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Bristol-Myers $13.1B deal shows industry's hunger for M&A in H2'20

Bristol-Myers Squibb Co.'s intent to purchase heart-drug maker MyoKardia Inc. for $13.1 billion marks the fourth healthcare M&A deal of 2020 valued over $10 billion and the most recent in a string of acquisitions announced in the second half of the year.

Of the sector's 17 deals with a transaction value above $1 billion, 13 have been announced in the second half of 2020, and only one — Gilead Sciences Inc.'s purchase of Forty Seven Inc. — was announced before May.

The first half's stagnation coincided with the onset of the COVID-19 pandemic in the U.S., and analysts said at the time that while M&A drivers were expected to remain the same in the healthcare industry, the economic slowdown would likely warrant a temporary wait-and-see approach.

The largest announced deal of the year remains Gilead's Immunomedics Inc. acquisition at just under $20 billion, which is relatively mid-sized by 2019's standards: Bristol-Myers' $95 billion Celgene deal and AbbVie Inc.'s $63 billion purchase of Allergan topped the list that year.

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Bristol adds strength at a price

For Bristol-Myers, MyoKardia adds a near-market asset in mavacamten, a protein inhibitor that treats patients with hypertrophic cardiomyopathy, or HCM, a hereditary disease characterized by a rigid heart. The company expects to file for U.S. approval in the first quarter of 2021.

"We are not surprised that a large pharma company decided to acquire this company," Cantor Fitzgerald analyst Alethia Young said in an Oct. 5 note. "We had noted that we thought recent phase 3 success with their lead asset mavacemten in HCM was only the beginning for this novel cardiovascular program."

Young said mavacamten sales are expected to reach $2.7 billion per year for HCM in 2030, and she expressed confidence that the drug would be approved in 2021.

Cantor analyst Steve Scala said mavacamten would add to Bristol-Myers' portfolio of cardiovascular drugs, which includes blockbuster Eliquis, co-owned with Pfizer Inc.

"Bristol-Myers' acquisition of MyoKardia bolsters an area of existing strength with promising cardiovascular assets, but adds clinical and regulatory risk at a steep price," Scala said in an Oct. 5 note.

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Moody's Investors Service affirmed Bristol-Myers' credit rating at A2 with a negative outlook based on the price to be paid for MyoKardia on top of the company's 2019 acquisition of Celgene for $95 billion.

"The acquisition is credit negative based on its rich valuation and the use of incremental debt to fund a development stage company with negative earnings and cash flow," Moody's Senior Vice President Michael Levesque said in an email. "The deal also pushes out Bristol's planned deleveraging timeframe by one year, from 2023 to 2024."

However, Moody's affirmed the rating based on Bristol-Myers' "solid performance with good growth in its core pharmaceutical products, strong free cash flow of over $10 billion per year, and progress at resolving patent challenges on Revlimid and Eliquis."