- Bristol-Myers Squibb said on Thursday that it would acquire the biotech Celgene in a $74 billion deal.
- The two companies each face their own strategic problems, and Wall Street analysts questioned whether a combination would produce solutions.
- A person familiar with the deal told Business Insider that it was intended to lower each company’s risk.
Bristol-Myers Squibb’s $74 billion acquisition of the biotech Celgene is the biggest deal not just of 2019, but ever in the pharmaceutical sector. But investors are asking whether the unexpected combination will help the two companies confront the big challenges they’re facing.
In a conference call on Thursday morning, the companies repeatedly described the deal as a unique, complementary opportunity. They said it would make the combined company a leader in treating cancer, inflammation, and heart disease.
“I would view it as there was one company” that Bristol-Myers Squibb was going to acquire, its chief financial officer, Charles Bancroft, told Business Insider.
Paul Biondi, a senior vice president, agreed, adding, “It’s always been Celgene.”
The two companies are both major players in the industry and have similar strategies. Bristol-Myers Squibb and Celgene have each sought to carve out disease areas that they can dominate with treatment options and make a profit from. But they are also facing questions about whether they can pull it off, especially because some of their key treatments are facing new competition.
Bristol-Myers Squibb’s shares tumbled more than 13% after the deal was announced, and analysts peppered the company’s executives with tough questions on the call.
“We are surprised that this deal occurred,” said Alethia Young, a Cantor Fitzgerald analyst. “We are also interested that Celgene wasn’t acquired for more.”
The deal valued Celgene at $102.43 a share, while Cantor Fitzgerald’s base expectation for a target price was $100, Young said. Celgene shares, which had dropped over the past three months, surged 26% on Thursday morning, to about $83.91.
JPMorgan was the lead financial adviser to Celgene, while Morgan Stanley was the lead financial adviser to Bristol-Myers Squibb.
Investors surveyed by the Mizuho analyst Salim Syed expressed skepticism about the deal. Of about 100 people who responded, more than 50% said they were not happy with the news.
Including debt, the deal is the largest ever in pharma, topping even Pfizer’s 1999 acquisition of Warner-Lambert and last year’s Takeda-Shire deal, according to Bloomberg News. If the deal goes through, Bristol-Myers Squibb and Celgene will go from the 13th- and 21st-biggest biopharma companies by revenue to the seventh-largest, according to an Informa Pharma Intelligence analysis.
Facing competition for some of its most reliably profitable products, Celgene has struggled to develop new drugs to take their place. Meanwhile, Bristol-Myers Squibb has faced challenges in its effort to become a leader in lung cancer drugs.
Reducing each company’s reliance on a limited number of drugs was the intent of the acquisition, a person who worked on the deal told Business Insider.
The two companies began their discussions in September, though they had had other conversations before, and there was a clear fit, the person said.
“Each of the two companies had a little too concentrated risk, and this lowers that,” the person said. “Too much riding on too concentrated a set of things. Now that’s broader.”
Analysts pressed the companies’ leadership about those risks during the Thursday call.
They asked about the deal’s timing, given that Bristol-Myers Squibb has several upcoming releases of new trial results for its key cancer drug Opdivo that could affect the drug’s prospects, as well as about expectations for the cancer drug Revlimid, a blockbuster product for Celgene that is set to face competition.
In response, Bristol-Myers Squibb CEO Giovanni Caforio described a leading presence that the combined company would have in oncology, with products that treat both solid tumors and cancers in the blood.
He also emphasized the new drugs that the deal would add to Bristol-Myers Squibb’s pipeline.
“We now have six near-term launch opportunities, and I stress the term ‘near-term’ — a number of those are imminent files that are going to be submitted to regulatory authorities,” Caforio said. “I think about Revlimid as a really important product, a foundation on which we can maintain leadership in hematology, but this deal is not about Revlimid.”
The timing of the deal was even strategic, Biondi told Business Insider on Thursday, building “upon incredibly strong events in our business.”
“The opportunities to do these things are often quite small because a lot of things can change,” he added.
The combined company could also try Celgene’s cutting-edge cell therapies in combination with cancer drugs called checkpoint inhibitors, and test combinations of different drugs in autoimmune diseases like inflammatory bowel disease, ulcerative colitis, and Crohn’s disease, management said on the call.
More broadly, Caforio said, having a “critical mass” across different types of diseases will be important no matter what happens with US health policy, improving the company’s position in negotiations with health insurers and employers.
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