Bristol Myers's $13 Billion Deal Is Hearty Indeed
(Bloomberg Opinion) -- Covid-19 is a major focus of health care these days, but the biggest pharmaceutical companies always seem to have time for M&A. On Monday, Bristol Myers Squibb & Co. said that it was buying heart-drug developer MyoKardia Inc. for $13.1 billion, the second decent-sized deal for the industry inside a month after Gilead Sciences Inc.’s announced $21 billion takeover of cancer-focused Immunomedics Inc. The rationale for both transactions is diversification, and in the latest case, it looks like a smart bet.
Buying MyoKardia helps Bristol Myers address a serious problem: its heavy reliance on cancer drugs with uncertain futures. MyoKardia's lead medicine mavacamten, which produced promising results earlier this year in patients with a risky heart condition called hypertrophic cardiomyopathy, immediately becomes one of Bristol Myers’s most promising alternatives.
Diversifying beyond cancer drugs may be smart in more ways than one. While a 61% premium and the total price tag certainly aren't cheap, both are a lot less than what viral specialist Gilead paid for its diversification play. With others in the industry focusing on cancer, MyoKardia may prove a relative bargain.
Revlimid, the blockbuster blood cancer drug Bristol Myers acquired in the $74 billion purchase of Celgene in 2019, will face generic competition starting in 2022, and Bristol Myers’s once market-leading immune-boosting cancer therapy Opdivo will have to pick up much of the slack. It’s a risky medicine to rely on; Merck & Co.’s blockbuster Keytruda leads in several key areas after trial flubs for Bristol Myers, and a half dozen medicines in the same category are fighting for market share. And while Bristol-Myers does have other pipeline assets, both internally developed and acquired from Celgene, Revlimid’s decline will leave a big enough gap that it is prudent to add additional options.
It helps that Bristol Myers knows the heart market well — it sells the blockbuster blood-thinner Eliquis with Pfizer Inc. That may help it get the most out of MyoKardia’s lead medicine. The drug could get Food and Drug Administration approval as soon as next year, with analysts projecting potential peak sales above $2 billion. It would be the first drug specifically aimed at hypertrophic cardiomyopathy, which gives it a comparatively clear shot at regulatory and commercial success in a potentially significant market. There’s also the possibility of further upside from the drug’s possible use treating patients with other conditions.
Bristol Myers is undoubtedly paying for this promise. But the asset hasn’t been bid up nearly as much as cancer companies such as Immunomedics, which commanded a more than 100% premium from Gilead. The second-biggest cancer deal of the year, Gilead’s $4.9 billion purchase of Forty-Seven Inc., required a 96% premium.
Cancer crowding, driven in large part by high pricing power, doesn’t just manifest in deal prices. Trodelvy, the drug Gilead purchased from Immunomedics, will have to battle with both existing drugs that treat breast cancer and a promising direct rival under development from AstraZeneca Plc. Bristol Myers is intimately familiar with this dynamic through both Opdivo’s struggles and preparations for heavily competitive launches of several other cancer drugs in the years to come. Hard-won experience may have persuaded the company to buy into an area with a bit more breathing room.
The deal comes with plenty of risks, and MyoKardia’s drug has to meet high expectations for the investment to pay off. The sizable purchase also comes as Bristol Myers is still managing the hefty debt pile accumulated from its even bigger acquisition of Celgene, which is still being integrated. At the end of the day, though, the potential reward seems worth the risk. This may be both the right moment and right asset to diversify Bristol Myers’s business.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
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