Coverage: Billionaire Icahn takes stake in Bristol-Myers

Bristol Myers Squibb Co. shares rose as much as 4.8 percent after The Wall Street Journal reported that activist investor Carl Icahn has taken a stake in the drugmaker and sees it as a possible takeover target.

David Benoit and Jonathan D. Rockoff of The Wall Street Journal broke the news:

The appearance of Mr. Icahn, an investor with a history of pushing for deals among pharmaceutical companies, surprised Bristol-Myers executives, who had just avoided a potential fight with activist hedge fund Jana Partners LLC and are still reeling from a costly stumble in the company’s effort to develop the next big cancer treatment.

It isn’t clear how big a stake Mr. Icahn has bought, but the investor sees a valuable drug portfolio that could attract a takeover, according to people familiar with the matter. Still, the shares rose 0.4%, reversing earlier declines, after the purchase was reported by The Wall Street Journal. The report came just hours after Bristol-Myers announced it wouldadd three directors to its board and repurchase $2 billion in stock, moves it negotiated with Jana Partners.

Should Mr. Icahn help spur a sale of the company, the purchase would reshape the landscape among a group of companies racing to develop new science for attacking cancer, a market that could be worth billions. It’s far from guaranteed there will be any sale of Bristol-Myers; the potential obstacles are formidable. For one thing, it isn’t clear whether Bristol-Myers is a willing seller, and there’s only a small handful of companies that could afford a price tag likely to exceed $100 billion. Bristol-Myers currently has a market value of more than $90 billion.

Bristol-Myers pioneered the development of so-called immunotherapies, which use the body’s immune system to fight cancers, and it dominates the lucrative category. Rivals, including Roche Holding AG, Pfizer Inc. and Merck & Co., have been trying to catch up, since analysts estimate the treatments could ring up $20 billion in yearly sales.

Sy Mukherjee of Fortune reports that Icahn’s stake could mean a future deal for Bristol-Myers:

Icahn’s involvement in Bristol-Myers Squibb could be a harbinger for a future deal. The noted activist has guided a number of prominent biopharma M&As to the finish line – ironically enough, he’s actually convinced two companies to reject BMS bids outright or hold out for higher ones.

While Bristol-Myers shares closed in green territory Tuesday, its performance has been far more dire in recent times. The stock is down 14% over the last 12 months and 6% year-to-date over struggles in its star cancer immunotherapy franchise, which has lost some ground to rivals like Merckin the lucrative lung cancer market.

But a lower market cap combined with a promising pipeline could create the perfect conditions for a takeover. Bristol-Myers has been shaking up its board in recent months and announced the addition of three new director positions on Tuesday.

Caroline Humer, Bill Berkrot and Michael Flaherty of Reuters report that Bristol-Myers has fallen behind competitors:

The addition of new board members comes as Bristol-Myers has fallen behind Merck & Co Inc in the key field of immuno-oncology after its Opdivo drug failed to prolong survival in previously untreated patients with non-small cell lung cancer, the largest cancer market. Merck’s rival drug, Keytruda, did extend survival as a so-called front-line treatment for NSCLC.

Bristol’s weaker competitive position has been reflected in its shares, which are off about 28 percent since the lung cancer setback last August. Merck shares are up more than 11 percent over the same period.

Bristol-Myers also disclosed that it expects to post charges of $1.5 billion to $2 billion in connection with a restructuring announced in October. In addition, it announced a $2 billion accelerated share repurchase program to be funded with debt and cash.

Bristol-Myers said company directors and executives met with JANA representatives to understand their views since the firm became a shareholder in late 2016. The board appointments followed those discussions, the company said.