Deutsche Bank Casts Doubt On Pfizer's Rumored Takeover Approach To Bristol-Myers

Gregg Gilbert of Deutsche Bank would be surprised if Pfizer Inc. PFE approaches Bristol-Myers Squibb Co BMY with a takeover bid at this stage.

The brokerage issued the comment after Street Insider said Roche Holding Ltd. (ADR) RHHBY, Novartis AG (ADR) NVSand Pfizer could be interested in buying Bristol-Myers, while Gilead Sciences, Inc. GILD is also seen as a potential suitor.

Given the size of Bristol-Myers, which has a market cap in excess of $90 billion, the rumored deal would be one of a kind and would attract potential regulatory scrutiny. The Street Insider report pegs the potential deal value at $120 billion, or $72 per share.

“While we assume PFE is constantly assessing various deals large and small, and management has not been shy about acknowledging the potential for it to do a large deal in what is a fragmented industry with excess capacity, we would be surprised to see PFE make a move on BMY at this stage,” Gilbert wrote in a note.

The takeover rumors of Bristol-Myers come at a time when its stock has been hammered after the failure of a lung cancer drug trial and President Trump mulling possible avenues to slash the cost of drugs.

On the financial front, the company recently issued a mixed fourth quarter report that revealed an EPS miss of $0.04 along with a slight revenue beat. The company affirmed FY2017 outlook at the $2.70-$2.90 range versus estimates of $2.86.

Gilbert also pointed out the near-term uncertainty in the immuno-oncology area, on which Pfizer already has at least a partial strategy in place.

Last month, Bristol-Myers said it will not be pursuing accelerated regulatory approval for its lung cancer drug Opvido/Yervoy following disappointing trial results.  At the same time, Merck & Co., Inc. MRK announced favorable results for Keytruda, which is a competing lung cancer drug.

Related Link: Which Pharma Players Dominate The Lung Cancer Space?

“We believe that if PFE management were to deploy $90bn or more on a deal, it would prefer to have a more diverse set of value drivers (in addition to a cost rationalization story),” Gilbert continued.

The analyst also noted Pfizer already has a very significant stake in the large and growing Eliqius opportunity.

As such, Gilbert maintained its Buy rating on Pfizer with a $40 target price and reaffirmed his Hold rating on Bristol-Myers at a price target of $42.