contingent Value Right, or CVR, for each share of Celgene. This provides a payment for achieving future regulatory milestones.
With the CVR, the total offer is a 67% premium to Celgene's closing price on Wednesday, Leerink's Porges said. If Bristol's stock remains near 44, then the premium falls to 41% before the CVR and 55% with it, he said.
"Given this potential premium erosion, and the risk that Bristol shareholders may reject this deal if the Bristol price drop sticks, we would recommend the current premarket Celgene upside of about 30% as an exit opportunity for Celgene shareholders," he said.
Leading Portfolio Of Cancer Treatments
The deal timing will help Celgene weather upcoming patent expirations, Leerink's Porges noted. Key patents on Revlimid, a cancer treatment, are set to expire in 2027-28. Revlimid generated $8.19 billion in 2017 sales. It's Celgene's biggest moneymaker.
It will also help Bristol to beef up its market value. Together, the two companies would be worth north of $132 billion. That would put the biopharma between AbbVie (ABBV) and Eli Lilly (LLY) in terms of size.
Both companies are both known for their cancer treatments. Bristol has two key immunotherapy cancer treatments known as Opdivo and Yervoy. Celgene bought Juno Therapeutics last year for its efforts in immuno-oncology.
Together, the combined biopharma will also have two leading immunology and inflammation drugs with Bristol's Orencia and Celgene's Otezla. Bristol also notes the combined company will have a top cardiovascular franchise led by anticoagulant Eliquis.
Consolidation Sorely Needed In Biopharma
Brad Loncar, a portfolio manager who focuses on cancer specialists, told Investor's Business Daily that he'd expected Bristol to be involved in a merger this year. But, he'd expected Bristol to be the takeout target and for Amgen (AMGN) to be the one pulling the trigger.
"I did predict something huge was going to happen with Bristol-Myers," he said in an interview. "They painted themselves into a corner. They either had to buy something like this or get bought themselves. I'm surprised by the names, but I'm not shocked this happened."
The reason is the pharmaceutical industry is over capacity at the moment, he said. Bristol and Celgene expect to achieve $2.5 billion of run-rate cost synergies by 2022. One or two deals will have take some of that extra cost out of the system, he said.
Loncar also noted both companies were weak "limping" into 2019. Celgene raised the price of Revlimid three times in 2018. That's a sign of weakness, he said. Further, Bristol has its immunotherapy cancer treatment, Opdivo. But Opdivo is struggling to compete against Merck's (MRK) Keytruda.
"As a standalone company, they didn't have an exciting story coming into this year," he said.
And that leads to Amgen, which is a "world-class biotech" but doesn't have a massive exposure to the immunotherapy cancer treatments space, Loncar said.
"I thought it was a perfect fit," he said. "You have Amgen missing the most important component there in oncology. Bristol-Myers would have been the perfect asset."
Combination Puts Together 9 Blockbusters
The combined company will have nine blockbuster products.
"We are creating an innovative biopharma leader, with leading franchises and a deep and broad pipeline that will drive sustainable growth and deliver new options for patients across a range of serious diseases," Bristol Chief Executive Giovanni Caforio said in a written statement.
The two expect the deal to close in the third quarter. Separately, Bristol sees adjusted 2019 earnings per share of $4.10-$4.20.
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The post Bristol-Myers Angles To Become Mega-Pharma With $74 Billion Celgene Bid appeared first on Investor's Business Daily.
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