Amgen agreed to buy Celgene’s Otezla, a treatment for psoriasis and Behçet’s disease, for $13.4bn on Monday, allowing Bristol-Myers Squibb to push ahead with its mammoth $90bn takeover of Celgene.
The multibillion-dollar sale of Otezla is the latest in an industry that has seen a staggering amount of dealmaking this year, which kicked off in early January when Bristol-Myers Squibb agreed to buy Celgene. As part of that deal, Bristol and Celgene said they expected to divest assets to win regulatory approval.
“This agreement represents an important step toward completing our pending merger with Celgene,” said Giovanni Caforio, chairman and chief executive of Bristol-Myers.
Pharmaceutical and healthcare companies’ deal frenzy this year has been partly driven by the desire to sell non-core assets or buy innovative medicines as their own drugs are close to losing patent protection. Major pharmaceutical groups are focusing on becoming one of the top three players in whatever category they operate.
So far this year, more than $700bn worth of transactions have been agreed in the pharmaceutical and healthcare sector, according to Refinitiv, including AbbVie’s decision to buy the maker of Botox, Allergan, for $63bn; Pfizer’s sale of its off-patent drug business to Mylan for $9.5bn; and Roche’s $4.8bn takeover of gene therapy company Spark Therapeutics. Bristol-Myers’s acquisition of Celgene is the largest in the largest pharma deal so far this year.
Shares in Bristol-Myers Squibb jumped 4.2 per cent to $48.52 in morning trading in New York, while Amgen stock rose 2.2 per cent to $203.42.
Geoffrey Porges, an analyst at SVB Leerink, said the deal was positive for Bristol investors but “marginally negative” for Amgen shareholders, because the price is higher than expected.
He also questioned whether the Federal Trade Commission would approve the deal, given Amgen already has a significant presence in the same disease area. But Amgen said it feels “confident” that it is an appropriate buyer, with the key drugs complementary while not targeting overlapping patient populations.
Bristol-Myers also announced that it plans to buy back $7bn worth of shares, up from the previously planned $5bn share repurchase. The move follows strong business performance and encouraging clinical developments across the pipeline of its portfolios.
Under the terms of the agreement, Amgen will acquire Otezla and its related intellectual property, plus any other associated assets and liabilities. The deal will also affect Celgene employees who produce Otezla, who will transfer to Amgen.
The deal, which is expected to close by the end of 2019, will help Bristol-Myers deleverage and maintain its investment grade rating. The company took on billions of dollars of debt to finance its takeover of Celgene, with rating agency S&P Global on Monday saying it expected to downgrade the company’s credit rating one notch to single-A even with the sale of Otezla.
Amgen had $21.8bn in cash and investments at the end of the second quarter in 2019. Robert Bradway, Amgen chairman and chief executive, said the company was able to take advantage of an opportunity presented by industry consolidation.
“We have been patient with deploying our capital and I think this deal rewards that patience,” he said on a conference call.
Amgen believes acquiring the blockbuster drug will boost its cash flow and support its research and development plans. The California-based biotech company has seen early success with a drug candidate that might be able to treat the previously “undruggable” cancer gene mutation KRAS. But it needs to invest in much larger scale trials for the AMG510 candidate.
Otezla had sales in 2018 of $1.6bn, and Amgen forecasts at least low double-digit average sales growth over the next five years. Amgen said the drug would be immediately accretive to its adjusted earnings per share from the close of the deal. The company expects to maintain its investment grade credit rating.
The drug is approved for three different kinds of inflammatory diseases in the US and has intellectual property exclusivity until at least 2028 in the US, Amgen said. But Mr Porges said investors are likely to be “sceptical” that its patent protection could last for that long.
The acquisition should also help Amgen with its international expansion plans, as it is approved in more than 50 markets outside the US but launched in only 32 of them.
Amgen already has a significant drug in the inflammatory category — Enbrel — which it says is complementary to Otezla. Amgen is also selling Amgevita, a biosimilar version of the anti-inflammatory drug Humira, in Europe.