BMS-Celgene Merger:
Worth it?

Vivienne Ho, Michael Koskulics,

Soo Kim, Matt Cafaro, Beth Schurman

Herspiegel Consulting

“Our model indicates it may be challenging for BMS to recoup this large investment within the next five years”

On January 3, 2019, Bristol-Myers Squibb (BMS) announced that they would acquire Celgene to create a “premier innovative biopharma company” at the price tag of approximately $74B. This news has created much speculation and controversy as one of the largest pharmaceutical deals since Pfizer’s acquisition of Warner-Lambert in 1999 for $90.27B. Some of the controversy can be attributed to the steep 58.6% (Jan 2, 2019, Google Finance) premium paid by BMS over Celgene’s share price at time of acquisition. The large purchase price may demonstrate BMS’s high degree of confidence for recouping their investment. Notably, Celgene’s stock fell 40% in 2018 due to earnings disappointment and concerns over the value of its Juno acquisition. BMS also faced setbacks in 2018 including BMS’s failure to meet its primary endpoint in their Opdivo® trial in non-small cell lung cancer (NSCLC). Additionally, BMS pulled two Phase 3 trials of an IDO inhibitor which had been acquired through an $800 million purchase of Flexus Biosciences. All of which raises the question: Was it worth it?

We at Herspiegel Consulting explored this question and our model indicates it may be challenging for BMS to recoup this large investment within the next five years. Breaking-even will likely require up to 10 years or more based on Celgene’s marketed products and potential pipeline. Revlimid® is the largest contributor to the near-term value of the Celgene buy-out accounting for 63% of Celgene’s 2017 sales at $8.2B. Unfortunately, this revenue stream is at risk with generic erosion possible as early as 2020. The key factors influencing BMS’s ability to recoup the cost relies on protecting the Revlimid revenue stream beyond the pending patent cliff and the value to be harvested out of the near-term Celgene pipeline. Our analysis will focus on Celgene’s value to BMS and will not include an analysis of BMS’s current marketed products or pipeline assets. This differs from the Wall Street Journal’s estimate of $15 billion in revenue potential from BMS-Celgene combined near-term product launches.

Protecting current revenue

Revlimid® was first launched in 2006 to treat multiple myeloma. The original patent will expire this year; however, Revlimid® is supported by a fortress of 27 patents—the last of which expires in 2028. Revlimid® has already received patent challenges from would-be generic competitors. During recent patent litigation, Celgene struck a deal with Natco Pharma, a mid-sized pharmaceutical company based in India. Natco will be allowed to produce a generic competitor to Revlimid® in 2022 on a limited volume basis. Additional challenges to Revlimid®’s exclusivity may occur, putting Revlimid®’s future sales in flux. For a cautionary tale of loss of exclusivity, look no further than Teva Pharmaceutical Industries’ blockbuster multiple sclerosis drug, Copaxone®. While Teva had planned for Copaxone’s patents to protect it from generic competition until 2030, generic companies prevailed in patent challenges. The first Copaxone generic launched over a decade earlier than expected in late 2017. If Revlimid® loses exclusivity between 2020-2023, we estimate that it will likely contribute between $15.7B and $20.9B of discounted cash flow to BMS over the next five years which accounts for 21% to 28% of the purchase price.

The potential for BMS to possibly recoup the purchase price within 10 years reflects some of the strengths in the Celgene’s current marketed therapies outside of Revlimid®. Celgene received a lot of attention for developing pomalidomide, a derivative of thalidomide, and resurrecting thalidomide itself. Thalidomide is the infamous sedative from 1957 prescribed for morning sickness that was the cause of thousands of children being born with severe defects such as phocomelia. The mixing of the two chemical enantiomers was the cause of the dangerous effects of thalidomide. Celgene improved the synthesis of thalidomide to yield a safe and highly-enriched product. They have since marketed thalidomide as Thalomid® producing over $100 million in sales last year. Pomalidomide is a derivative of thalidomide and is an anti-angiogenic immunomodulator for relapsed and refractory multiple myeloma. It is marketed as Pomalyst® in the US and Imnovid® in the EU to the tune of ~$1.6B in global sales. Otezla®, Abraxane® and Vidaza® round out the current products with a combined ~$3B in sales. Overall, we estimate that Celgene’s current marketed therapies will generate approximately $13.3B in discounted cash flow to BMS over the next five years, contributing 18% to the deal cost.

Celgene 5-year Portfolio Value Analysis, 2019-2024

Figure 1. Charts showing Celgene's 5-year projected portfolio value of both marketed and pipeline assets.

Harvesting value from the pipeline

A number of interesting and high-potential assets exist in Celgene’s pipeline. Ozanimod is a promising Phase 3 immunomodulatory drug being investigated in relapsing multiple sclerosis and ulcerative colitis. A strong demand for additional treatment options exists within these two therapeutic areas. Nearly a year ago in early 2018, Celgene acquired Juno therapeutics for $9 billion, thereby adding CAR-T therapies to their pipeline. Bb2121 is an anti-BCMA CAR-T cell therapy being evaluated in patients with relapsed/refractory multiple myeloma. This CAR-T therapy has shown incredible response rates with the data from their Phase 1 study showing a 95.5% overall response rate (ORR). Not only did bb2121 show a progression-free survival (PFS) of 11.8 months with a duration of response of 10.8 months, but it is a much-needed option for a heavily pretreated patient population. Lisocabtagene maraleucel (aka, liso-cel; JCAR017) is a CD-19 directed CAR-T-cell therapy similar to Kymriah (Novartis) and Yescarta (Gilead/Kite). At ASCO 2018, liso-cel demonstrated durable responses in Non-Hodgkin’s Lymphoma (NHL) patients with aggressive relapsed/refractory diffuse large B-cell lymphoma (DLBCL), a subtype of NHL. Although liso-cel is a vital therapy for these high-risk patients, it would represent the third CAR-T to enter a crowded market for this patient population.

Despite a generally positive financial forecast for Celgene’s pipeline and marketed therapies, the success of pipelines is difficult to accurately predict as a variety of influencing factors affect market uptake. These include unknown final clinical trial outcomes such as effectiveness and safety profile, other competitors in the landscape, and an increase in incidence or epidemiology in respective disease areas. More specifically, CAR-T therapies come with their own challenges, which include pricing and access to these curative but expensive treatments. Take the example of Novartis’ CAR-T product Kymriah®: it has not met initial forecasts and Novartis is struggling to break-even on their revolutionary cell-based gene therapy while struggling with manufacturing issues. Moreover, many of Celgene’s marketed therapies will experience loss of exclusivity from 2022-2026. And it is prudent to mention that there are other competitors in those therapeutic areas that could be approved over the next 5 years. Overall, we estimate that Celgene’s pipeline therapies will generate approximately $5.0B in discounted cash flow to BMS over the next five years, contributing 7% to the deal cost. The nature of pipeline agents in development is that they are the most difficult to prognosticate, thereby having the greatest potential to vary dramatically in predictions and forecasts.

The model

We sought to evaluate if the net current value of Celgene added to forecasted revenue could provide value beyond the $74B purchase price within a 5-and 10-year period. Our model combined data from multiple sources including: GlobalData®, DataMonitor®, and Credit Suisse. Annual revenue projections were evaluated with input from the five-year forecasts for Celgene’s currently-marketed products and pipeline. To estimate expenses, we found Celgene averaged expenses as 70% of sales for the previous five years and decided to adjust them to 60% for future years to account for cost synergies with BMS. This closely aligns with BMS’s assertion that it will achieve $2.5B run rate cost synergies by 2022. Lastly, we used BMS’s weighted average cost of capital (WACC) of 6.6% as a discount rate. Overall, our model estimates that BMS may be able to recoup 46% to 53% of the deal cost within five years. To recoup the remaining half of the cost, BMS may need up to 10 years or more. Of course, if Revlimid® loses exclusivity sooner than expected, then that will be difficult to achieve.

% of Deal Value Based on 5-Year Projections (2019-2024)

Figure 2. Graphic showing components by percentage of the BMS-Celgene deal based on 5-year projections of Celgene’s pipeline and BMS’s estimated cost-synergies.


In any business deal there are risks and benefits. BMS acquired Celgene knowing these risks, but also understanding that there are synergies between the two companies and the two pipelines that are not obvious to outsiders. While some may say there are pipeline combinations between the two that could be worthwhile to pursue, these should be cost compared with executing straightforward company-company clinical trial collaborations. While we cannot definitively predict every aspect of this acquisition, we do know that BMS has purchased a strong addition to their own immunology and oncology pipeline. We will soon see the results of this buyout and only time will tell if this was indeed “worth it.”

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