As Expected: Shareholders Back Bristol's $74bn Celgene Buy
Executive Summary
With no more activist investor challenge, shareholders of both companies overwhelmingly approved the deal. Bristol said it will have leading positions in oncology and cardiovascular disease, and gain five potential blockbusters in the Celgene buyout.
The shareholders of both companies have voted in favor of Bristol-Myers Squibb Co.'s $74bn acquisition of Celgene Corp., which is on track to close in the third quarter of this year – an outcome that was expected ahead of both drug makers' April 12 shareholder meetings, since activist investor Starboard Value LP recently dropped its campaign to sway other Bristol stock owners against the deal.
Analysts generally anticipated that shareholders would eventually support the deal and that it would close on schedule, especially when Starboard said on March 29 that it would no longer stand in the way of the transaction. The activist shareholder determined that, despite its own objections, it would be difficult to convince other Bristol investors to vote against the Celgene purchase after the independent proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis & Co. recommended that shareholders vote in favor of the deal.
Holders of more than 75% of Bristol's outstanding shares voted in favor of the transaction, while 98% of the votes cast by Celgene shareholders – representing more than 70% of its stock – voted for the deal.
Both companies closed slightly down, however, on April 12 with Bristol's stock declining 1.1% to $45.57 per share and Celgene dipping 0.1% to $94.14.
With the shareholder votes behind them, Bristol and Celgene can focus on closing the transaction, after obtaining sign-offs from regulators globally. Then, they'll have to combine their large commercial product portfolios and drug development pipelines.
Bristol claims that it will have the top biopharma oncology and cardiovascular franchises – topped by its own immuno-oncology blockbuster Opdivo (nivolumab) and Celgene's multiple myeloma market leader Revlimid (lenalidomide), plus Bristol's anticoagulant Eliquis (apixaban).
The combined immunology and inflammation franchise will rank in the top 5 globally, according to Bristol's estimates, including Bristol's selective T-cell co-stimulation modulator Orencia (abatacept) for rheumatoid arthritis and psoriatic arthritis (PsA), among other indications, and the Celgene phosphodiesterase-4 (PDE4) inhibitor Otezla (apremilast) for psoriasis and PsA.
"We think that the combined company has clear therapeutic area overlap in oncology and immunology and that Celgene's strong cash flow from operations over the next few years – growing north of $10 billion a year in 2021-22 in our model – will help Bristol reduce leverage and prepare for commercialization of Celgene's late-stage pipeline, as several launches are on tap through the end of 2020," Morningstar analyst Karen Andersen said in an April 12 note.
However, the companies' combined immunology and inflammation franchise could be a problem for regulators reviewing the Bristol-Celgene deal for anti-competitive concerns. Bristol informed shareholders on March 26 that the Federal Trade Commission in the US requested more information from both companies about their marketed and pipeline assets for psoriasis.
In addition to Celgene's only approved immunology and inflammation asset, the oral drug Otezla, for which psoriasis is an important indication, Bristol has initiated a Phase III program in psoriasis for its own small molecule, the TYK2 inhibitor BMS-986165, after promising Phase II results. (Also see "Bristol Engineers An Oral TYK2 Inhibitor With Biologic-Like Efficacy That Rivals JAK Safety" - Scrip, 12 Sep, 2018.)
Otezla has been a key product for Celgene because it helped the company diversify its revenue, which comes primarily from hematology and oncology drugs; Revlimid still comprises about two-thirds of its total revenue.
Meanwhile, Bristol's TYK2 inhibitor is one of six late-stage pipeline assets from the companies' merged pipelines that Bristol expects to generate $15bn in combined revenue at their peak. BMS-986165 is the only drug candidate of the six that comes from Bristol.
The other five potential blockbusters include:
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The S1P receptor modulator ozanimod, which recently was resubmitted to the US FDA for approval to treat relapsing and remitting multiple sclerosis after the agency issued a refuse-to-file letter last year (Also see "More Bad News: Celgene Reveals Refuse-To-File Letter For Ozanimod In MS" - Scrip, 27 Feb, 2018.);
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The erythroid maturation agent luspatercept, for which Celgene and partner Acceleron Pharma Inc. submitted a biologic license application (BLA) to the FDA earlier this month for myelodysplastic syndrome (MDS)-associated anemia and beta-thalassemia-associated anemia (Also see "'Totality Of Data' Make A Case For Luspatercept In Beta-Thalassemia, MDS" - Scrip, 3 Dec, 2018.);
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The CD19-targeting chimeric antigen receptor T-cell (CAR-T) therapy JCAR017 (lisocabtagene maraleucel, or liso-cel) that is said to be on track for submission to the FDA in 2019 for third-line or greater diffuse large B-cell lymphoma (DLBCL) (Also see "CAR-T Forecast: Celgene Follows, But Also Leads As Next Batch Of T-Cell Therapies Near Market" - Scrip, 3 Jan, 2019.);
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The bluebird bio inc.-partnered bb2121, a B-cell maturation antigen (BCMA)-targeting CAR-T therapy for multiple myeloma, which also is expected to be submitted for FDA approval in 2019 (Also see "Poseida, Legend/Janssen Look To Snag Celgene/Bluebird's BCMA Crown" - Scrip, 4 Dec, 2018.); and
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Fedratinib, a JAK2 inhibitor under priority review at the FDA for myelofibrosis that Celgene bought a year ago for more than $1bn. (Also see "Celgene's $1.1bn Impact Buy Is First Of More Deals To Come In 2018 And Beyond" - Scrip, 9 Jan, 2018.)
"To break even, we estimate that Bristol needs only $6bn-$7bn cumulative peak sales from Celgene’s 'Big Five' pipeline assets," BMO Capital Markets analyst Alex Arfaei said in an April 12 note. "In our base case, we forecast that the 'Big Five' can reach peak sales of ~$10bn, below Celgene/Bristol's $12bn-$14bn guidance."
Sticking to established timelines for the ozanimod, liso-cel and bb2121 submissions is essential for Celgene investors to realize the full value of Bristol's purchase of the company. In addition to $50 in cash and a share of Bristol stock, Celgene investors will receive a contingent value right (CVR) worth $9 per share of Celgene stock they own if the FDA grants approval for ozanimod and liso-cel by Dec. 31, 2020, and for bb2121 by March 31, 2021.
The biggest risk of the Bristol-Celgene combination for Bristol shareholders, however, could be a drastic decline in revenue when Revlimid generics hit the market. Both companies have downplayed that risk, since the first generics in 2022 will be limited-release copies of the multiple myeloma backbone therapy. Also, Celgene continues to reduce that risk by settling outstanding patent challenges; it won a reprieve in March when the US Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB) denied the last remaining request for an inter partes review (IPR). (Also see "Celgene/Bristol's Revlimid Patent Risk Incrementally Lower After PTAB Denies Alvogen IPR" - Scrip, 14 Mar, 2019.)
The late-stage assets that Bristol is so keen to buy are essential to diversifying the Celgene portfolio, regardless of how long it takes for Revlimid to realize full generic competition (expected in 2026, under various patent litigation settlements). However, Celgene has endured several setbacks in its attempts to diversify, including the RTF for ozanimod, that have decreased its stock value and made the company a relative bargain compared to when Bristol first made a bid to merge in 2017. (Also see "Bristol Approached Celgene Nearly Two Years Ago, Got A Better Deal Later" - Scrip, 1 Feb, 2019.)
When the Bristol-Celgene transaction closes in the third quarter, it will be the third-largest mega-merger in biopharma history, behind Pfizer Inc.'s $84.1bn deal with Warner-Lambert Co. in 2000 and the $78bn combination of Glaxo Wellcome Inc. and SmithKline Beecham Corp., also in 2000. (Also see "Bristol/Celgene A Record-Setting Merger, If It Happens" - Scrip, 3 Jan, 2019.)