First analysis of the $74bn Bristol-Myers Squibb-Celgene deal

Markets were surprised yesterday as Bristol-Myers Squibb’s $74bn acquisition of Celgene was announced. The transaction is the most expensive ever performed in the pharma sector: it exceeds Takeda’s acquisition of Shire by some billions–the Japan-based group paid over $62bn for the Irish group–and Pfizer’s acquisition of Warner Lambert paid $85bn (including debt) in 2000.

However, investors gave signs of disapproval: BMS’ shares yesterday declined by over 13%, despite BMS had paid a fairly low price for Celgene. Indeed, although BMS had valued Celgene at $102.4 per share, granting it a premium 51% over the previous day’s closing price, the amount is approximately 25% below the highest value Celgene has ever reached. Additionally, the total $74bn valuation–plus $18bn of debt–equates to a c.10x EV/EBIT multiple expected for Celgene in 2019: a rather low factor, considering that the average factor in the pharma sector is 19x.

By acquiring Celgene, BMS becomes one of the world’s largest drugmakers, with a capitalization exceeding 130 billion dollars and a leader in the oncology and cardiology businesses. The deal also reduces the group’s dependence on blockbusters Opdivo and Eliquis. BMS’ top management has stated at the press conference with analysts it expects to obtain $2.5bn in savings before 2022, thanks to the synergies created by the deal.  Specifically, 55% of the savings will come from sales and administration cuts, 35% from R&D cuts and 10% from production structure rationalization.

Importantly, as a result of the deal, BMS incorporates Revlimid, a blockbuster generating $10bn revenues (2018) and a rich hematology pipeline making it a leader in the business. Additionally, BMS adds CAR-T technology to its rich immunotherapy portfolio. Indeed, Celgene in 2018 acquired for $9bn Juno Therapeutics, a biotech which had developed CAR-T therapies for the treatment of specific solid cancer types. Celgene will also benefit from an important development agreement with biotech Bluebird entered into in 2018 as well.

The announcement of BMS-Celgene agreement has strongly boosted other drugmakers with large cash resources, also because many analysts expect the BMS-Celgene partnership to be the first in a series of acquisitions. The companies which will most benefit from this are Gilead, Allergan and Biogen.