Bristol-Myers Squibb has agreed to acquire Celgene in a deal that would create one of the largest biopharma organizations in the world and send ripples throughout the life sciences sector.
Bristol (NYSE: [[ticker:BMY]]) on Thursday morning inked a deal to buy Celgene (NASDAQ: [[ticker:CELG]]) in a deal that values the Summit, NJ, drugmaker at $74 billion, or $102.43 per share. Celgene shareholders will get $50 in cash and one Bristol share for each Celgene share they own. They’ll also get one tradeable contingent value right (CVR) for each of their shares, which could lead to future $9-per-CVR payments tied to regulatory approvals of three Celgene drugs that are close to market.
Bristol shareholders will own 69 percent of the combined company after the merger, with Celgene stockholders owning the remaining 31 percent.
The deal still needs the approval of shareholders of both companies. Celgene shares boomed 28 percent, but Bristol’s fell 13 percent on the news Thursday morning. “While Celgene’s shareholders are unlikely to reject the offer, Bristol’s could,” wrote Leerink analyst Geoffrey Porges. If all goes well, the transaction should close in the third quarter.
The buyout combines two world leaders in oncology with complementary portfolios. Bristol, for instance, has been one of the top players in immunotherapy, which has begun to change the way a number of cancers are treated. Its immunotherapies, including one of its top-selling drugs, nivolumab (Opdivo), generate some $7.5 billion in yearly sales combined and are approved to treat a variety of solid tumors of the skin, lung, kidney, and other organs.
Celgene, meanwhile, is best known for its hematology franchise, and specifically for taking a derivative of the once-banned drug thalidomide, lenalidomide (Revlimid), and turning it into a mainstay treatment for the blood cancer multiple myeloma. Lenalidomide generated $8.2 billion in sales last year alone.
While Celgene has fought to protect its patents (and drawn ire for it), the lenalidomide cash cow could face generic competition starting next year. To prepare for the next decade, Celgene has been a major investor in a cutting-edge form of immunotherapy called CAR-T cell therapy. Through its acquisition of Juno Therapeutics and an alliance with Bluebird Bio (NASDAQ: [[ticker:BLUE]]), the company has experimental cell therapies for multiple blood cancers in clinical development—among them a multiple myeloma cell therapy that leads a competitive race with several rivals.
But both companies also face intense competition and have seen their share prices plunge the past year. Bristol’s market lead in cancer immunotherapy has eroded, stung by a few different clinical failures and the ascent of Merck’s (NYSE: [[ticker:MRK]]) rival drug pembrolizumab (Keytruda), which has blown by nivolumab as a preferred treatment for newly diagnosed advanced lung cancer, one of the most common cancer types in the world. Bristol has been pinning its hopes on new immunotherapy combinations to bounce back.
Bristol shares were worth more than $75 apiece in July 2016. They were just over $50 before news of the merger broke.
Celgene has faced its own recent setbacks. Its shares, worth over $140 apiece in July 2017, traded at just $66 before the merger news broke this morning.
One key drug, an experimental Crohn’s disease treatment called mongersen that Celgene bought for $710 million, failed a Phase 3 trial in October 2017. And ozanimod, a multiple sclerosis drug that was the crown jewel of a $7.2 billion buyout of Receptos, was rejected by the FDA because Celgene left key information out of its approval application. Though ozanimod could still be approved—a new application should be filed this year—its launch has been significantly delayed.
Celgene’s bet on cell therapy, which faces significant commercial hurdles, also comes with big questions.
The Bristol acquisition is “a best-case scenario that should be immediately utilized by Celgene shareholders,” wrote Porges. It “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.”
But is it a good deal for Bristol? On a conference call with analysts, Bristol executives fended off questions about the looming expiration of lenalidomide patents and other uncertainties. Bristol chairman and CEO Giovanni Caforio, who will lead the combined company, said Bristol “feels good about what we’ve seen” regarding lenalidomide’s IP position and has taken a very “conservative view” on the drug’s future sales.
He countered that there is “extraordinary complementarity” between Bristol and Celgene. In addition to the two companies’ strengths in solid tumors and hematology, they’ll also combine a portfolio in inflammatory diseases that includes drugs like Celgene’s apremilast (Otezla) and Bristol’s abatacept (Orencia). Bristol also believes six drugs will come to market within the next two years—including five from Celgene for various blood diseases—and generate some $15 billion in annual revenue. The combined company will have nine products each with more than $1 billion in annual sales.
“We’ve been discussing the potential of this combination for quite some time,” Caforio said on the call. “Given the number of short-term launches and broad opportunities, we believe this is the right time.”
Still, Barclays analyst Geoff Meacham expects Bristol stockholders investors to view the deal negatively, at least initially, given that it dilutes their shares and “what it implies about Bristol’s positioning across the [cancer immunotherapy] space.”
“We think it will take some time before investors warm up to the potential positive implications from today’s announcement,” Meacham wrote in a research note. But “we saw significant upside potential [for Celgene] heading into 2019,” he added, noting the coming launches of ozanimod, the blood disease drug luspatercept, and more.
The deal, meanwhile, will impact biotechs across the world. Celgene is known for its sprawling network of partnerships and alliances with smaller biotech companies that is arguably unprecedented in the life sciences sector. But massive biopharma acquisitions have a mixed track record, and the big splash often creates a ripple effect on the smaller biotechs that have signed deals with each of the larger companies. New priorities for the new combined company can end alliances and stall drug development collaborations. Though Celgene CEO Mark Alles said the combined company “will continue its investment in its extensive portfolio of research partners,” its strategic decisions will be worth watching.
