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Bristol Broadens Pipeline With Celgene Buy

We think the deal is strategically and financially positive.

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 Bristol-Myers Squibb (BMY) and  Celgene (CELG) are merging in a $74 billion deal that we think represents a very logical buildout of Bristol’s pipeline in oncology and immunology. With obvious therapeutic area overlap and $2.5 billion in annual cost synergies expected by 2022--the majority from selling, general, and administrative expense and likely commercial overlap and overhead--we think the deal is positive strategically and financially. Before the deal, we saw Celgene’s near-term pipeline as significantly undervalued, and our estimate of $5.2 billion in sales from the company’s late-stage pipeline in 2022 is roughly $1.5 billion higher than consensus. Bristol’s management has noted its conservative stance on Revlimid’s U.S. patent expiration, and we think this could fit with our own view, which assumes a single generic entry in 2022 (Teva (TEVA)) but several other generics launching in 2024-26.

Bristol plans to acquire Celgene for a combination of $50 in cash and one Bristol share per Celgene share, for a total value of $102.43 per share, giving Bristol shareholders 69% of the combined company. There is an additional contingent value right worth $9 per Celgene share if ozanimod, liso-cel, and bb2121 all receive approval from the Food and Drug Administration within reasonable time frames. The deal has approval from both companies’ boards and is expected to close in the third quarter. We expect to slightly lower our $116 Celgene fair value estimate to match the offer price. We don’t expect any major changes to our $61 Bristol fair value estimate after factoring in the up-front deal price and contingent value right.

Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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