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Management Changes Intended to Boost Bristol-Myers Squibb After Celgene Deal

- By Barry Cohen

After Bristol-Myers Squibb's (BMY) $74 billion acquisition of Celgene Corp. (CELG) closes, the company is making some big changes at the top. Shareholders are keeping their fingers crossed that the union and the management shake-up will be just what the company needs to boost its shares.

Owners of the stock might be more concerned, though, that the company moves are just more window dressing. They have good reason to be skeptical. They've heard the promises before and, poof, nothing's rewarded their faith. At just more than $46, Bristol-Myers' share price has sunk to the lowest it has been in the past five years. Although the ARCA Pharmaceutical Index has been anything but gangbusters during the same period--up only about 14%--that's still better than Bristol-Myers' 2% dip.


Obviously, the company had to do something. But there are still doubters that the Celgene buyout was the right move.

One executive being shown the door is Thomas Lynch, chief scientific officer. When he assumed the role two years ago, Lynch said the company was "uniquely positioned to transform cancer care," according to an early June article in FiercePharma. Bristol-Myers may still be, but it's now up to Novartis (NVS) veteran Samit Hirawat, M.D., to achieve the goal. He's been given the title chief medical officer of global drug development. Some were surprised that a Celgene executive wasn't tapped for the assignment.

Celgene CEO Mark Alles didn't make the cut, but he'll walk away with a severance bonanza and is highly likely to land another job in the industry. Celgene Cheif Financial Officer David Elkins will assume the same role at Bristol, succeeding Charlie Bancroft, who'll be in charge of meshing the two companies before he retires next year. And Celgene's Nadim Ahmed will head up the hematology business.

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About three of every four shareholders voted to approve the Celgene acquisition. But some of the company's largest investors were against the deal. They included Starboard Value, Wellington Management and Dodge & Cox.

Starboard was concerned that when Celgene's blockbuster cancer drug Revlimid loses patent protection in the coming years, sales will take a big hit. Last year, the drug brought in nearly $10 billion. A generic version of the medication is already on the market in Europe, but recent developments make it look as though Revlimid still has plenty of life left in it. The Food and Drug Administration recently approved a combination of the drug with Roche's (RHHBY) Rituxan, which could boost sales by $600 million.

Bristol has long been rumored to be a takeover candidate, and that was another reason Starboard didn't like the acquisition. After the purchase, Bristol-Myers seems much too big for another member of big pharma to swallow.

There are a number of reasons for investors to be optimistic about Bristol-Myers' prospects. The company told FiercePharma that the combined companies could have up to six drug launches, five coming from Celgene, that could generate sales of $15 billion. And adding Celgene will strengthen Bristol's leadership across its entire line of products, including those for cancer, immunology, inflammation and cardiovascular.

Disclosure: The author has a position in Bristol-Myers Squibb.

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This article first appeared on GuruFocus.