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Is Bristol Myers Squibb's Reported Acquisition of Aurinia a Smart Move?

By Keith Speights and Brian Orelli, PhD – Nov 6, 2021 at 7:03AM

Key Points

  • Bloomberg reported that Bristol Myers Squibb wants to buy Aurinia.
  • A smaller deal appears to be what Bristol wants and could be a good move for the drugmaker.
  • Targeting small, cancer-focused biotechs might be an even better strategy for Bristol.

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It could be.

Bristol Myers Squibb (BMY 0.80%) is reportedly interested in acquiring Aurina Pharmaceuticals (AUPH -2.31%). In this Motley Fool Live video recorded on Oct. 27, Fool contributors Keith Speights and Brian Orelli discuss whether this deal would be a smart move for the big drugmaker.

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Keith Speights: All right. Brian, let's switch gears here. We talked on Monday about Bristol Myers Squibb taking a pass on acquiring Acceleron (XLRN). Of course, Bristol Myers Squibb is a partner with Acceleron on a drug called Reblozyl, but they still decided not to acquire Acceleron. That cleared the way for Merck (MRK -0.65%) to potentially buy the small biotech.

But now Bloomberg is reporting that Bristol Myers Squibb wants to acquire another company, Aurinia Pharmaceuticals. Do you think buying Aurinia will be a smart move for Bristol Myers Squibb?

Brian Orelli: Yeah. Aurinia sells Lupkynis, which is approved to treat lupus nephritis. The drug was approved in January, but it's off to a relatively slow start. It had 6.6 million in sales in the second quarter. The valuation based on the news that Bristol Myers Squibb might buy it, jumped the market cap up to $3.9 billion. Extrapolating from the second quarter to get a whole year's worth of sales, it will be trading around 80 times sales.

Obviously, they're expecting sales to go up from that 6.6 million in the second quarter. But obviously, there will be a pretty high valuation based on the limited data that we have on the sales of the drug. Maybe I think Bristol Myers might be able to see a path to ramp up sales faster than Aurinia would be able to do it on its own. Obviously, Bristol Myers has a little larger sales force, which could be helpful.

Personally, I'd like to see Bristol Myers buy cancer companies that have drugs that can work in combination with Opdivo, that would give them a double benefit from sales of the acquired drug, but then also in increasing sales of Opdivo, if the combinations work, then the patients will have to get prescribed both drugs and so that would drive sales of Opdivo higher. I think sticking in the cancer space for acquisitions might make more sense, but they probably have more insight into this than I do.

It doesn't seem like it's completely out of value. Assuming they can ramp up sales, 4 billion dollars is pretty cheap for a biotech company with a drug already on the market. It just what's the total potential market for the sales of this drug? I'm just not quite sure yet, but obviously, starting from a pretty low base of $6.6 million.

Speights: Seems to me, Brian, that Bristol Myers Squibb just isn't interested in a bigger deal right now. It would've cost them more to buy Acceleron than they're at least potentially going to pay for Aurinia. It just looks to me that Bristol Myers Squibb is really focusing on the price tag of any business development deals it's making right now, which is a good thing for investors.

Orelli: Yeah. As long as they can get a return on their investment. That's the key. Not going after small, but still overvalued as it is, it's not even better than going over large and overvalued stocks.

Speights: Good point. You're exactly right. It all comes down to what kind of ROI you're going to get from making a deal like this.

Keith Speights owns shares of Bristol Myers Squibb. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.

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