M&A, Pharma

Bristol-Myers inks a $74B deal to buy out Celgene, expects $15B a year from late-stage pipeline

In a stunning turn of events, Bristol-Myers Squibb $BMY has struck a deal to buy Celgene $CELG for $74 billion in cash and stock. And several analysts were quick to agree that this was a good deal for Celgene’s bruised investors.

Celgene shareholders will get 1 share of Bristol-Myers stock and $50 for every share of the biotech they own. The acquisition is valued at $102.43 per Celgene share — plus a CVR.

Yesterday, Celgene’s shares closed at $66.64, down by more than half from their high in the fall of 2017. The plunge made this deal possible, and may signal a new era of big-time M&A in biopharma.

The reaction on the market was swift. Bristol-Myers’ shares dropped 15% while Celgene saw its stock rocket up 31%.

The deal gives Bristol-Myers a big new pipeline which boasts of several would-be blockbusters. It also marks the end game for an executive team led by Celgene CEO Mark Alles, which has come under intense criticism for a series of mishaps that blighted its rep and share price.

Slide: Bristol-Myers Squibb, Celgene

The combined company will have 9 products on the market “and significant potential for growth in the core disease areas of oncology, immunology and inflammation and cardiovascular disease.”

Mark Alles, Celgene CEO

Bristol-Myers is counting on about $15 billion in near-term annual revenue from Celgene’s late-stage pipeline, turning to the drugs that Celgene has been buying up or partnering with companies like bluebird bio. That includes:

  • Two in immunology and inflammation, TYK2 and ozanimod; and
  • Four in hematology, luspatercept, liso-cel (JCAR017), bb2121 and fedratinib.

The CVR, worth up to $9 each, is based on FDA approval of all three of these drugs: “ozanimod (by December 31, 2020), liso-cel (JCAR017) (by December 31, 2020) and bb2121 (by March 31, 2021).”

The acquisition marks the combination of two of the world’s top-10 R&D operations. Celgene — which spent $6 billion on R&D in 2017 — built the company on Revlimid sales, and invested billions of that revenue in building its pipeline with a long string of deals.

Bristol-Myers will come out of the buyout with 69% of the equity and all of the power. Bristol CEO and Chairman Giovanni Caforio will be in charge of the show post-merger. 

Chart: Edwin Elmhirst, EPVantage

You can expect plenty of cuts and layoffs with this move. Bristol-Myers is laying out its expectations for finding $2.5 billion in annual cost reductions by 2022 as it merges the two operations. More than half of that will come out of commercial operations, with a plan to “optimize” R&D, with a special focus on revamping early-stage work. The pact also removes one of the industry’s most active dealmakers. Biotechs will miss Celgene, which had a well known rep for offering a supportive role for its partners. They also paid top dollar for the best prospects.

The deal gives Bristol-Myers a diversified pipeline that will greatly expand a scope that had narrowed considerably around Opdivo, its megablockbuster PD-1 checkpoint which has slipped behind the leader at Merck. Bristol-Myers is financing the deal with cash on hand plus money from Morgan Stanley Senior Funding and MUFG Bank.

One early casualty of the buyout: BeiGene. The China biotech saw its stock $BGNE drop 20% after the news broke, as Bristol-Myers is unlikely to want an alliance on a rival PD-1 program.

Leerink’s Geoffrey Porges advised Celgene’s shareholders to take the money and run — ahead of the final closing.

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. While Celgene’s shareholders are unlikely to reject the offer, Bristol’s could, hence our recommendation to sell into the liquidity associated with this announcement.

Jefferies’ Michael Yee was quick to agree that this was a good deal for Celgene investors.

We see this as a positive for CELG as despite being very cheap, it seems the market was not going to get clarity on how the next 3 years would “change” the problem and hence get the stock up sustainably (settlement with Reddy’s and 3 big drugs coming were already in expectations) and investors had lost confidence in the strategy with stock trading at all-time low P/E at 6x…

And you can add Baird’s Brian Skorney to that chorus of approval — for Celgene’s side of the deal.

The deal’s success, in our view, hinges on the outcome of Revlimid patent litigation but for CELG shareholders today, its a big win.

Image: Bristol-Myers CSO Thomas Lynch at an Endpoints News event in June 2018 Endpoints News

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