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Msg  598 of 750  at  6/26/2019 6:15:06 AM  by


Negative surprise from Otezla divestiture

From UBS....
Bristol-Myers Squibb
Negative surprise from Otezla divestiture

Otezla divestiture neutral on valuation but slightly worrisome strategically
BMY had 2 negative news today – 1) Divesting CELG's Otezla given FTC concerns, 2)
Opdivo failed in 1L HCC. BMY plans to use proceeds from Otezla divestiture (we
estimate NPV of $10.5B or 5x '20 sales) to de-lever faster. We estimate Otezla
divestiture is neutral on valuation but there will be a modest increase in accretion in '20
due to faster de-leveraging. But, we are somewhat concerned as part of the rationale
of the deal was synergistic potential of Otezla+TYK2 portfolio in the competitive
psoriasis market that could have provided leverage from a payor and operating
standpoint. We had only $200M built in for Opdivo in 1L HCC, thus impact for CM-459
is modest. We expect the stock to underperform by 3-4% on back of Otezla news
which is not surprising to us given delayed closing & small negative implication to deal

BMY divesting Celgene's Otezla in light of FTC concerns
In a surprising move, BMY is planning to divest Celgene's Otezla (oral psoriasis drug).
Note BMY has its own oral psoriasis drug, TKY2, in P-3 (data in '20), which BMY plans
to continue developing in psoriasis & other autoimmune diseases. The news is
surprising given competition in Psoriasis space suggests limited market share concerns
(we estimate Otezla share of 10%), furthermore TYK2 & Otezla have different
mechanisms of action and TYK-2 is in development (i.e. risk there). Thus divestiture
either suggests a change at FTC or a dynamic we do not fully understand. BMY now
expects to close CELG transaction YE'19/YB'20 (prior Q3'19).

Otezla divestiture may be worth $10.5B – slight diminution of deal strategy
Using consensus est., we estimate NPV of Otezla to be ~$10.5B or 5x on '20 Cons. of
$2.1B. BMY will use the proceeds of Otezla sales to de-lever faster. Overall impact on
BMY valuation is neutral & our EPS for '20/'21/'22 is tweaked by +2%/0%/0%.
However, Otezla was a good beachhead into PsO landscape as BMY prepared for TYK2
launch. BMY specifically highlighted operational leverage between the two, thus the
Otezla divestiture is somewhat negative to the deal strategy.

Valuation: $51/sh based on P/E valuation of NewCo (BMY+CELG)
P/E valuation assumes 6.5x on our '24E NewCo EPS of $10.21 discounted back to '20

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