Coverage: Bristol-Meyers buying Celgene for $74 billion

Bristol-Myers Squibb Co. said on Thursday it would buy Celgene Corp. for about $74 billion, combining two of the world’s largest cancer drug businesses in the biggest pharmaceutical deal ever.

Michael Erman and Ankur Banerjee of Reuters had the story:

Both Bristol-Myers and Celgene face separate challenges, and some Wall Street analysts questioned whether the combination – which the companies said would create $2.5 billion in cost savings and significantly raise earnings – would solve them. Amid clinical setbacks and other missteps, Bristol-Myers shares fell 15.2 percent in 2018 while Celgene plunged nearly 40 percent last year.

Bristol’s most important cancer immunotherapy and growth driver, Opdivo, has lost much of its luster as Merck & Co’s rival drug Keytruda seized dominance in advanced lung cancer, the most lucrative oncology market. Meanwhile, Celgene has endured high-profile clinical failures and U.S. exclusivity on its flagship multiple myeloma drug, Revlimid, will start being phased out in 2022.

On Thursday, Bristol’s stock ended another 13.3 percent lower at $45.12. “Doing this transaction clearly indicates that risk to Opdivo in lung cancer is obviously a concern,” SunTrust Robinson Humphrey analyst John Boris said in an interview.

Angelica LeVito and Berkeley Lovelace Jr. reported that both companies have troubles:

Celgene investors were jubilant over the deal, and Bristol investors were less than enthused. Shares of Bristol slid 12 percent while shares of Celgene surged 25 percent shortly after it was announced. There’s a chance Bristol investors, who think the company is overpaying for Celgene, may not approve the acquisition, Mizuho Securities USA said after conducting a quick survey of about 100 institutional clients.

At the very least, the companies face a hard sell to Bristol shareholders. The deal adds about $32 billion in fresh debt to Bristol’s balance sheet to fund the purchase while assuming $20 billion in Celgene’s debt, the companies said in an investor presentation. That’s a big jump from Bristol’s current outstanding long-term obligations of $7.3 billion, according to data compiled by FactSet.

The news sent the cost to insure Bristol’s bonds to their highest point since May 2010. As the price of long-term Bristol bonds fell, the associated credit default swap jumped 66 percent, bringing the cost to insure $1 million of the company’s debt against default to $23,000, according to Reuters.

Tiffany Hsu and Katie Thomas of The New York Times reported that Celgene has faced a rocky period:

The transaction comes after a rocky period for Celgene. The company’s share price fell about 40 percent over the past year amid concerns that it was relying too heavily on Revlimid, which accounts for about two-thirds of its sales. The drug faces a so-called patent cliff, when its patents will expire and cheaper generic rivals could enter the market.

Celgene, citing concerns for patient safety, has resisted sharing Revlimid samples with potential rivals, hoping to produce less-expensive generic versions of the drug. Celgene tops a Food and Drug Administration list meant to shame companies trying to block such competition. The company has also been criticized for raising the prices of Revlimid and other medications, and has had setbacks in its drug–development pipeline.

In 2017, Celgene, without acknowledging wrongdoing, agreed to pay a total of $280 million to the federal government, 28 states and the District of Columbia to settle claims that it had marketed Thalomid and Revlimid for unapproved uses.