Bristol-Myers Squibb to Acquire Celgene for About $74 Billion

Under the terms, Bristol will buy Celgene with a combination of cash and stock. The deal represents a 54% premium based on Celgene’s closing stock price Wednesday. Bristol agreed to pay more later, if Celgene’s labs deliver three new approved drugs.

The companies said their combined pipeline includes six expected near-term product launches representing more than $15 billion in revenue potential.

When the cash-and-stock deal is done, Bristol-Myers shareholders would own about 69% of the combined company, while Celgene shareholders would own about 31%. The cash portion will be funded through a combination of cash on hand and debt financing. The deal is expected to close in the third quarter.

Bristol investors were cool on the deal, sending shares in Bristol down more than 13% in midday trading. Celgene was up about 24%.

A big issue: Celgene’s Revlimid, the company’s top-selling product, is poised to face generic competition in 2022, Celgene has said.

Revlimid contributed $8.2 billion of Celgene’s $13 billion in sales in 2017, and the company has struggled to find new products whose sales would offset those it will lose after Revlimid loses patent protection in the U.S. Celgene’s share price fell 39% last year following its $9 billion acquisition of Juno Therapeutics Inc. and concerns about Revlimid’s patent expiration.

Bristol-Myers’s Chief Executive and Chairman Giovanni Caforio will continue to serve in those roles of the combined company. Two members from Celgene’s board will be added to the Bristol-Myers board.

Dr. Caforio said the company understands the prospects for Revlimid but wanted the deal because of the new sales that drugs in development in Celgene’s labs could provide.

“The deal is not about Revlimid,” Dr. Caforio said in an interview. “We look at it actually as a science-and-pipeline deal.”

The deal would create a powerhouse in the $123 billion world-wide market for cancer drugs, one of the biggest and fastest-growing pharmaceutical sectors.

It would be the second-biggest pharmaceutical and biotechnology deal if Bristol’s potential later payment to Celgene shareholders is included, according to Dealogic. (The largest deal was Pfizer Inc.’s 2000 acquisition of Warner-Lambert Co. for $110.4 billion, excluding debt, according to Dealogic data.)

Bristol, of New York City, pioneered the development of drugs known as immunotherapies, that unleash the immune system on tumors. Summit, N.J.-based Celgene leads in the sale of treatments for multiple myeloma.

Competition has been fierce in the cancer-drug market, which is growing at a compounded annual rate of 11%, according to EvaluatePharma. Companies have been trying to bulk up with the idea that size will help.

Most recently, GlaxoSmithKline PLC, which is trying to build a line-up of cancer drugs, last month agreed to pay $4.2 billion to acquire Tesaro Inc. and its ovarian-cancer drug. Glaxo also recently agreed to combine its over-the-counter drugs business with Pfizer Inc.’s, in a joint venture that the companies said they eventually will spin off.

Both Bristol-Myers and Celgene have had recent struggles. Bristol lost its advantage in immunotherapy treatment of lung cancer to rival Merck & Co. And in October, Bristol announced a delay in a ruling by the U.S. Food and Drug Administration on its new-drug application for a combination of Opdivo with another Bristol-Myers drug, Yervoy.

Celgene, in addition to providing Revlimid, is set to add a new kind of cellular cancer treatment known by the acronym CAR-T, which it received through the Juno Therapeutics acquisition last year. Celgene has also been developing drugs for multiple sclerosis and multiple myeloma.

“This is a deal that brings the pipeline of Bristol-Myers Squibb to a fundamentally different level,” Dr. Caforio said.

The two companies held on-and-off-again talks about a deal for about two years. The resulting transaction came after Bristol-Myers initiated a new round of talks in September, according to a person familiar with the matter.

Under the Bristol-Myers deal, Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each share of Celgene.

Celgene shareholders will also receive one tradable Contingent Value Right for each share of Celgene. Each CVR will entitle its holder to receive a one-time potential payment of $9 in cash upon FDA approval of three drugs.

A CVR is often used when buyers and sellers can’t agree on a purchase price and typically tied to sales or regulatory targets.

The combination is expected to boost Bristol-Myers Squibb’s earnings per share by more than 40% on a standalone basis in the first full year after the deal closes.

Bristol-Myers Squibb expects to trim about $2.5 billion in costs by 2022. It also expects to accelerate its share-repurchase program of up to about $5 billion.

Separately, Bristol-Myers said Thursday its earnings per share guidance for 2019 will be in the range of $3.75 to $3.85 and forecast its adjusted earnings per share will range from $4.10 to $4.20. The guidance excludes the Celgene acquisition or any potential acquisitions and divestitures.

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