The impending acquisition of biotechnology firm, ZymoGenetics, Inc. (ZGEN) by Bristol-Myers Squibb Co. (BMY) cleared a hurdle with the latter announcing that the mandatory Hart-Scott-Rodino waiting period for its tender offer has come to an end. Bristol-Myers aims to bolster its pipeline, especially for hepatitis C, through this acquisition, which has been approved by the boards of both companies.
On September 10, 2010, Bristol-Myers commenced a cash tender offer to buy the entire outstanding shares of common stock of the acquired company for $9.75 per share. The offer, which expires at midnight, New York City time, on October 7, 2010 unless extended further, was initiated through Bristol-Myers’ wholly-owned subsidiary Zeus Acquisition Corporation. The expiration of the waiting period satisfies one of the conditions of the cash tender offer.
The deal, which is expected to hurt Bristol-Myers’ 2010 and 2011 earnings by 3 cents and 7 cents respectively, has an aggregate purchase price of about $885 million or nearly $735 million excluding ZymoGenetics’ cash on hand. The transaction is expected to be financed by Bristol-Myers’ existing cash balance.
The merger will add ZymoGenetics’ bleeding control product, Recothrom, to Bristol-Myers’ portfolio. Furthermore, the deal boosts the drug giant’s pipeline significantly. Most significantly, the acquisition would provide Bristol-Myers full ownership of pegylated-interferon lambda (formerly known as IL-29), which is currently being co-developed by the two companies for treating patients suffering from hepatitis C virus (HCV). PEG-Interferon lambda is a novel type III interferon being developed for treating HCV patients.
On September 10, 2010, Bristol-Myers commenced a cash tender offer to buy the entire outstanding shares of common stock of the acquired company for $9.75 per share. The offer, which expires at midnight, New York City time, on October 7, 2010 unless extended further, was initiated through Bristol-Myers’ wholly-owned subsidiary Zeus Acquisition Corporation. The expiration of the waiting period satisfies one of the conditions of the cash tender offer.
The deal, which is expected to hurt Bristol-Myers’ 2010 and 2011 earnings by 3 cents and 7 cents respectively, has an aggregate purchase price of about $885 million or nearly $735 million excluding ZymoGenetics’ cash on hand. The transaction is expected to be financed by Bristol-Myers’ existing cash balance.
The merger will add ZymoGenetics’ bleeding control product, Recothrom, to Bristol-Myers’ portfolio. Furthermore, the deal boosts the drug giant’s pipeline significantly. Most significantly, the acquisition would provide Bristol-Myers full ownership of pegylated-interferon lambda (formerly known as IL-29), which is currently being co-developed by the two companies for treating patients suffering from hepatitis C virus (HCV). PEG-Interferon lambda is a novel type III interferon being developed for treating HCV patients.
PEG-Interferon lambda should augment BMY’s top line. The HCV market is lucrative with a huge unmet need. Chronic HCV infection is a leading cause of cirrhosis, liver failure and hepatocellular carcinoma across the globe. Furthermore, HCV is the main reason behind liver transplantation. We believe that the successful development and commercialization of the candidate should further boost the top line at Bristol-Myers.
Merger- another move by BMY to counter genericization of key drugs
We believe that the impending acquisition of ZymoGenetics is another move by Bristol-Myers to counter the loss of revenues resulting from the genericization of its key drugs. The company, which has lost patent protection on products worth about $4 billion over the past few years, has already taken measures like the extension of the Abilify agreement with Otsuka and the acquisition of Medarex to prepare for the loss of exclusivity on its key drugs, including Plavix.
Neutral on Bristol-Myers & ZymoGenetics
We currently have a Neutral recommendation on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term Hold rating). Our biggest concern for the company is the high exposure to generic risk on many of its leading franchises. We expect the company to look to grow revenue through partnering deals and acquisitions.
We are also Neutral on ZymoGenetics, which is supported by a Zacks #3 Rank (short-term Hold rating).
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ZYMOGENETICS (ZGEN): Free Stock Analysis Report
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