Merger frenzy in the pharmaceuticals business

The record deal between Bristol-Myers Squibb and Celgene moved closer this week. The pharmaceuticals sector is rapidly consolidating. Matthew Partridge reports.

Giovanni Caforio, chief executive officer of Bristol-Myers Squibb ©  Christopher Goodney/Bloomberg via Getty Images

The record deal between Bristol-Myers Squibb and Celgene moved closer this week. The pharmaceuticals sector is rapidly consolidating. Matthew Partridge reports

Bristol-Myers Squibb has "moved a step closer" to completing the largest takeover deal in the healthcare industry, says James Dean in The Times. Celgene, its target, has agreed to sell its blockbuster psoriasis treatment, Otezla, to Amgen for $13.4bn. Celgene first put Otezla up for sale two months ago to placate US competition regulators who were concerned that its combination with Bristol-Myers Squibb "could give the new company too much power in the market for anti-inflammatory drugs". Amgen says Otezla will cost it closer to $11.2bn owing to tax benefits.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Bristol-Myers will benefit in several ways from the deal, says Richard Beales on Breakingviews. Not only will the sale "smooth" any potential antitrust problems, but the money raised will reduce leverage at the larger company and allow it to "ratchet up its share repurchases" at the same time. Moreover, Giovanni Caforio, chairman and chief executive of Bristol-Myers, "can now breathe a sigh of relief", with his "ambitious dealmaking" having passed itsfirst test.

An overpriced pill?

However, this deal "may have bucked that trend" as Otezla has cost Amgen substantially more than expected. Indeed, one analyst from brokerage Jefferies said that $8bn "would be the benchmark for a cheap price", while another "put a $10bn high-end price on the drug".

Advertisement
Advertisement - Article continues below

It's true that Amgen is paying a lot, especially given the fact that Celgene is a "motivated seller", says Charley Grant in The Wall Street Journal. Still, even though Amgen has offered an "attractive amount" for the drug, its shareholders shouldn't feel too hard done by, since the evidence suggests that the biotech firm "isn't necessarily overpaying". The drug "carries relatively little risk" as Otezla is approved to treat three separate indications, and its key patents don't expire until 2028. Amgen expects "at least double-digit average sales growth over the next five years".

This transaction "is the latest in an industry that has seen a staggering amount of dealmaking this year", says the Financial Times. Indeed, "more than $700bn-worth of transactions" have been agreed in the drug and healthcare sectors this year so far.

This "frenzy" has been driven by "the desire to sell non-core assets or buy innovative medicines as [pharma firms'] own drugs are close to losing patent protection". Companies are also concentrating on becoming "one of the top three players" in their category.

Advertisement

Recommended

Visit/517688/the-british-equity-market-is-shrinking
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stock markets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019
Visit/510135/trade-war-ceasefire-boosts-stockmarkets
Economy

Trade-war ceasefire boosts stockmarkets

Stockmarkets sighed with relief after the G20 summit in Japan brought a handshake between Donald Trump and Xi Jinping.
4 Jul 2019

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/investments/stocks-and-shares/share-tips/600811/three-overlooked-stocks-to-buy-now
Share tips

Three overlooked stocks to buy now

Each week, a professional investor tells us where he’d put his money. This week: Joe Bauernfreund, portfolio manager at the AVI Global Trust, highligh…
17 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019