After Bristol-Myers Squibb Buys Celgene What's Next? JP Morgan's Conference Will Answer That

For years, Celgene presided as de facto master of ceremonies at the J.P. Morgan Healthcare Conference by being the opening act of this premier life sciences event.  Tens of thousands of healthcare executives and investors have flocked to the conference every year to initiate strategic conversations that set the global healthcare tone for the rest of the business year.  Ironically, it’s also where companies show up to demonstrate how busy they were at the end of the previous year by announcing transactions, sometimes with a whimper, sometimes with a bang.

Why did Celgene get this spot?  It was an example of healthcare activism, not about take overs, but about challenging the healthcare status quo and JP Morgan was the bank that stepped up to the plate to finance its breakthrough.  Celgene was a model marriage of science and industry that was groundbreaking in its day.  Can another biotech model like it exist in today’s environment?  We’ll see when the next healthcare crisis presents itself.  Can a corporate culture like Celgene’s survive as it is absorbed into the big pharma vortex?  Probably not, but we’ll see.

So what we have now is that Bristol-Myers Squibb has just ensured JPM 2019 will be a high-octane event. By announcing this a few days before the takeover of a biotech bellwether that solidly dominated the blood cancer space, this has made a statement. And when you add up all of the pieces to this transaction including debt, it is one of the top three healthcare M&A statements ever.

Additionally, one big deal begets another, and the announcement of the Bristol-Myers/Celgene deal will act as a stimulus to conclude other deals now in the works.  Large, transformational deals such as this one, also allow executives to pull deals that had been stalled off the shelves, dust the covers, and revisit other large transformational deals.  It’s one of the reasons why we saw Gilead Sciences jump in share price for two days after announcement, even as the market fell 600 points and then rise more than 700 points the next day.

The numbers show that with the conclusion of the acquisition, Bristol-Myers will elevate itself from the 13^th largest U.S. pharmaceutical company by revenue to the fourth or fifth largest, with $33 billion in revenue based on 2017 results.  The Bristol-Myers drug, Opdivo^® with $4.95 billion in revenue will become the Bristol-Myers number two drug behind the $8.2 billion drug Revlimid^®.  But the last patent expiration date for Revlimid as of now is in 2024, at which time it could lose market exclusivity.

But in my mind, this deal isn’t about Bristol-Myers buying Celgene, or even keeping score with a formidable competitor like Merck.  It’s about all the deals Celgene has with small companies that will be de-prioritized with the Bristol-Myers takeover.  As testimony to this disruption, I expect that Celgene collaborators along with other smaller and mid-cap companies to be on the hunt for partnerships and investors during next week’s conference.

Celgene’s Secret to Success – A Culture of Multiple Partners and Programs

Celgene has nurtured numerous oncology startup companies over the years. Many of the first oncology companies to IPO were those seeded by Celgene.  Epizyme, bluebird bio, and Agios Pharmaceuticals each had major collaborations with Celgene, and they launched IPOs within weeks of each other.  By lending these companies the Celgene name and cash resources, banks and investors had a great deal more confidence entering into transactions with them. In turn, these IPOs helped to usher in a resurgence of the biotech market after a severe drought caused by the Great Recession. By 2015, Celgene had close to 30 development partners.  More recently, Celgene has acquired its development partner Juno Therapeutics for $9 billion, agreed to fund Acceleron Pharma’s anemia drug with up to $217 million, signed a deal with Dragonfly Therapeutics for $83 million, and entered a 50/50 development project valued at up to $70 million with bluebird bio for CAR-T therapy in multiple myeloma.

The Bristol-Myers/Celgene deal will be good for Celgene shareholders and for Bristol-Myers, but it also will create some orphans among the companies in Celgene’s R&D and collaboration orbit.  Even if Bristol-Myers tries to adopt the corporate culture of its new acquisition by maintaining existing partnerships and forging new ones, prudence will demand that those companies with existing Celgene relationships network widely at the upcoming conference.  Within Celgene, cuts are almost certain.  With approximately 50 locations worldwide, including three in northern New Jersey and 7,467 employees, Bristol-Myers is certain to want to take advantage of economies of scale by reducing costs.

So while news of the Celgene acquisition will travel far and wide during this year’s J.P. Morgan conference, and the pundits will continue to wax and wail about the fate of large cap biotechs and bio-pharmaceuticals, my advice is to keep your eyes on the smaller prizes — the Celgene orphans.