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
Stockmarkets

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
Stockmarkets

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/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020
Visit/economy/uk-economy/601079/how-the-coronavirus-pandemic-is-killing-cash
UK Economy

How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accel…
31 Mar 2020