Record-Breaking Merger: Bristol Myers Squibb to Acquire Celgene for $74 Billion

Recently, VCBeat (WeChat official account: vcbeat) learned from foreign media reports that Bristol-Myers Squibb (BMS) announced it would acquire Celgene for a total consideration of $74 billion in cash and stock. The merger of these two global leaders in anticancer drug manufacturing has kicked off the wave of mergers and acquisitions in the biopharmaceutical industry in 2019, becoming one of the largest pharmaceutical M&A deals in history.

According to statements issued by the two companies on January 3 (U.S. local time), each share held by Celgene shareholders will be exchanged for one share of Bristol-Myers Squibb stock plus $50 in cash, along with a Contingent Value Right (CVR) with an expected future value of $9 in cash. Based on this, Celgene’s valuation stands at $102.43 per share, representing a 54% premium over its closing price on January 2. Celgene’s stock surged more than 30% in pre-market trading in New York, reaching $88.82 per share, while Bristol-Myers Squibb’s shares fell more than 16% at one point, dropping to $44 per share.

Following the merger of the two companies, former Bristol-Myers Squibb shareholders will hold a 69% equity stake in the new entity, while former Celgene shareholders will hold a 31% equity stake.

The acquisition of Celgene will enable Bristol-Myers Squibb to obtain multiple pipeline assets with significant potential in the fields of oncology, immunology, and inflammation, including TYK2, ozanimod, luspatercept, liso-cel (JCAR017), bb2121, and fedratinib. Revlimid, one of Celgene’s most successful anticancer drugs in recent years, is also included.

This drug is a flagship product of Celgene and serves as a first-line treatment for multiple myeloma. In 2017, Revlimid’s sales approached $8.2 billion, ranking second on the global top-10 best-selling drugs list. That year, the majority of Celgene’s pharmaceutical sales revenue was derived from Revlimid.

Regarding the acquisition of Celgene, Bristol-Myers Squibb CEO Giovanni Caforio stated that the deal would propel the company into a new phase of development. The merged entity will have nine drugs, each generating annual sales exceeding $1 billion. The company will also boast a broader drug development pipeline, including six candidates potentially launching within the next one to two years, which could generate $15 billion in revenue for the company.

Bristol Myers Squibb is a global biopharmaceutical company with the mission of “researching, developing, and providing innovative medicines to help patients prevail over serious diseases.” Headquartered in New York, its predecessor was Clinton Pharmaceutical Company, established in 1887. In 1898, the company was renamed Bristol-Myers Company (hereinafter referred to as “Bristol”). In 1900, it was incorporated as a joint-stock enterprise and shifted its business focus to the wholesale and retail of pharmaceuticals, thereby achieving rapid growth.

In 1924, Bristol-Myers’ total profit reached $1 million for the first time, with its products sold in 26 countries. In 1929, the company successfully went public on the New York Stock Exchange. During the 1940s, Bristol-Myers embarked on large-scale mergers and acquisitions: it acquired Clairol, a wig manufacturer, in 1959; Drackett, a household products manufacturer, in 1965; Zimmer, a surgical products manufacturer, in 1972; and Unitek, a dental products manufacturer, in 1978, among others.

Large-scale acquisitions expanded Bristol-Myers’ business scope and enriched its product development pipeline. Between 1974 and 1980, the company launched 11 new anticancer drugs onto the market, generating $200 million in profits. In 1986, Bristol-Myers further acquired the biotechnology firm Genetic Systems Corporation (GSC). During this period, Bristol-Myers also achieved a prominent market position in the treatment and control of AIDS.

E. R. Squibb & Sons was founded in New York in 1856 by Edward Robinson Squibb, a physician, with a primary focus on the production of pure ether. In 1905, Squibb’s sons sold the company to Theodore Wecker, the founder of Merck & Co. Between 1909 and 1929, the company’s annual sales surged from $414,000 to $130 million.

In 1946, Bristol-Myers Squibb expanded into Latin America and Europe, establishing manufacturing facilities in Mexico, Italy, and Argentina. In 1971, the company was renamed Bristol-Myers Squibb Company. By 1975, its annual sales reached $1 billion.

In 1989, Bristol-Myers Company and Squibb Corporation merged to form the current Bristol-Myers Squibb, with a merger valuation of up to $12.7 billion.

Image source: Stat News official website

It can be said that Bristol Myers Squibb has carried an inherent genetic predisposition for expansion since its inception, and its corporate history is essentially a chronicle of business expansion. In recent years, despite having become a giant in the biopharmaceutical industry, the company has remained committed to pursuing further growth in both its business portfolio and scale.

Public records indicate that Bristol-Myers Squibb has completed 20 corporate acquisitions in recent years. Since 2012, the company has acquired dozens of firms, including the clinical-stage biopharmaceutical company Inhibitex, the oncology drug developer F-star Biotechnology Limited, and the Swedish biotechnology company Galecto Biotech. Its largest acquisition by transaction value occurred recently with the $74 billion purchase of Celgene Corporation.

Figure: A Brief History of Bristol Myers Squibb's Acquisitions from 2012 to Present

Celgene Corporation, founded in 1986 and headquartered in New York, USA, is a globally integrated biopharmaceutical company primarily engaged in the discovery, development, and commercialization of innovative therapies for cancer and immuno-inflammatory diseases. It ranks third among global biopharmaceutical companies by market capitalization, trailing only Gilead Sciences and Amgen.

In 1986, after the Texas-based American chemical giant Celanese Corporation successfully acquired another chemical company, Hoechst AG’s U.S. operations, it spun off its biological pharmaceutical active ingredient manufacturing business to form a new independent enterprise, which is now known as Celgene Corporation.

Subsequently, Celgene formed a board of directors that included several former CEOs from IBM, Merck & Co., and Chase Manhattan Bank. In 1987, Celgene completed its initial public offering (IPO) and became a publicly traded company on the New York Stock Exchange.

In 1991, Celgene received an invitation from the laboratory at Rockefeller University to jointly develop thalidomide. This decision fundamentally transformed the developmental trajectory of Celgene Pharmaceuticals.

In fact, thalidomide was launched in Germany in 1957 and was used to treat morning sickness in early pregnancy. However, after causing approximately 20,000 pregnant women in 46 countries to give birth to infants with phocomelia, thalidomide was forced off the market in 1961.

Recognizing the immense potential of thalidomide in the treatment of leprosy, HIV/AIDS, and cancer, Celgene Corporation ceased its other business operations in 1994 to devote itself entirely to the clinical development of thalidomide.

In 1998, the FDA approved thalidomide, marketed under the brand name Thalomid, for the treatment of leprosy, marking Celgene’s initial victory in this high-stakes gamble. In 2003, thalidomide generated $223 million in sales revenue for Celgene, enabling the pharmaceutical company to achieve profitability for the first time.

In 2006, the U.S. FDA approved the combination of thalidomide and dexamethasone for the treatment of patients with newly diagnosed multiple myeloma, marking the first oncology indication approved for thalidomide. That year, sales of thalidomide reached $433 million. In the same year, Revlimid (lenalidomide), a flagship product of Celgene Corporation, was approved for market launch.

In 2008, Celgene initiated the registration process for Revlimid with China’s National Medical Products Administration (NMPA), marking the beginning of its entry into the Chinese market.

As Celgene continuously adjusted its corporate strategy, the company never halted its M&A-driven expansion. Public records show that from 2000 to 2018, Celgene acquired a total of 15 biopharmaceutical and biotechnology companies. The largest acquisition by value occurred in January 2018, when Celgene announced it would acquire Impact Biomedicines for $7 billion.

However, after 30 years of development, Celgene, which had successfully risen to become a giant in the biopharmaceutical industry at the beginning of 2019, was acquired by another pharmaceutical giant, Bristol-Myers Squibb, at a hefty price.

Chart: A Brief History of Celgene's Acquisitions

On the morning of January 3, local time, during a conference call, the two companies repeatedly described the transaction as “a unique complementary opportunity.” They stated that the merged entity would become a leader in treating cancer, inflammatory diseases, and heart disease. Nevertheless, it is undeniable that both companies faced market pressures in 2018.

Celgene’s global sales in the first nine months of 2018 exceeded $11.2 billion, representing an approximately 18% year-over-year increase. However, the company is striving to maintain patent protection for its anticancer blockbuster drug Revlimid, which accounts for roughly 60% of its total sales.

Bristol-Myers Squibb generated more than $16 billion in revenue in the first nine months of 2018, an 8% increase from 2017, but the company is facing setbacks in its research on the anticancer drug Opdivo, losing its leading edge in early immuno-oncology.

Insiders familiar with the deal told U.S. local media that the transaction aims to reduce the risks faced by each of the two companies.

However, Wall Street analysts have expressed skepticism about the merger of the two companies, questioning “whether they will propose a solution.” Salim Syed, an analyst at Mizuho, surveyed approximately 100 investors on this matter, with more than 50% indicating that they were skeptical about the deal.

“The risks faced by these two companies are overly concentrated, and it remains uncertain whether their merger can help both parties address the significant challenges they currently face,” said an investor surveyed.

“The debt consolidation between the two parties has increased Bristol-Myers Squibb’s cost of debt and heightened its credit risk, while simultaneously reducing Celgene’s credit risk,” said Monica Erickson, portfolio manager at DoubleLine Group. “This is beneficial for Celgene bondholders, but not necessarily for Bristol-Myers Squibb bondholders.”

Meanwhile, media outlets have noted that this landmark pharmaceutical M&A deal, the largest to date, underscores the determination of major pharmaceutical companies to pursue acquisitions in a bid to expand their R&D pipelines.

“Companies in the peripheral biotechnology sector are developing innovative drugs, and large pharmaceutical companies can acquire them to complement or expand their R&D pipelines,” said Denis Corin, CEO of New York-based biotech firm Q BioMed, in an interview with Proactive Investors.

Genprex, a clinical-stage gene therapy company focused on cancer, also views the acquisition favorably. Rodney Varner, the company’s CEO, stated, “This is encouraging, as it demonstrates that large pharmaceutical companies remain highly interested in oncology firms. Meanwhile, I believe this deal is good news for Genprex.”