Bristol-Myers: Eat or Be Eaten

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Bristol-Myers Squibb (NYSE: BMY), the oft-rumored acquisition target of partner sanofi-aventis (NYSE: SNY), is doing a little acquiring of its own, which might settle down the rumor mill if it weren't for the increasing earnings that would make it a nice addition to a pharma big brother.

The acquisition of Medarex (Nasdaq: MEDX) looks like a good one to me. Bristol-Myers gets full rights to Medarex's potential wonder-drug, ipilimumab. The two already had a marketing partnership on the drug.

At a whopping 90% premium to the previous close, the $2.1 billion price tag, net of cash, may seem a little high for half of a drug, but Bristol-Myers is getting more than Medarex's phase 3 drug candidate. The latter also has antibody technology that includes royalties on drugs from Johnson & Johnson (NYSE: JNJ) and Novartis (NYSE: NVS), and licenses to almost every major drugmaker, including Pfizer (NYSE: PFE) and Eli Lilly (NYSE: LLY). I'm also willing to give Bristol-Myers the benefit of the doubt since, being a partner of Medarex, it should have a good idea about the value of ipilimumab. That's not something to be discounted.

The good news for Bristol-Myers' investors continued as the company released solid earnings for the second quarter. Revenue was up just 3%, but cost-cutting measures allowed earnings per share to come in 36% higher.

Most importantly, the company increased its net cash position by another $300 million. The cash cow that Bristol-Myers has become makes it easy for the company to fund future acquisitions, but it also makes it a tempting takeover target.

Only time will tell which one prevails.

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