Pharmaceutical innovation sparks M&A wave.
Bristol-Myers Squibb’s $74 billion agreement ($90 billion including debt) to buy Celgene, one of the largest pharmaceutical deals in history, is part of a rush by big drug companies to acquire biotech firms as the search for new cancer-fighting drugs heats up. Days after the tie-up was announced, Eli Lilly said it would buy Loxo Oncology for $8 billion in cash. In December 2018, GlaxoSmithKline agreed to buy Tesaro, an oncology-focused biotech, for $4.16 billion.
The rapidly growing global market in cancer drugs, currently valued at around $123 billion, is being fed by scientific advances as well as Big Pharma’s need to replenish drug pipelines to keep profits up. New York–based Bristol-Myers Squibb (BMS), for example, is facing growing competition from Merck’s Keytruda and others for its leading immunotherapy medicine, Opdivo, which is used to treat advanced-stage lung cancer.
The parade of pharmaceutical mergers is expected to continue, as drug companies bulk up in the face of price pressure from copycat drugs and pharmacy-benefit managers, and as recent declines in biotech stocks have made these companies more attractive targets.
Giovanni Caforio, BMS CEO, told the J.P. Morgan Healthcare Conference in San Francisco last month that he isn’t worried about Celgene’s reliance on itsblood-cancer treatment Revlimid for the bulk of its revenue. He said BMS had conducted “very deep due diligence” and is “very comfortable” with the intellectual property strength of Revlimid. Indian multinational Dr. Reddy’s Laboratories is already challenging Celgene’s patent on Revlimid, which will face generic competition in 2022.
New Jersey–based Celgene’s share price declined by 56% between October 2017—when the company canceled a late-stage trial of its Crohn’s disease drug—and the end of last year. That was about equal to the 54% premium to the January 2 market price that BMS agreed to pay for Celgene.
Caforio says he likes Celgene’s drug pipeline, particularly its cell-therapy program and prospective therapies in treating multiple myeloma, a cancer of plasma cells. BMS and Celgene said their merger would create a world leader in oncology, with nine drugs with annual sales of at least $1 billion each. The combined companies plan to launch about six new products in the next two years.
Under the deal, Celgene shareholders would receive one Bristol-Myers share and $50 in cash for each Celgene share. Celgene shareholders also would receive one tradable contingent value right entitling the holder to a potential payment of $9 in cash upon FDA approval of three Celgene drugs currently under development.
The approximately $90 billion total price tag for the deal is about equal in size to Pfizer’s February 2000 all-share deal for Warner-Lambert to bring Lipitor to market.
The overall cancer death rate in the US has dropped continuously for 25 years—from 1991 to 2016—by a total of 27%, according to the American Cancer Society, mainly due to fewer smokers and early detection and treatment.
