As Bristol-Myers Squibb Co. moves to take over Celgene Corp. in a blockbuster $74 billion deal, some analysts are speculating that the buyer itself could become a takeover target.
Such speculation has existed since at least 2016, when Bristol-Myers received negative trial results for its flagship cancer treatment Opdivo. The New York-based company's shares have plummeted about 28% since the beginning of 2016.
Bristol-Myers' stock dropped even further after the announcement of the Celgene deal, which S&P Global Market Intelligence values at $95 billion including equity, assumed current liabilities and net of current assets. Shares have recovered slightly from the initial post-deal slump and were trading at just under $50 apiece as of 3 p.m. ET on Jan. 17.
Investors watch stock decline
Mizuho analyst Salim Syed on Jan. 3 noted Bristol-Myers' stock was down 14%, which could make the company more attractive for a takeover and therefore scuttle the Celgene deal.
"At some point for any stock, there becomes an attractive price, and the lower BMY price goes, the more opportunistic potential bidders can get, which could potentially derail BMY's offer for CELG in our view," Syed wrote.
Companies such as Novartis AG, Pfizer Inc. and Roche Holding AG could also be eyeing an offer for Celgene that would top Bristol-Myers, according to Syed. But it is more likely that investors are instead watching Bristol-Myers' stock go lower and lower.
The Celgene deal, if completed, will catapult Bristol-Myers up the list of top pharmaceutical companies in the U.S. While determining exactly where the combined company will land is difficult, S&P Global Market Intelligence analysis suggests the company will fall just below Merck & Co. Inc. at number four in terms of pro forma total assets and revenue.
Two members of Congress on Jan. 11 raised concerns about the deal's impact on competition, urging close scrutiny from the Federal Trade Commission and Department of Justice.
Alone, Bristol-Myers' market cap is $84.84 billion, while Celgene's is $44.82 billion, according to S&P Global Market Intelligence data.
'Never say never'
So which companies may be interested in picking up Bristol-Myers?
Analysts from Credit Suisse in a Jan. 7 note listed Pfizer, AbbVie Inc. and Amgen Inc. as the only possible suitors for Bristol-Myers that have the means to make such a mega-deal happen.
"Bristol has been discussed to varying degrees as a takeout target over the past couple years, and investors (especially more event-driven ones) are eager to understand who could have been kicking the tires in the past and who might feel an urgent need to make a bid for Bristol-Myers before the Celgene deal closes," Credit Suisse stated.
But buying Bristol-Myers may not be easy for any company looking for a takeover, which Credit Suisse expects to be hostile in nature. Any potential acquirer would need to win over Bristol-Myers shareholders who bristled at the Celgene deal. Therefore, Credit Suisse analysts speculate that any interested company would likely have been exploring its options for a Bristol-Myers takeover before the Celgene deal was announced.
Pfizer may seem like the most obvious company to takeover Bristol-Myers given its strong AA credit rating, assigned by S&P Global Ratings, and history as an M&A powerhouse. But newly minted CEO Albert Bourla told investors at the J.P. Morgan Healthcare Conference in early January that his company is looking to bite off smaller deals to bulk up its research and development in areas of the pipeline that are lacking. Bourla said Pfizer is looking to invest in phase 2 and 3 assets in its key therapeutic areas.
But Bourla left the door open for a major deal, so long as a potential transaction does not upset the company's balance sheet.
"We never say never. We do have the ability because of our balance sheet to do virtually any deal that one can think in this industry," Bourla said. "But right now, I feel we have a unique window of opportunity to get it right with our pipeline and the new launches, and that's why I don't want a destructive deal."
Amgen and AbbVie have the numbers to make a Bristol-Myers deal work, although both companies have lower S&P credit ratings than Pfizer at A and A-, respectively. Both could be looking to bolster their oncology pipelines, according to Credit Suisse. Abbvie, specifically, is facing the end of exclusivity for its flagship arthritis and psoriasis drug Humira and also received disappointing results on a promising lung cancer medicine Rova-T in December 2018.
AbbVie Chairman and President Michael Severino similarly told the audience at J.P. Morgan that his company is sticking to smaller deals but could rally for an industry-shattering acquisition if the right deal were to present itself.
"We found a sweet spot in earlier-stage, pre-proof-of-concept deals for very interesting science, very promising technologies. And those are the sorts of deals you've seen us do lately," Severino said. "Having said that, we're always interested in growing our business, and we look at a wide range of opportunities, small, medium and large. And if we found something that we thought was a strong strategic fit that would deliver good value for our shareholders, we have the firepower to pursue it."
Not on the list
Credit Suisse counted out Eli Lilly and Co. as a potential buyer for Bristol-Myers, given the Indianapolis-based pharmaceutical giant's Jan. 7 announcement that it will acquire Loxo Oncology Inc. for $8 billion. Eli Lilly said the Loxo deal is the biggest it has ever undertaken by value, which Credit Suisse said makes Bristol-Myers an unlikely target.
Johnson & Johnson, the largest healthcare company in the world by market capitalization, also does not make sense according to Credit Suisse, because its anticoagulant Xarelto competes with Bristol-Myers' Eliquis. One of the products would have to be divested as part of such a deal. Moreover, J&J has long been rumored to be exploring an acquisition of a major medical device maker such as Boston Scientific Corp., with chatter ramping up toward the end of 2018 among analysts and industry watchers about a possible announcement.
The same divestiture problem exists for Bayer AG — a company also facing major legal challenges that resulted from its $62.5 billion purchase of Monsanto Co. in 2018.
Bristol-Myers expects the Celgene deal to close in the third quarter. In the meantime, Credit Suisse said investors will be closely watching upcoming trial results for Bristol-Myers' Opdivo and Yervoy combo in a study for non-small cell lung cancer, which could serve as a catalyst for a takeover bid.
Deals beget deals
The Bristol-Myers/Celgene and Eli Lilly/Loxo deals have certainly generated plenty of buzz in the pharmaceutical industry, and analysts say the headline-grabbing deals — especially Celgene — could give rise to more. Analysts from HSBC Global Research said Bristol-Myers' big Celgene bet could drive some "like-for-like competitive M&A activity."
"The concern investors should have, however, is the 'madness of crowds': M&A deals can, however, be well intentioned ... and have a proliferating effect," HSBC wrote in a Jan. 4 note.
HSBC cautioned that the rush into massive deals would not be positive for the biotechnology sector but said more deals could be on the horizon with valuations even higher than the deal between Bristol-Myers and Celgene.
"Few companies need to spend $74 billion unless they face a growth issue," HSBC said, taking aim at Bristol-Myers' struggling cancer business that will be bolstered by the addition of Celgene's blood cancer franchise.