Bristol-Myers Squibb (BMY -0.24%) is acquiring Celgene (CELG) for roughly $74 billion to create a biopharma goliath. The combined company will boast eight billion-dollar blockbuster drugs and an envy-inspiring product pipeline. Here's what Bristol-Myers Squibb will look like after its Celgene acquisition closes.
A slate of top sellers
Once Bristol-Myers Squibb completes its planned acquisition of Celgene, it will be an oncology powerhouse. Bristol-Myers Squibb already markets the top-selling PD-1 checkpoint inhibitor Opdivo, the leukemia drug Sprycel, and the melanoma drug Yervoy. And following this deal, it will also market the multiple-myeloma drugs Revlimid and Pomalyst, plus the pancreatic cancer drug Abraxane. Altogether, those cancer drugs generated $5.9 billion in revenue during Q3 2018, and that positions it as the market-share leader in immuno-oncology and hematology.
The combined company will also become a bigger player in autoimmune disease, as Celgene's blockbuster psoriasis drug Otezla joins Bristol-Myers Squibb's arthritis drug Orencia. Those two drugs had combined sales of over $1.1 billion in Q3 2018, which is good enough for Bristol-Myers Squibb to become a top-five player in immunology and inflammation.
Strengthening its cancer-drug lineup comes at an important time for Bristol-Myers Squibb. The company's Opdivo continues to deliver impressive growth, but its market share has come under pressure from competitors, especially Merck (MRK 0.22%) with its Keytruda, which overtook Opdivo as the market-share leader among checkpoint inhibitors this year.
Similarly, securing Otezla is important because Orencia has been on the U.S. market since 2005 and its U.S. patent expires in 2019. As a complex biologic, it will take time, trials, and Food and Drug Administration approvals for biosimilar alternatives to threaten Orencia's sales. But the expiration still threatens Bristol-Myers Squibb's future immunology revenue.
Overall, the two companies' best-sellers alone represent annualized sales north of $34 billion, based on Q3 2018 revenue. Toss in revenue from their other drugs, and the combined companies' sales would exit the third quarter with an annualized run rate of nearly $40 billion.
|Bristol-Myers Squibb's Top-Selling Drugs, Based on Celgene Acquisition|
|Product||Company||Q3 2018 Sales (in Millions)||Q3 2018 YOY Growth|
A pipeline bonanza
Revlimid accounts for about two-thirds of Celgene's revenue, and generic versions will begin to launch in 2022 under licensing agreements. To protect itself from a drop-off in sales because of Revlimid's expiring patents, Celgene has been aggressively signing deals and acquiring assets to bolster its pipeline.
For example, it spent over $7 billion acquiring Receptos in 2015 to get its hands on ozanimod, a multiple sclerosis drug that could be filed for FDA approval in early 2019. In 2018, it spent $9 billion buying Juno Therapeutics to land chimeric antigen receptor T-cell (CAR-T) therapies targeting cancer, including liso-cel, which could win FDA approval as early as late 2020. It also spent $1.1 billion, plus potential milestones, in 2018 for ImpactBio to acquire fedratinib, a myelofibrosis drug that should be filed for FDA approval soon.
Celgene has also been actively collaborating with smaller companies on a number of intriguing compounds, including bluebird bio's (BLUE 2.40%) bb2121 and bb21217, two CAR-T therapies for multiple myeloma; and Acceleron Pharma's (XLRN) luspatercept, a therapy for beta thalassemia and myelodysplastic syndrome. Bb2121 could be on the market in 2021 or sooner, while luspatercept could win approval as early as this year, depending on when it gets filed for approval with regulators.
Adding Celgene's pipeline to Bristol-Myers Squibb's will result in a late-stage portfolio including "six expected near-term product launches, representing greater than $15 billion in revenue potential," 10 products in phase 3 trials, and 50 products in phase 1 or phase 2, according to an investor presentation on the deal.
Growing financial firepower
Acquiring Celgene should improve Bristol-Myers Squibb's financials because Celgene is a faster-growing company with operating margins that are higher than Bristol-Myers Squibb's.
Bristol-Myers Squibb estimates this deal will be accretive to its earnings per share by at least 40% in the first full year, and will generate $45 billion in cash flow in the first three full years. It's targeting $2.5 billion in annualized cost savings from the combination by 2022, with 55% coming from selling, general, and administrative cuts; 35% coming from eliminating overlapping research and development, and 10% from manufacturing efficiencies.
That outlook is despite the impact from the $33.5 billion in debt to fund the $50 per share in cash that Bristol-Myers Squibb is handing over to Celgene investors as part of this transaction.
The potential to leverage cost savings for greater earnings growth is considerable, given that through the nine months ending September 2018, Bristol-Myers Squibb and Celgene reported net incomes of $3.8 billion and $2.9 billion, respectively.
Bristol-Myers Squibb expects the deal to close in the third quarter of 2019. If it goes off without a hitch, then Celgene shareholders will receive $50 per share in cash, one share of Bristol-Myers Squibb for each of their shares, plus a tradeable contingent value right (CVR) worth $9 per share if Celgene can win FDA approval of ozanimod, liso-cel, and bb2121 by Dec. 31, 2020; Dec. 31, 2020; and March 31, 2021, respectively. When all is said and done, Celgene shareholders will wind up owning 31% of the new combined company.
In the meantime, investors will want to watch for updates regarding the timing of fedratinib, ozanimod, and luspatercept's FDA filings for approval, all of which should happen before this deal closes.
Check out the latest Bristol-Myers Squibb earnings call transcript.