Argus Questions Logic Behind Bristol-Myers' Proposed Celgene Buy, Steps To Sidelines

Bristol-Myers Squibb Co BMY's quest to expand its oncology franchise through its proposed acquisition of Celgene Corporation CELG may not be a wise move, according to Argus.

The Analyst

David Toung downgraded Bristol-Myers Squibb from Buy to Hold, citing significant risks arising from the Celgene merger.

The Thesis

Bristol-Myers Squibb's growth prospects following the planned acquisition of Celgene are a cause of concern, Toung said in a Friday downgrade note. (See his track record here.) 

The primary concern is the loss of exclusivity and patent cliff issue for Celgene's Revlimid, the analyst said. 

Revlimid is Celgene's best-selling multiple myeloma drug and showed 15-percent year-over-year growth to $2.58 billion in the first quarter of 2019. It fetched roughly 64 percent of the company's revenues.

Toung said he's not confident about Celgene's pipeline delivering sufficient revenue to offset the eventual decline in Revlimid revenues when it loses its exclusivity in 2026.

Additionally, Bristol-Myers Squibb's Opdivo could come under pressure from Merck & Co., Inc. MRK's Keytruda, as the latter establishes its supremacy in the first-line treatment of non-small cell lung cancer, the analyst said.

Competition could also come from other new immuno-oncology drugs, he said. 

The combined company will be weighed down by a heavy debt pile of more than $45 billion, restricting the use of cash for R&D, M&A and in-licensing of new assets, according to Argus. 

The Price Action

Bristol-Myers Squibb shares were down 1.1 percent at $46.34 at the time of publication Monday, while Celgene shares were down 0.61 percent at $94.84. 

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