Bristol-Myers to buy Celgene for US$74 billion

January 04, 2019 08:01
Bristol-Myers Squibb said the deal is expected to achieve US$2.5 billion in cost savings by 2022 and add more than 40 percent to its earnings in the first year after the deal closes. Photo: Reuters

Bristol-Myers Squibb Co. said it will buy Celgene Corp. for about US$74 billion, combining two of the world’s largest cancer drug businesses in the biggest pharmaceutical deal ever, Reuters reports.

Both Bristol-Myers and Celgene face separate challenges, and some Wall Street analysts questioned whether the combination – which the companies said would create US$2.5 billion in cost savings and significantly raise earnings – would solve them.

Amid clinical setbacks and other missteps, Bristol-Myers shares fell 15.2 percent in 2018 while Celgene plunged nearly 40 percent last year.

Bristol’s most important cancer immunotherapy and growth driver, Opdivo, has lost much of its luster as Merck & Co.’s rival drug Keytruda seized dominance in advanced lung cancer, the most lucrative oncology market.

Meanwhile, Celgene has endured high-profile clinical failures and US exclusivity on its flagship multiple myeloma drug, Revlimid, will start being phased out in 2022.

On Thursday, Bristol’s stock ended another 13.3 percent lower at US$45.12. Celgene shares were up 20.7 percent at US$89.43.

“Doing this transaction clearly indicates that risk to Opdivo in lung cancer is obviously a concern,” SunTrust Robinson Humphrey analyst John Boris said in an interview.

There is also shareholder concern that drugs in development would not have enough sales to offset major products losing exclusivity between 2022 and 2026. 

But cash flow from Revlimid buys Bristol-Myers time to pay down debt and position for another transaction, Boris said. Revlimid is expected to record nearly US$10 billion in 2018 sales. 

“Both of them were coming into this year kind of limping,” said Brad Loncar, who runs the Loncar Cancer Immunotherapy ETF. The deal makes “the combined entity a lot stronger”, he added. 

Including debt, the deal is worth US$95 billion, eclipsing Pfizer’s US$89 billion purchase of Warner-Lambert in 2000, according to Refinitiv

Some analysts, including Baird Equity’s Brian Skorney, said it raised the possibility of a new era of big drug deals, much like in 2009, when Pfizer Inc., Merck, and Roche Holding AG all pulled off transformational acquisitions.

The news pushed up shares of rivals Gilead Sciences Inc., Allergan Plc, Biogen Inc. and Regeneron Pharmaceuticals Inc.

Bristol expects to achieve the US$2.5 billion in cost savings by 2022, with 55 percent coming from cuts in sales, general and administrative expenses, 35 percent through reduction in research & development spending and 10 percent from manufacturing. 

It said the deal will add more than 40 percent to its earnings in the first year after the deal closes, expected in the third quarter of 2019. 

Under terms of the deal, Celgene shareholders will receive one Bristol-Myers Squibb share and US$50 in cash for each share held, or US$102.43 per share, a premium of 53.7 percent to Celgene’s Wednesday close. 

Talks between Bristol and Celgene opened in September, with Bristol approaching Celgene, according to two sources familiar with the matter.

Bristol has obtained fully committed debt financing from Morgan Stanley Senior Funding Inc. and MUFG Bank Ltd.

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