Bristol-Myers Squibb (BMY) will become a top five Big Pharma stalwart after its Celgene (CELG) takeover, an analyst said Friday — referencing a deal others believe will kick off a buying spree in biotech.
XThe deal, which has Bristol paying about $74 billion for Celgene, elicited split views on the Street. Some questioned Bristol's logic with Celgene's biggest asset facing patent worries in the next several years. Another says the deal is underappreciated.
What's highly likely, says GlobalData analyst Edit Kovalcsik, is Bristol's ensuring itself a place among the top five pharmas in terms of profitability. Bristol was already eighth largest with annual revenue of $20.8 billion. Celgene was ninth at $13 billion.
"As a result of the spectacular merger, Bristol is likely to join the top five pharma companies and the combined revenue will place the company behind the leading pharma giants: Johnson & Johnson (JNJ), Pfizer (PFE) and Merck (MRK)," she said in a report to clients.
Is A Biotech M&A Spree On The Horizon?
RBC Capital Markets analyst Brian Abrahams, too, acknowledged the massive size of the Celgene takeover. He called it "by far the largest biotech acquisition in history." But he doesn't expect it to be the last in 2019. Abrahams calls for biotech M&A to tick up this year.
There's "a strong need to diversify around maturing franchises with (patents expiring) and biotech valuations having come down," he said in his note to clients. "Our thesis remains — reaffirmed by (Thursday's) deal — that M&A in the space will pick up considerably in 2019."
Bristol's Celgene takeover indicates that nothing is off the table, Abrahams said. That flies in the face of a recent survey of investors suggesting Gilead Sciences (GILD), Biogen (BIIB) and Celgene were not considered acquisition targets.
"We believe (Thursday's) deal indeed indicates an appetite among pharma for such larger companies whose assets and pipeline can be accretive, meaningfully move the needle on their sizable revenue bases and where synergies can be generated," he said.
Abrahams cites biotechs Sarepta Therapeutics (SRPT), Sage Therapeutics (SAGE), Alder Biopharmaceuticals (ALDR) and Karyopharm Therapeutics (KPTI) as other potential candidates.
Not Everyone Approves Of Celgene Takeover
GlobalData's Kovalcsik notes the combined Bristol and Celgene will have a commanding spot in cancer treatments. Bristol sells immuno-oncology drug Opdivo. Celgene has a massive list of multiple myeloma drugs.
But Leerink analyst Geoffrey Porges notes Celgene's biggest drug, Revlimid, will begin facing pressure in 2022 and "will erode rapidly after 2025." That's because Revlimid is soon to see its key patents expire. When that happens, generic drugs will look to undercut Revlimid sales.
"This profile potentially compounds the risk of similar erosion for other Bristol assets in the same time frame, and puts even more onus on Bristol to find more deals to boost revenue in that time period," he said in a note.
Porges says the deal is a fortuitous exit for Celgene investors. He notes there's a "moderate" risk Bristol's board members may not approve the merger.
On Thursday, Bristol stock tanked 14% on the news. Celgene stock spiked nearly 21%. On the stock market today, though, Bristol rose 3.9%, to 46.89. Celgene stock popped 5.6%, to 84.90.
Edison Investment Research analyst Max Jacobs, too, questioned the deal.
"I'm not quite sure (of) the logic of this combination especially with the Revlimid patent overhang," he said in a note. "Perhaps Bristol just wanted to do something big and Celgene was simply out of ideas."
Bristol Takes Lead In Multiple Myeloma?
Canaccord Genuity analyst John Newman was more forgiving of the deal.
"We believe this will firmly establish Bristol as the leading multiple myeloma company in the space," he said in a report. He noted Bristol will also obtain Celgene's partnership with Bluebird Bio (BLUE) for a cancer treatment called bb2121. He added that the partnership may change though.
Further, the Celgene takeover adds about $15 billion to Bristol's estimated full-year sales of $23 billion. Newman believes the risk of flattening Revlimid sales is manageable.
"We remain confident in the Celgene pipeline and believe that the revenues from Celgene can grow through bb2121 (and other drugs known as) luspatercept, ozanimod, liso-cel and fedratinib," he said.
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The post Bristol To Become Top 5 Pharma — And Other Fallout From Celgene Takeover appeared first on Investor's Business Daily.
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