By Teresa Rivas
Celgene stock (ticker: CELG) is rising on Wednesday, on some positive drug data, and as at least one analyst thinks that a lack of an obvious suitor for Bristol-Myers Squibb (BMY) bolsters the case for the two companies to combine.
The Back Story. At the start of the year, Celgene and Bristol-Myers said they would merge in a $74 billion dollar deal, almost a year to the day after Celgene's Juno Therapeutics acquisition. Investors weren't thrilled the day of the announcement, sending Bristol lower, but for the most part it seemed like just the latest in a string of big pharma mergers. However, last month, activist investor Starboard Value announced it had taken a stake in Bristol-Myers and in a rare move, Wellington Management, Bristol-Myers' biggest institutional shareholder, came out publicly against the merger, a position that Starboard echoed. Many investors worried if the deal might fall apart, although analysts are still optimistic that it will.
What's New. Late Tuesday, Celgene said that the Food and Drug Administration had given drugs Abraxane and Tecentriq accelerated approval for certain breast cancer patients. Canaccord Genuity's John Newman writes that the news is a small victory for Celgene, but notes that the potential Bristol-Myers takeover means that investors aren't paying much attention to the fundamentals.
The FDA news came the same day that Bristol-Myers Chairman and CEO Giovanni Caforio spoke at an industry conference, seemingly dispelling the notion that the company had alternative offers. "This is not a defensive deal. We didn't do it because there was an offer on the table..." said Caforio, who went on to note that there weren't any recent advanced talks either about a takeover. "The few discussions and conversations that I've had in the past have all been had a very high level. There has been no discussion about economic terms. There has been no offer and I like to add more. There has been no discussion whatsoever since 2017."
Looking Ahead. Giovanni's commentary is a blow to those who oppose the Celgene deal. Part of the thesis against the combination is that a stand-alone Bristol-Myers could be more attractive as a takeover target itself, getting a higher price for shareholders. Yet the question remains as to who would want to buy Bristol-Myers, and the CEO seems to be saying that the company does not having anyone beating down its door.
Robert W. Baird's Brian Skorney reiterated an Outperform rating on Celgenewith a $101 price target, writing that Caforio's statements "should help reframe investor expectations as far as what other options Bristol-Myers could explore should the Celgene deal fall through." He argues that those "looking to blow up the [deal should] be careful what they wish for," especially as he thinks one could say that Bristol-Myers was a more attractive target back in 2017 than it is now.
Ultimately, he writes that "neither of these companies [is] a coveted prize, but both are better off together than apart." The idea that Bristol Myers is forgoing a great deal to buy Celgene doesn't seem to be based much in reality, he writes, and if the deal falls through, things could be messier than shareholders would like. "You may not like either option but do you pick the big black void just because the option on the table isn't what you would do if you were running things?"
Celgene is up up 1.3% to $86.75 in recent trading, while Bristol-Myers is up 0.8% to $50.79.