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Why Bristol-Myers Squibb Stock Plunged in the First Half of 2019

By George Budwell - Jul 8, 2019 at 10:26AM

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Wall Street clearly isn't pleased with Bristol's acquisition of Celgene.

What happened

Prescription drug giant Bristol-Myers Squibb ( BMY 0.84% ) lost an eye-catching 12.8% of its value during the first six months of 2019, according to data from S&P Global Market Intelligence. In fact, Bristol's shares broke through their five-year low last April, underscoring just how poorly this big pharma stock has performed so far this year.

What's behind this breathtaking decline for one of pharma's top names? In short, Wall Street isn't convinced that Bristol's $74 billion acquisition of biotech heavyweight Celgene ( CELG ) is a smart move. Bristol, after all, is paying a hefty premium for a company that within the next few years is going to lose exclusivity for its most important revenue generator -- namely the top-selling multiple myeloma medication Revlimid. 

An open bottle containing blue pills laid on its side on top of a stack of hundred dollar bills.

Image source: Getty Images.

So what

This mega-merger has also forced the divestment of two high-value assets to appease both Bristol and the Federal Trade Commission (FTC). Specifically, Celgene had to call off its immuno-oncology collaboration with Chinese biotech BeiGene for the PD-1 inhibitor tislelizumab. And Bristol reportedly plans on selling Celgene's blockbuster anti-inflammatory medication Otezla in order to assuage the FTC. These two moves -- albeit absolutely necessary to complete the merger -- potentially wiped billions in future sales off the table.   

Now what

Undaunted by these headwinds, Bristol recently announced that it still plans on closing this landmark transaction by early 2020. The combined entity, in kind, should go on to become the world's third-largest pharmaceutical company -- behind only Pfizer and Novartis -- by 2024. 

Should investors take advantage of Bristol's sharp pullback this year? While Wall Street clearly hasn't bought into this marriage, there's a strong case to be made that Bristol's shares have fallen too hard, too fast in 2019. After all, there are a number of natural synergies between Bristol and Celgene, and the combined entity should ultimately post respectable levels of bottom- and top-line growth in the coming decade. Bargain hunters, therefore, may want to consider buying this beaten-down big pharma stock soon. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$55.41 (0.84%) $0.46
Celgene Corporation Stock Quote
Celgene Corporation
CELG
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$53.04 (-3.00%) $-1.64
Novartis AG Stock Quote
Novartis AG
NVS
$79.95 (0.16%) $0.13
BeiGene Stock Quote
BeiGene
BGNE
$345.87 (-1.74%) $-6.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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