Shares of Celgene (CELG) are on the rise after the company announced that it has agreed to be acquired by Bristol-Myers Squibb (BMY) in a cash and stock transaction with an equity value of about $74B, or $102.43 a share. Commenting on the news, Piper Jaffray analyst Christopher Raymond told investors that the deal is a “big positive” for the sector and argued that Alexion Pharmaceuticals (ALXN) and Biogen (BIIB) would seem to make sense as potential targets among large-caps.
BRISTOL-MYERS TO BUY CELGENE: Bristol-Myers Squibb and Celgene announced that they have entered into a definitive merger agreement under which the former will acquire the latter in a cash and stock transaction with an equity value of approximately $74B. Under the terms of the agreement, Celgene shareholders will receive 1.0 Bristol-Myers Squibb share and $50 in cash for each share of Celgene. Celgene shareholders will also receive one tradeable Contingent Value Right for each share of Celgene, which will entitle the holder to receive a payment for the achievement of future regulatory milestones. The Boards of Directors of both companies have approved the combination. Based on the closing price of Bristol-Myers Squibb stock of $52.43 on January 2, 2019, the cash and stock consideration to be received by Celgene shareholders at closing is valued at $102.43 per Celgene share and one CVR. When completed, Bristol-Myers Squibb shareholders are expected to own approximately 69% of the company, and Celgene shareholders are expected to own approximately 31%. The combined company will have nine products with more than $1B in annual sales. Giovanni Caforio, Chairman and CEO of Bristol-Myers Squibb, will continue to serve as Chairman of the Board and CEO of the company when the transaction closes. Two members from Celgene’s Board will be added to the Board of Directors of Bristol-Myers Squibb. Bristol-Myers Squibb and Celgene expect to complete the transaction in the third quarter of 2019.
ALEXION, BIOGEN COULD BE NEXT: In a research note following the news, Piper Jaffray’s Raymond told investors that he remains “bullish on biotech” and that he views Celgene’s acquisition as a “big positive” for the sector. While he acknowledged that Celgene has its challenges with about 64% of its revenue facing generic entry beginning in 2022, he argued that “this is clearly positive” to the sector in that it reminds investors of upside potential in the space. When large-cap biotechs find themselves under duress, more often than not the exit is a take-out and the announced acquisition in light of Celgene’s recent history of clinical, regulatory, and operational setbacks and subsequent share price decline certainly fits this pattern, Raymond noted. The analyst believes the market is likely to ask “who’s next?” Among large-caps, Alexion Pharmaceuticals and Biogen would seem to make sense as potential targets, Raymond said, adding that BioMarin Pharmaceutical (BMRN) could also be a perennial takeout candidate as an immediate bolt-on rare disease business for any strategic buyer. While any small to mid cap could likely be seen as a take-out candidate, the analyst believes Aimmune Therapeutics (AIMT), Deciphera Pharmaceuticals (DCPH) and Rigel Pharmaceuticals (RIGL) in particular “could make sense to any strategic buyer” as all three have assets with clearly defined clinical profiles that could “fit nicely” within established commercial infrastructures.
CELGENE BUYOUT POSITIVE FOR FATE: In a research note of his own, Piper Jaffray analyst Edward Tenthoff told investors that he believes Bristol-Myers Squibb’s agreement to acquire Celgene is in part driven by the long-term potential of cellular therapies to treat cancer. As such, the analyst argued that the deal is a positive for Fate Therapeutics (FATE), which he noted is developing a pipeline of allogeneic and induced pluripotent stem cell natural killer and T-cell therapies. Fate is a potential acquisition target for its “rich cell therapy pipeline and platform,” Tenthoff contended, adding that it remains a top pick for 2019. He reiterated an Overweight rating and a $23 price target on Fate’s shares.
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