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Bristol-Myers Squibb and Celgene

So our big biopharma news this morning is Bristol-Myers Squibb buying Celgene, for $74 billion. I don’t think anyone saw this particular combination coming, so congratulations to those involved for running a tight ship. It looks at first glance like Celgene shareholders are getting a pretty good deal out of the offer, and I would expect no particular problems having it go through. If I were holding Celgene stock I’d probably jump at the chance – it was at nearly $150/share in the fall of 2017, and closed yesterday at $66. They’ve had some oddly painful (and quite possibly avoidable) failures, and Bristol-Myers Squibb has picked a good time to pick up their assets. This will produce a rather large oncology portfolio, which is surely why BMS has suddenly decided to do a big deal after years of eschewing them.

Wikipedia helpfully has a page on the largest M&A deals in pharma over the years, with the nominal values and the inflation-adjusted ones. So this deal is a big one, a bit smaller than Pfizer/Wyeth and a bit larger than Bayer/Monsanto and Takeda/Shire. In case you’re wondering, the 1999 Pfizer/Warner-Lambert deal is still at the top of the inflation-adjusted standings, followed by the 2000 Glaxo-Wellcome/SmithKline merger. 1999-2009 was, in retrospect, perhaps the heroic age of pharma mergers, but that’s mostly due to Pfizer (who have three of the five more expensive deals on the list, all during that period). The BMS/Celgene takeover will be the largest of its kind since that period, actually.

As usual, I don’t have a lot of good things to say about these moves. I understand that they can be necessary (or at least seem necessary) from a business and strategic standpoint. But both Bristol-Myers Squibb and Celgene have a lot of interesting things going on, even with some of Celgene’s apparent boneheadedness, and this deal is just going to slow all of them down for some time to come. There never was a pharma M&A deal that didn’t dump a bucket of sand into the gears. And looking at the details of the proposed takeover, Lisa Jarvis notes that there’s $2.5 billion of “synergy” in the deal – that is, stuff that will be cut – and 35% of that is listed under R&D. If there’s anyone at Celgene who’s wondering, wonder no more: the majority of those savings are surely going to be extracted from your organization. I cannot recall a pharma takeover where this has not been the case. The stick always has a short end, and the organization being bought always gets it. Counterexamples welcome, but are there any? Update: see the comments!

Given that BMS is locked in immuno-oncology competition with Merck, there’s some useful history to look at. When Merck bought Schering-Plough (longtime cynical observers will recall that the deal was structured to make it look like it was the other way around), the antibody program that became Keytruda was hardly even mentioned. Schering-Plough had picked it up when they bought Organon, and it was no priority in that deal, either. It was, in fact, results from Bristol-Myers Squibb (and what became Opdivo) that seems to have prompted Merck to revive the program, which was (as that last link mentions) on the “see if anyone wants to buy this stuff” list. But look at what happened to Schering-Plough, particularly their R&D organization. Several rounds of cuts, in about 80/20 ratios of S-P/Merck people let go, cleared most everyone out. And that’s how it generally goes.

So, Celgene shareholders: happy (or they should be). Bristol-Myers Squibb shareholders: remains to be seen, but I’m sure they’ll go along. BMS scientists: rather unhappy (disruptions and general turmoil for some time to come). Celgene scientists: quite unhappy indeed, I would think, for the reasons given above. And you know who else is unhappy? Lots of small biopharma outfits and the the people who are funding them. Celgene has been an active dealmaker over the last few years, and would seem to have spent a good deal more money than they should have for what they’ve gotten. That trait will be missed, frankly, by the people on whom such money gets showered, and who could blame them?

53 comments on “Bristol-Myers Squibb and Celgene”

  1. someone says:

    You said “The stick always has a short end, and the organization being bought always gets it. Counterexamples welcome, but are there any?”

    I think actually Bayer is getting the very short and very pointy end of the Bayer/Monsanto merger, no?

    1. Derek Lowe says:

      That one’s a bit of a special case, since it’s not two pharma organizations going head-to-head, I think. But yeah.

  2. pv=nrt says:

    Does this delay the long rumored Pfizer take over of BMS?

    Pfizer will have a large amount of money from the proceeds of the sale of consumer to GSK, right in Q3, but would that be enough to buy this new gargantuan?

    1. Calvin says:

      @pv=nrt
      The GSK-Pfizer Consumer deal is a JV and involves no money or even stock changing hands. So Pfizer will get nothing from that until the JV is spun-off/sold/demerged/whatever in about 3 years time. So if Pfizer wants to buy something, the GSK Consumer deal will not be a source of cash any time soon

  3. NHR_GUY says:

    Wow!! I was surprised when looking over that Wikipedia list of M&A’s. I have been in research x years and was involved with 1,5,7 and 12 on either side of the deal (buyer or seller). It’s much better to be on the buying side, short term. Eventually the sword Damocles falls on us all though. After so much disruption in my research career I finally got wise and left that side of the business. Happy to be out of med-chem.

    1. AZ bizness says:

      former AZ executive: “Ask not what your company can do for you, ask what you can do for ze bizness.”

      While the short-term objectives of mergers like this are clear, the longer-term benefits are much less so, if they are ever much of a consideration compared to the immediacy of the bottom line ($).

      1. Hap says:

        If the company is the point of business actions, then mergers are generally bad, but for lots of the people involved (and all who have a say), they’re not. If being bad for the company in the long term isn’t enough to stop mergers, then obviously the good of the company of its long-term value has not much to do with them.

        The problem is that saying “Because I’m rich, and in charge, and you’re not, and so the company should be the piggy bank for me and my friends” might get them smacked, as it should.

      2. Anonymous says:

        When major M&As occur, the lawyers and bankers always win.
        When major M&As fail to complete, the lawyers and bankers always win.
        When completed M&As have to shed assets and break up, the lawyers and bankers always win.

    2. John Adams says:

      Brilliant and insightful, bravo:
      ” Eventually the sword Damocles falls on us all though. “

      1. anon says:

        Not to mention timely, considering the comment was made on Cicero’s birthday (3 January).

    3. Bikeboy911 says:

      Just curious, where did you end up?

  4. anon says:

    BMS is simply paying too much for Celgene. I hope they do not get dejavued again, like the amount they paid for Dupont of Dupont-Merck combine!

    1. Emjeff says:

      Of course they are – they paid too much for DuPont Pharma back in 2000, although 19 years later, with Eliquis approved (a new and valuable anticoagulant) that was a good deal. But back then, you could not have known that DuPont was going to produce Eliquis – and it didn’t matter, because that’s not why BMS bought DuPont. At the time, BMS was sitting on a mound of cash after the sale of Elizabeth Arden, and they were afraid of a take-over. So, they dumped some cash to acquire DuPont to make themselves less attractive. I am willing to bet the same thing is going on here.

      1. Derek Lowe says:

        There have been persistent rumors of Pfizer being interested in BMS, which this should make much harder and/or less attractive. But it’s hard to say if these rumors are real or just wishful thinking on the part of the M&A people who would love to be part of such a deal.

        1. anonymous ex-DuPont Pharma says:

          When BMS bought DuPont Pharma (prev DuPont-Merck), a lot of the senior management from DuPont Pharma took over leadership positions at BMS and they are still there today. A lot of BMS researchers left at that time too for other companies, so we’ll have to see when the dust settles how the organization will look like. Celgene has recently absorbed top researchers from Merck, and I don’t see them leaving the organization without any say.

  5. Survivor says:

    I’ve been through two on the Wikipedia list, which was more than enough. I used to work with a guy who had been through 4 of the big ones, without ever so much as having to move to a new desk.

  6. Howard Li says:

    When Roche bought Genentech, it was Roche R&D which got the short end, right?

    1. Derek Lowe says:

      Now that is indeed a counterexample, I have to admit!

      1. Bruce Grant says:

        The Genentech/Roche reversal of fortune was intentional. Hoffmann-LaRoche wanted its US subsidiary to, in effect, be Genentech, and Pascal Soriot was dispatched to the US with instructions to “castrate Nutley.”

        1. Derek Lowe says:

          That’s pretty much how I understood it as well. A rather dramatic and unusual situation!

          1. Stanislav Radl says:

            In 1992-1993 I was at HLR in Nutley as a Visiting Scientist and my boss tried to discourage me from return to Prague. His main argument was that HLR invested so much in its new Research Centre that the positions in Nutley are unshaken and very perspective. And several years after this most of my colleagues were gone after the Syntex aquisition.

          2. Annonned says:

            I know of one visiting chemist at Roche Nutley who was persuaded to turn down a good university research position and stayed at Roche. They were laid-off about a year later.

          3. loupgarous says:

            Which may explain, while I worked at Roche UK during their merger with Syntex, word started going out in the hallways (which is how I learned it) that (a) Roche was buying Syntex and (b) it would be a firing offense if this got out (even to mere contract coders such as me). The British always seemed to me to be more tight-lipped than that, especially with inside information that had obvious value to players in the Market.

            A guy I worked with at Roche UK wound up in New Jersey, at Schering-Plough the very next year.

          4. Iatrochem says:

            Stanislav Radl- did you work with Uskokovic

  7. Wile E. Coyote, Genius says:

    The wikipedia list was helpful. I’ve heard others discuss how Pfizer is a huge destroyer of value. Take the inflation unadjusted numbers of their Wyeth, Warner-Lambert, and Pharmacia acquisitions: 111.8 + 68 + 64.3 = 244.1 Billion. Pfizer’s current market cap as listed on Yahoo Finance with their current stock value is 245 billion. It appears that after all those acquistions, Pfizer was only worth $1 Billion to start with. But if you do the inflation adjusted numbers: 168 + 79 + 90 = $337 Billion. Pfizer has lost a lot of value for the investor with these big deals. I would hope that these would be educational case studies, but apparently, no one has learned from this.

    1. Hap says:

      Someone claimed earlier that CEO pay correlates well with company size, so they have an incentive to merge. Short-term stockholders don’t care if the combined company does well, because they won’t be there when it would fail, and the shareholders of the company that is bought won’t be there in any case unless they choose to buy or are issued stock in the combination. Mergers also seem to reduce competition, so the combined company is better off than the two previous (if the FTC lets it through), but that should show up in stock value someday.

      There’s an awful lot of reasons to merge, and the people who do mergers don’t have to deal with the consequences (or don’t care), which is a recipe for misbehavior. The people who learn the lessons and pay the price have no say in the merging – two wolves and a sheep voting on the menu.

  8. When Wyeth bought out Genetics Institute, the front office soon became populated with ex-GI folks — not sure if the pipeline worked out that way also

    1. Kling says:

      Yes the GI managers at Wyeth were only temporary. Within 2 years many of those people were out and reverted back to Wyeth culture

  9. Arbitrageur says:

    Given that the deal values Celgene at $102.43 a share, why is the stock only trading at ~$83?

    1. PanamanianStrongman says:

      I’ll venture that since a portion of the purchase is in BMS stock, which is down 13% as I type this, the actual cash value of the transaction is expected to be short of $102. But then I’m no Wall Street wiz either, so maybe there is something else.

    2. woodland2004 says:

      It’s because of EMH (Market is efficient). Market price is $102 Minus (negative factors). Negative factors include the possibility of the deal is stopped by DOJ and/or shareholders. And WSJ and Bloomberg are recommending the shareholder of CELG should cash out NOW and run away, which keeps decreasing the value even more. In addition, the entire stock market is down 3% today.

    3. sgcox says:

      According to CNBC article, “Under the agreement, Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each Celgene share held”
      So $102 came from $52 BMS share price before the announcement. Now it is $45 so in total $95. Market probably thinks it will drop by another $12 before the deal is complete.

  10. anon says:

    When AZ bought Medimmune and CAT in 2006/2007, it fused the two small companies but otherwise left their structure alone, to in essence act as AZ’s stand-alone biologics division. Through some administrative functions are under AZ, and marketing as well, the research structures are still independent. I know it’s small fry compared to the mega-mergers, but in that case the acquisition didn’t lead to too much pain in the acquired companies – probably because there weren’t that much ‘synergy’ in research between the small molecule AZ and biologics Medi.

    1. zero says:

      I’ve been through a successful merger in software and that’s pretty much how it played out. Half the sales staff on each side were cut, the remainder crosstrained and covered all territories among them. The buyer’s VP of sales retired, but the rest of management stayed in place. That was the only genuine redundancy, so everyone else was left alone.

      The two dev teams merged over the course of about five years while developing a new product based on the features of their previously competing products. Support and QA much the same; initially very siloed but over time crosstraining and new hires blended the two corporate cultures into one entity.

      I can’t imagine how two R&D teams could merge in less than two years, and anything less than five seems unlikely. Cooperate by divvying up projects, sure, day one stuff, but truly merging into one culture takes time and effort.
      I don’t see how the giants in the industry ever manage to digest their purchases, which means they must be a loose accretion of former-company lumps that do things differently at any given site. (Or maybe they just use hyperaggressive attrition to quickly dump and rebuild their workforce.)

    2. terry says:

      There was a lot of pain in Wilmington. Maybe you missed it!

  11. Iatrochem says:

    when Roche bought Syntex- Roche took the hits
    when Roche rebought Genetech- Roche took the hits
    when Roche bought Boehringer Mannheim- Roche took the hits

    1. Malaimo says:

      Valid points about Roche. But I do think you’re mixing up Boehringer Ingelheim and Mannheim Steamroller. 🙂

      1. NEIL says:

        Roche purchased Mannheim, largely diagnostics. Ingelheim remains a stand alone family business (my current employer).

    2. anon3 says:

      On a much much smaller scale, GSK bought Sirtrus by freeing up their internal R&D budget and then keeping Sirtrus as an untouched stand alone unit. There’s probably many similar stories, of companies trying to not ‘ruin’ a shiny new purchase.

      1. a says:

        Good point.

        However, all of the sirtris principals were then so distracted by their bulging wallets that they could no longer focus on ginning up preclinical data to sell to academics with no business experience. So sirtris did fall apart as a result of the aquisition, just for really awesome reasons.

      2. Emjeff says:

        Sirtris is a bad example – it was a pig in a poke, a huge, risky prop bet that did not pay out, mostly for lack of any data.

    3. 10 Fingers says:

      Don’t think that is quite correct regarding Syntex, but others feel free to weigh in. From my uncertain memory: at its peak (1993, I believe – the year before the takeover) Syntex was around 11,000 (larger than Lilly, at the time, I recall). There were layoffs that year, bringing it down to perhaps around 9,000. When Roche finished flushing the site, selling off Syva, etc., I believe the number remaining was around 1,900.

      I remember running the numbers with some friends and realizing that the deal had paid for itself cleanly in 18 months. My first experience with the brilliant amorality and financial acumen of the Roche business types. The second was when they bought Genentech (the first time, through “the call”), then spun them out again with roughly the same percentage ownership (but with rewritten governance) and made $4 Billion.

      1. Iatrochem says:

        when Roche bought Syntex, Roche had to offer the same payout to their employees as did Syntex. Fritz Gerber was not happy as Syntex gave 4wk severance per year. Never again said Gerber.

  12. Omar Comin' Yo says:

    A good analysis of what happens to innovation after mergers can be found here:

    https://www.linkedin.com/pulse/mergers-invention-one-example-john-proudfoot/

    BMS and Celgene folks, hopefully, you will get a nice exit package. Good luck!

  13. Anonymous Chemist says:

    I would argue that Millennium did not get the short end of the stick now that they’ve been fully integrated into Takeda for a few years now. There’s a reason the R&D HQ and vaccines business unit were both moved to the legacy Millennium site in Cambridge. There’s also a reason Takeda’s former US HQ in Deerfield is being shut down and also moving to Cambridge. In many ways it’s been the integration of Takeda into Millennium, especially from a cultural perspective.

    1. An Old Chemist says:

      In 2002, Millennium pharmaceuticals bought COR Therapeutics of South Sn Francisco for their now billion dollar anti-platelet GP-IIb/IIIa inhibitor, eptifibatide. After one year, they closed down the COR therapeutics site altogether. A few years before this, Millennium had done the same to another company where Julian Adams discovered Velcade, another billion dollar drug for MM (mutiple myloma).

      1. Anonymous Chemist says:

        All correct. ProScript is where Velcade came from. PS-341. Really wish Takeda kept the Millennium brand alive like Roche has done with Genentech, but alas.

      2. Anonymous says:

        Adams was trying to develop what became Velcade starting at MyoGenics (founded by Alfred Goldberg, a discoverer of the proteasome). Myogenics became ProScript which became LeukoSite, still a small biotech. LeukoSite was acquired by Millenium. I don’t know how many LeukoSite researchers were absorbed by M, but Adams was among them. Adams continued to advocate for support of the bortezimib project as the other, more important projects died one by one. Ultimately, it was approved and made M lots of money.

    2. Bobby Flayed says:

      Ehhhh. All the Millennium folks are gone and the culture is distinctly hierarchical and risk-averse now. Takeda is still Takeda; especially culturally.

  14. counterexample that is paying for the deal = BMS has the money thanks to Ipi and Nivo (and more checkpoints, and antibodies expertise and perseverance to get Ipi through):
    Bristol-Myers to buy Medarex for $2.4 billion
    JULY 22, 2009
    https://www.reuters.com/article/us-bristolmyers-idUSTRE56M07120090723
    The deal did not make the wikipedia page.
    p.s. several of Jim’s band, the Checkpoints, videos are online through
    http://www.geomcnamara.com/blog/2016/10/12/battle-of-the-science-bands

  15. Anonymous Researcher snaw says:

    My first thought was, I saw the BMS acquisition of DuPont’s Pharma operation up close and that was really ugly for a lot of the people involved. I expect this will be even worse for many people, some of whom I consider friends.

  16. anon says:

    Relatively small in comparison to what is being discussed, but the Sosei acquisition of Heptares Tx was made with the intent to keep the Heptares R&D structure intact (CEO as well, link attached). Someone may be able to give much more insight into how this played out.

    Big news regarding BMS/Celgene, however.

  17. pfizer joe says:

    get ready for layoffs. take money and run!

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