Bristol-Myers Squibb Co. (BMY:US) will quit the diabetes-treatment business, selling its stake in a venture to partner AstraZeneca Plc (AZN) for as much as $4.3 billion to focus on cancer treatments.
AstraZeneca will pay $2.7 billion upfront and as much as $1.4 billion more depending on regulatory, commercial and sales goals, the companies said today. London-based AstraZeneca also will pay as much as $225 million if some assets are transferred to Bristol-Myers. Future royalty payments may add to the deal’s value.
Bristol-Myers will give up its share of new treatments such as Onglyza and Forxiga to AstraZeneca. While the companies expanded their alliance last year with the $5.3 billion purchase of Amylin Pharmaceuticals Inc., Bristol-Myers said the venture isn’t profitable and the New York-based drugmaker sees more promise in cancer, antiviral and specialty medicines.
“We think the deal makes a lot of strategic sense,” said Mark Schoenebaum, an analyst with International Strategy & Investment Group LLC. “The company is becoming more of a biotech company,” he said in a note to clients today.
Bristol-Myers gained 2.4 percent to $53.84 at 4 p.m. New York time. AstraZeneca rose 1.1 percent to 3,599 pence in London.
Bristol-Myers has wanted to get out primary care drugs, which need large sales forces and cost more to market, the company said. While it will put the money from the deal toward acquisitions, “we are not going to re-enter into primary care,” Chief Executive Officer Lamberto Andreotti said on a call with investors today.
The purchase will have no effect on AstraZeneca’s profit forecast for the year and for 2014.
The transaction may add to AstraZeneca’s earnings after next year, and it makes sense for the company to invest in diabetes given its history of selling drugs to primary-care doctors, said Andrew Baum, a London-based analyst for Citigroup Inc. AstraZeneca will take a pretax impairment charge of about $1.7 billion this year because the Bydureon diabetes treatment failed to meet sales expectations.
Both companies said they were getting a good deal, Bristol-Myers because they saw diabetes as slowing, and AstraZeneca because they expect to expand into that market.
“You have more people competing, more tension on pricing and reimbursement,” said Andreotti. He called it “a market that is slowing down in terms of growth, which means an additional drag on your top line and model.”
AstraZeneca CEO Pascal Soriot had a different take.
“We’re very excited because we can make a big difference in diabetes and establish ourselves as a strong player,” he said in an interview.
Patents on AstraZeneca’s best-selling products, including cholesterol-lowering drug Crestor, are expiring over the next three years.
More than 550 million people worldwide are predicted to have diabetes by 2030. The U.K.’s second-biggest drugmaker is also focusing on treatments for cardiovascular disease and cancer to replace revenue lost to generic competition.
While the alliance is losing money, there is “substantial potential” in emerging markets for the products and the franchise should be profitable by 2017, Soriot told analysts on a call today.
AstraZeneca will finance the deal from existing cash resources and short-term borrowing. Goldman, Sachs & Co. served as financial adviser to Bristol-Myers and Kirkland & Ellis LLP provided legal counsel.
A body of outside advisers to U.S. drug regulators on Dec. 13 recommended Forxiga for approval by the Food and Drug Administration. The two companies pulled the drug from the German market after a disagreement with authorities there over the price.
Bristol-Myers said earnings excluding some items next year may be $1.65 to $1.80 a share. Analysts had expected $1.93 a share, the average of 17 estimates compiled by Bloomberg.
About 4,100 Bristol-Myers employees, including those at Amylin, will transfer to AstraZeneca.
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