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

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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

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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

Nick Galakatos, Blackstone global head of life sciences

Nick Galakatos and the Black­stone team now have a record $4.6B to in­vest in bio­phar­ma, with a big fo­cus on push­ing com­pa­nies over the top

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The Blackstone team has neatly tied up the largest private fund ever raised in life sciences for making big dreams come true in biopharma. Late Thursday, Blackstone put out word that they had closed their highly anticipated fund with the projected $4.6 billion all in.

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Regeneron CEO Leonard Schleifer speaks at a meeting with President Donald Trump, members of the Coronavirus Task Force, and pharmaceutical executives in the Cabinet Room of the White House (AP Photo/Andrew Harnik)

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