Goodbye, Celgene. Hello, Bristol-Myers Squibb (NYSE:BMY).
With Bristol-Myers Squibb's acquisition of Celgene closing on Wednesday, one of my favorite biotech stocks is now gone. Celgene became a subsidiary of BMS and is no longer a publicly traded company on its own. Like many former Celgene shareholders, I now own Bristol-Myers Squibb stock.
I've thought quite a bit about what I would do when the buyout deal concluded. My final conclusion: Do nothing. Here's why I plan to hold on to my new Bristol-Myers Squibb shares.
Celgene's remarkable pipeline
I agree with market researcher EvaluatePharma that BMS's cancer immunotherapy Opdivo and its blood-thinning drug Eliquis are likely to rank among the world's top-selling drugs over the next few years. But to be honest, the growth prospects for Opdivo and Eliquis alone wouldn't be enough to make me want to keep my newfound BMS shares. However, now that the big drugmaker owns Celgene's pipeline, it's a different story altogether.
Ozanimod appears to have very good chances of winning FDA approval for treating relapsed multiple sclerosis early next year. I expect the drug will generate peak annual sales in the ballpark of $5 billion if approved.
Celgene's cancer cell therapies liso-cel and ide-cel should also be in a pretty good position to secure regulatory approvals. These two drugs could tack on another $4 billion or so in combined peak annual sales. There could also be additional indications for recently approved Reblozyl (luspatercept) on the way that could help the drug achieve peak sales of close to $2 billion.
Looking farther down the road, I have high hopes for Celgene's CelMOD therapies that are currently in early stage clinical studies targeting blood cancers. I also think bb21217, a cell therapy that Celgene is developing with bluebird bio, could be a big winner.
These pipeline candidates make me excited about BMS's growth prospects. Yes, the company will have to offset the inevitable sales declines for Revlimid as generic rivals enter the market beginning in 2022. However, sales of those generics will be volume-limited at first. I think that the combination of Celgene's pipeline and already-approved drugs such as Pomalyst and Inrebic along with BMS's drugs should give the "new" company a solid growth runway.
Bristol-Myers Squibb's remarkable dividend
In addition to its impressive blockbusters already mentioned, Bristol-Myers Squibb claims something remarkable of its own -- its dividend. The drugmaker's dividend currently yields 2.9%. That's a level that most investors would find quite attractive.
BMS has also been consistent at increasing its dividend payout through the years. Granted, those dividend hikes haven't been awe-inspiring. Still, a growing dividend is a good dividend in my book, especially with the already great yield.
I'm not worried at all about Bristol-Myers Squibb's ability to keep the dividends flowing and growing in the future. CFO Charles Bancroft noted in the company's third-quarter conference call that BMS will be able to increase its dividend, along with paying down its debt. He added that the company has "modeled annual increases" to its dividend in its pro forma financial projections.
It also helps that BMS just received $13.4 billion from the sale of Celgene's immunology drug Otezla to Amgen. While I would have preferred that BMS have Otezla in its lineup, the divestiture was necessary to make regulators happy and ended up being a good deal for all involved parties.
What about the cash and CVR shares?
Celgene shareholders didn't just receive BMS stock with the closing of the acquisition. We also received $50 in cash per share plus a contingent value right (CVR) that will pay $9 if specified regulatory milestones are achieved.
I plan on holding on to my CVR. My expectation is that these CVR shares will eventually pay out the full $9 as BMS wins FDA approvals for ozanimod, liso-cel, and ide-cel.
As for the cash that I received with the acquisition of Celgene, I plan to invest in stocks, of course. Bristol-Myers Squibb won't be one of them, though, because I want to diversify more outside healthcare. The good news is that there are plenty of great stocks to choose from.