From Mizuho....analyst Salim Syed....
BMY's Incentive is Not to Say if the FTC REQUIRED
It to Divest Otezla
Last week, BMY announced that the FTC expressed concern regarding the
BMY/CELG merger, and to pacify these concerns BMY is planning to divest
Otezla (CELG's marketed drug for psoriasis; the other presumable option
here would have been to divest BMY's pipeline psoriasis drug, TYK2). We
spoke with both BMY and CELG, and both companies communicated that
the FTC typically prefers divestiture of the marketed product, however,
stopped shy of saying that the FTC actually required it.
No requirement to divest the marketed product specifically would imply that
BMY has the choice. It can either divest the marketed Otezla or pipeline TYK-2.
However, neither company has stated explicitly that the option is indeed
there, only leaving investors to guess. And to make matters murkier, ABBV
came out the very next day announcing its plans to buy AGN, and in the process
confirmed the reverse action -- to divest AGN's pipeline IL-23, brazikumab,
instead of ABBV's marketed IL-23, Skyrizi (risankizumab).
So the question is why can't BMY just say whether the FTC has required it
to divest Otezla or has given it the choice to divest either Otezla or TYK-2?
To the risk-arb community, this is an important question because it would
shine light on what many deem is a newly charged FTC, which seemingly has
been taking a closer look at biopharma deals (e.g. Roche/Spark, BMY/CELG,
ABBV/AGN). And who wouldn't like to have the inside scoop on the FTC's
mindset? There's read-across to how the FTC may look at other announced, yet-
to-be closed transactions and any future deals, as some street observers have
expressed they expect to see more.
We suspect BMY's incentive lies in its willingness to extract as much value
as possible from an Otezla sale. The reality is TYK-2 is seemingly a much
better drug, an oral pill (like Otezla) with biologic-like efficacy. And if BMY
were to communicate the clear message that it has the choice to either sell
Otezla or TYK-2, any potential buyer would simply perceive an Otezla
acquisition as a case of receiving the leftovers, thereby lowering BMY's
leverage at the negotiation table.