When giants collide

Bristol-Myers Squibb aims to acquire Celgene for a hefty $74 billion

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NEW YORK & SUMMIT, N.J.—Only three days into the new year, an acquisition was announced that could plausibly hold the position for 2019's largest price tag for the rest of the year. Bristol-Myers Squibb Co. (BMS) and Celgene Corp. have struck a definitive merger agreement under which Celgene will be acquired in a cash and stock transaction with a value of roughly $74 billion. Both companies’ boards of directors have approved the transaction, which is expected to close in the third quarter of the year. Once the transaction closes, Dr. Giovanni Caforio, chairman and CEO of Bristol-Myers Squibb, will serve as chairman of the board and CEO of the combined company, with two members from Celgene’s board of directors to join Bristol-Myers Squibb’s board of directors.
Per the terms of the agreement, Bristol-Myers Squibb will grant one BMS share and $50 in cash to Celgene stockholders for each share of Celgene. The latter’s shareholders will also receive one tradable Contingent Value Right for each share of Celgene, which entitles them to receive a payment if future regulatory milestones are met. Upon completion of the deal, which is subject to shareholder approval and customary closing conditions, Bristol-Myers Squibb stockholders will likely own about 69 percent of the combined company, while Celgene stockholders will hold roughly 31 percent.
Based on Bristol-Myers Squibb’s closing price on Jan. 2, the day before the merger announcement was made public, the cash and stock consideration to Celgene shareholders was $102.43 per share, a roughly 51-percent premium based on the 30-day volume weighted average closing stock price prior to the announcement, and an approximately 54-percent premium based on Celgene’s closing stock price as of Jan. 2.
“For more than 30 years, Celgene’s commitment to leading innovation has allowed us to deliver life-changing treatments to patients in areas of high unmet need. Combining with Bristol-Myers Squibb, we are delivering immediate and substantial value to Celgene shareholders and providing them meaningful participation in the long-term growth opportunities created by the combined company,” Mark Alles, chairman and CEO of Celgene, said in a press release. “Our employees should be incredibly proud of what we have accomplished together and excited for the opportunities ahead of us as we join with Bristol-Myers Squibb, where we can further advance our mission for patients. We look forward to working with the Bristol-Myers Squibb team as we bring our two companies together.”
The acquisition is expected to provide run-rate cost synergies of roughly $2.5 billion by 2022, with Bristol-Myers Squibb forecasting “strong returns and significant immediate EPS [earnings per share] accretion” in the near-term—in fact, the company is estimating that the deal will be “more than 40 percent accretive to Bristol-Myers Squibb’s EPS on a standalone basis in the first full year” following its close.
Caforio remarked that, “We are impressed by what Celgene has accomplished for patients, and we look forward to welcoming Celgene employees to Bristol-Myers Squibb. Our new company will continue the strong patient focus that is core to both companies’ missions, creating a shared organization with a goal of discovering, developing and delivering innovative medicines for patients with serious diseases. We are confident we will drive value for shareholders and create opportunities for employees.”
The new company will have a strong product portfolio, with Bristol-Myers Squibb noting that the early-stage pipeline will consist of “50 high-potential assets,” with compounds geared toward indications such as cancer, immunology/inflammation, cardiovascular disease and fibrotic disease.
The commercialized products Bristol-Myers Squibb and Celgene boast between them include a number of market leaders, with nine products that bring in more than $1 billion annually in sales. In addition, it will have a strong position in oncology, thanks to Bristol-Myers Squibb’s Obdivo and Yervoy, and Celgene’s Revlimid and Pomalyst. The combined entity will also stand at the top in immunology/inflammation, with Orencia and Otezla, and cardiovascular disease, thanks to Eliquis.
The combined company’s robust portfolio will be especially noticeable in the field of cancer, with Dr. John Newman, biotechnology analyst with Canaccord Genuity, noting that “BMY [Bristol-Myers Squibb] will obtain a dominant position in the multiple myeloma (MM) space with multiple products after acquiring CELG [Celgene], which we believe the market does not appreciate. BMY currently has only Empliciti for relapsed/refractory Multiple Myeloma. Post-acquisition, BMY will also add Revlimid, Pomalyst, thalidomide, bb2121, bb21217, JCARH125, iberdomide, citarinostat, CC-92480 and CC-93269 to the multiple myeloma portfolio. We believe that this will firmly position BMY as the leading multiple myeloma company in the space. Also, BMY would obtain bb2121, the leading BCMA-targeted CAR-T asset. However, we believe BMY will be very objective as to which BCMA CAR-T asset to take forward long-term, and that BMY will not wish to co-promote bb2121 with bluebird bio, leading to a modification of the partnership.”
Keith Speights of Motley Fool noted that while Bristol-Myers Squibb’s Q4 results were positive, “its quarterly update also revealed why the company needs the planned acquisition of Celgene to successfully close.” Among those reasons is the recent news that Bristol-Myers Squibb was retracting its supplemental Biologics License Application (sBLA) for the combination of Opdivo and Yervoy as a first-line treatment of advanced non-small cell lung cancer, with Speights pointing out that “The bad news about pulling the sBLA filing underscored just how much of BMS’ fortunes ride on Opdivo. Buying Celgene provides more product diversification.” In addition, he added, given Bristol-Myers Squibb’s own admittance that growth was likely to slow in terms of future company guidance, “Sales for [Celgene’s] top products—Revlimid, Pomalyst and Otezla—continue to show strong momentum. Acquiring Celgene would be a shot in the arm for BMS.”
Significantly, as Speights points out, a good deal of the combined company’s pipeline is owed to the addition of Celgene: “In its Q4 conference call, Bristol-Myers Squibb’s management talked a good bit about its pipeline prospects. But it was interesting how different that discussion was from what it would have been if the company wasn’t planning to buy Celgene … The company bragged that it has six drugs that could launch in the near term that combined represent over $15 billion in potential revenue. How many of those candidates are in BMS’ own pipeline right now? One. It’s Celgene’s promising candidates, including liso-cel, luspatercept and ozanimod, that BMS talked about the most.”
While the transaction is clearly a boon for Bristol-Myers Squibb, Speights opined that it’s a bad deal for Celgene, stating that Celgene is worth more than what Bristol-Myers Squibb is offering: “The proposed price tag translates to Celgene trading at less than 10 times expected earnings. That’s cheap, no matter how you look at it.” Additionally, he commented that Ozanimod, liso-cel and bb2121 are forecasted to bring in much more than Celgene shareholders stand to gain if the three compounds are approved by their slated dates, per the contingent value right shareholders will receive along with this deal.

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