By Jared S. Hopkins and Aisha Al-Muslim
Bristol-Myers Squibb Co. agreed to buy rival Celgene Corp. in a
deal valued at about $74 billion, combining two leading sellers of
cancer drugs and potentially signaling the return of dealmaking to
the pharmaceutical industry.
Overall, the merged company will have nine products with more
than $1 billion each in annual sales -- most notably Celgene's
multiple myeloma drug Revlimid and Bristol's lung-cancer treatment
Opdivo.
Under the terms, Bristol will buy Celgene with a combination of
cash and stock. The deal represents a 54% premium based on
Celgene's closing stock price Wednesday. Bristol agreed to pay more
later, if Celgene's labs deliver three new approved drugs.
The companies said their combined pipeline includes six expected
near-term product launches representing more than $15 billion in
revenue potential.
The cash-and-stock deal represents about a 54% premium, based on
Celgene's closing stock price Wednesday. The cash portion will be
funded through a combination of cash on hand and debt financing.
The deal is expected to close in the third quarter.
When the deal is done, Bristol-Myers shareholders would own
about 69% of the combined company, while Celgene shareholders would
own about 31%.
Bristol investors were cool on the deal, sending shares in
Bristol down more than 12% in morning trading. Celgene was up more
than 27%.
A big issue: Celgene's Revlimid, the company's top-selling
product, is poised to face generic competition in 2022, Celgene has
said. Revlimid contributed $8.2 billion of Celgene's $13 billion in
sales in 2017, and the company has struggled to find new products
whose sales would offset those it will lose after Revlimid loses
patent protection in the U.S. Celgene's share price fell 39% last
year following and concerns about Revlimid's patent expiration.
Bristol-Myers's Chief Executive and Chairman Giovanni Caforio
will continue to serve in those roles of the combined company. Two
members from Celgene's board will be added to the Bristol-Myers
board.
Dr. Caforio said the company understands the prospects for
Revlimid but wanted the deal because of the new sales that drugs in
development in Celgene's labs could provide.
"The deal is not about Revlimid," Dr. Caforio said in an
interview. "We look at it actually as a science-and-pipeline
deal."
The deal would create a powerhouse in the $123 billion
world-wide market for cancer drugs, one of the biggest and
fastest-growing pharmaceutical sectors.
Bristol, of New York City, pioneered the development of drugs
known as immunotherapies, that unleash the immune system on tumors.
Summit, N.J.-based Celgene leads in the sale of treatments for
multiple myeloma.
Competition has been fierce in the cancer-drug market, which is
growing at a compounded annual rate of 11%, according to
EvaluatePharma. Companies have been trying to bulk up with the idea
that size will help.
Most recently, GlaxoSmithKline PLC, which is trying to build a
line-up of cancer drugs, last month agreed to pay $4.2 billion to
acquire Tesaro Inc. and its ovarian-cancer drug.
Both Bristol-Myers and Celgene have had recent struggles.
Bristol lost its advantage in immunotherapy treatment of lung
cancer to rival Merck & Co. And in October, Bristol announced a
delay in a ruling by the U.S. Food and Drug Administration on its
new-drug application for a combination of Opdivo with another
Bristol-Myers drug, Yervoy.
Shares in both companies had fallen sharply on the concerns, and
both companies were rumored to be acquisition targets. Bristol drew
activist investors, including Carl Icahn and Jana Partners. The
company shuffled management, including making board director Tom
Lynch in charge of research and development.
Celgene, in addition to providing Revlimid, is set to add a new
kind of cellular cancer treatment known by the acronym CAR-T, which
it received through the Juno Therapeutics acquisition last year.
Celgene has also been developing drugs for multiple sclerosis and
multiple myeloma.
"This is a deal that brings the pipeline of Bristol-Myers Squibb
to a fundamentally different level," Dr. Caforio said.
The two companies held on-and-off-again talks about a deal for
about two years. The resulting transaction came after Bristol-Myers
initiated a new round of talks in September, according to a person
familiar with the matter.
Under the Bristol-Myers deal, Celgene shareholders will receive
one Bristol-Myers Squibb share and $50 in cash for each share of
Celgene.
Celgene shareholders will also receive one tradable Contingent
Value Right for each share of Celgene. Each CVR will entitle its
holder to receive a one-time potential payment of $9 in cash upon
FDA approval of three drugs.
A CVR is often used when buyers and sellers can't agree on a
purchase price and typically tied to sales or regulatory
targets.
The combination is expected to boost Bristol-Myers Squibb's
earnings per share by more than 40% on a standalone basis in the
first full year after the deal closes.
Bristol-Myers Squibb expects to trim about $2.5 billion in costs
by 2022. It also expects to accelerate its share-repurchase program
of up to about $5 billion.
Separately, Bristol-Myers said Thursday its earnings per share
guidance for 2019 will be in the range of $3.75 to $3.85 and
forecast its adjusted earnings per share will range from $4.10 to
$4.20. The guidance excludes the Celgene acquisition or any
potential acquisitions and divestitures.
Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
January 03, 2019 11:31 ET (16:31 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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