Bristol-Myers looms as Pharma’s next megadeal as activists join

Bloomberg

Bristol-Myers Squibb Co. was once one of the drug industry’s highest-flying companies. Now the pharmaceutical giant has gone from predator to prey, as its sagging stock price has invited in activist investors who are already forcing changes.
It announced an agreement with Jana Partners LLC to add three board members, and later in the day activist investor Carl Icahn was reported to have taken a stake and sees the drugmaker as potentially ripe for a takeover. Potential buyers could include Pfizer Inc., Gilead Sciences Inc. and Novartis AG, all of which have
an interest in cancer and have money to spend.
“I think everybody is looking at Bristol,” Allergan Plc CEO Brent Saunders said in an interview at Bloomberg headquarters in New York on Wednesday. Saunders said it would be a “very, very high hurdle” for a company like Allergan to do such a deal, but for any CEO, “you’re going to at least take five minutes to think about it.”
Bristol-Myers was itself once one of the drug industry’s major acquirers, snapping up pipeline assets in what it referred to as its “string of pearls” strategy. Those deals landed it the drug Opdivo, which used the immune system to attack cancers and got remarkable results in once-fatal diseases like advanced melanoma. More recently, though, it’s lost ground to rivals like Merck & Co., which has a similar drug, Keytruda, that has taken the lead in some oncology markets.

TEMPTING TARGET
Bristol-Myers is still a tempting target. “If you believe in the immuno-oncology franchise, then it’s obviously an attractive asset because there’s not many ways to get into this space,” said David Heupel, a senior health-care analyst at Thrivent Financial.
A takeover of Bristol-Myers would be one of the industry’s largest ever. It commands a market valuation of about $92.6 billion, compared with almost $130 billion in July. That’s big, but not too big for some of the drug giants.
While Pfizer has a partnership with Germany’s Merck KGaA in immune-system-based cancer drugs, it’s well behind Bristol-Myers and Merck. Novartis, another player in oncology, could raise the cash to do a deal through asset sales and debt. Gilead has amassed billions of dollars from sales of its hepatitis C drugs and is looking for its next move.
Spokesmen for Pfizer, Bristol-Myers and Gilead all declined to comment. A Pfizer deal for Bristol-Myers would make sense “if they feel like they needed to make a move and become a very relevant player in immuno-oncology,” said Thrivent’s Heupel. His fund owns shares of both.

POTENTIAL BUYERS
Novartis, meanwhile, may have money to spend. The Swiss drugmaker said last month it’s weighing options including a spinoff or IPO for its Alcon eye-care unit, which could generate as much as $20 billion, according to Bloomberg Intelligence. It also has a stake in Roche AG that could be worth another $13 billion, and could raise the rest via debt and by offering stock in a deal. Gilead needs to make up for its fading blockbuster hepatitis C franchise, which brought in $14.8 billion last year but is capturing fewer patients. Chief Executive Officer John Milligan has said he’s anxious to do deals in areas including cancer. In January, Gilead hired Novartis’ former head of global oncology development, Alessandro Riva, to oversee its efforts in oncology and hematology.
The company has a “nascent oncology platform, but what I don’t yet see is a drug that we can rally around,” Milligan said in a May interview.

CARL ICAHN
Icahn’s stake in Bristol-Myers was reported by the Wall Street Journal on Tuesday, and he sees the drugmaker
as a potential acquisition target, the Journal said, citing people familiar with the matter.
The investor has a history of taking positions in companies and then working to force a sale. Worth about $20 billion, according to the Bloomberg Billionaires Index, Icahn primarily invests his own fortune. He endorsed Saunders becoming CEO of Forest Laboratories Inc., one of his first CEO jobs, after taking a position in Forest.
“Carl is a very smart, thoughtful investor. I have to believe that he looks at Bristol-Myers and the industry and he’s saying, ‘Great company, great pipeline and an industry that should potentially consolidate.’ So that’s a formula that Carl tends to like,” Saunders said. Spokesmen for Icahn didn’t respond to requests for comment.
Another factor that could accelerate pharma merger and acquisition activity is US tax reform. US drugmakers have tens of billions of dollars in profits held overseas in lower-tax jurisdictions, and there has been discussion about a tax holiday to let the money come back at a lower rate.
While tax reform won’t drive the company’s strategy, Pfizer CEO Ian Read said on a call last month with
analysts, it could help. “Some deals that previously would not have be-
en affordable may now be affordable,”
Read said.