Biotech shockwaves follow BMS’s $74 billion Celgene buyout

An oncology behemoth is born but small biotechs lose an active acquirer and alliance maker
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Bristol-Myers Squibb (BMS) said on 3 January that it will acquire fellow cancer specialist Celgene in a $74 billion cash and stock blockbuster buyout. The deal creates an oncology-focused drug giant with nine blockbuster products, including BMS’s anti-PD-1 antibody Opdivo (nivolumab) and Celgene’s blood cancer juggernaut Revlimid (lenalidomide) that bring in more than $1 billion in annual sales. The transaction bolsters BMS’s late-stage immuno-oncology pipeline and makes BMS a player in chimeric antigen receptor-T-cell (CAR-T) therapies, but also removes a prolific partner from the biopharma ecosystem. Whatever else the consequences of BMS’s acquisition, a large and Celgene-shaped hole has now appeared in the biopharma business development buyside.

Celgene's headquarters in Summit, New Jersey.(Credit: Celgene)

The acquisition is one of the biopharma industry’s largest ever. With Tokyo-based Takeda’s $62 billion acquisition of Dublin-based Shire that closed last December, it reflects a kind of large-scale, high-value biotech industry consolidation that has not been seen since Roche’s landmark acquisition of Genentech almost a decade ago (Nat. Biotechnol. 26, 955–956, 2008). The initial deal value, a 54% premium as based on Celgene’s share price at the time, has been dented somewhat by the market’s reaction, which saw BMS shares fall by >10% in the first two days after the deal announcement. Once the merger is complete, which BMS anticipates will happen in the third quarter of 2019, BMS shareholders will hold ~69% of the new company and Celgene shareholders will own 31%.

Speculation about large-scale mergers and acquisitions has followed large biotechs in general and Celgene in particular as its market valuation shrunk throughout 2018. The big biotech’s share price fell 39% during the year as it was dogged by concerns about the patent life of its lucrative multiple myeloma treatment Revlimid, which is on track to earn $10 billion in 2018. Celgene was further stung by a surprising regulatory setback when the US Food and Drug Administration declined to review its new drug application for ozanimod, a sphingosine 1-phosphate receptor modulator, in relapsing-remitting multiple sclerosis.

Both companies combined should, however, be better placed to withstand mounting pressures on their individual assets. “These companies need each other,” says Ernst & Young analyst Andrew Forman. The merger will likely soften the impacts from patent expiries and regulatory hiccups, not to mention competitive pressures. “Revlimid is at risk, and Opdivo is under pressure” from Merck’s competing Keytruda (pembrolizumab) and other PD-1 drugs, adds Forman. BMS also anticipates six new product launches in the next two year, which could represent “$15 billion in revenue potential,” according to BMS CEO Giovanni Caforio, an estimate Baird analyst Brian Skorney called “a bit of an oversell.” Notably, five of these assets are Celgene’s, all procured through smaller company acquisitions and collaborations: JCAR17, an anti-CD19 CAR-T for various leukemia and lymphoma indications from Juno Therapeutics; bb2121, an anti-B-cell maturation antigen (BCMA) CAR-T for multiple myeloma from partner Bluebird Bio; luspatercept, a red blood cell maturation agent for hematological indications from partner Acceleron Pharma; fedratinib, a JAK2 kinase inhibitor for myelofibrosis and polycythemia vera via the acquisition of Impact Biosciences; and ozanimod via the acquisition of Receptos Therapeutics.

Celgene has indeed been a prolific spender. Since the beginning of 2014, it has paid at least $18.5 billion in up-front acquisition fees across six deals. It has also inked at least 30 partnerships during that timeframe, worth a cumulative $4.3 billion up front to biotechs. These partnerships include one with BeiGene, based in Beijing, for $413 million in cash (Nat. Biotechnol. 36, 8–9, 2018) and another with Dublin-based Prothena for $150 million up front. The BeiGene deal, around the Chinese biotech’s PD-1 inhibitor tislelizumab, will almost certainly need to be unwound or jettisoned for the BMS acquisition to pass regulatory muster. The Prothena deal, which includes three assets in the neurodegeneration space, may fall outside BMS’s areas of interest.

For BMS, the merger brings the potential for savings, and the company anticipates annual cost savings could reach $2.5 billion by 2022, with $900 million in so-called synergies in R&D alone. The quickest way to that savings target is from reducing the companies’ bricks-and-mortar infrastructure, says John LaMattina, a director at PureTech Health and a former senior Pfizer executive who oversaw R&D for the pharma giant during two mergers. But it’s very likely that some early-stage internal R&D programs and partnered programs from both BMS and Celgene won’t survive the merger, he says. It will be months before the dust settles. The strategic portfolio review that will determine which programs are wound down or spun off can’t take place until the organizational structure and management roles have been defined, and each company is likely to remain somewhat secretive about their R&D programs until the deal officially closes, which is expected sometime in the summer.

Meanwhile, he says, most deal making will go on hold and R&D executives and staffers at both companies are likely to dust off their CVs. Any closure of sites or the reduction in early-stage programs will likely mean layoffs. It may also enable a burst of entrepreneurship as assets that don’t make the cut attract outside capital (Nat. Biotechnol. 30, 569–570, 2012). After a deal of this size, “you’ve got turmoil in R&D, and it’s going to last for a while,” says LaMattina.

doi: 10.1038/d41587-019-00004-9
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