The spate of acquisitions in the pharmaceutical industry continued with pharma giant Bristol-Myers Squibb Co. (BMY) completing the purchase of biotechnology firm ZymoGenetics Inc. for $9.75 per share in cash.
The offer price represents a premium of approximately 84% over ZymoGenetics’ closing price of $5.30 on Sept. 7, 2010, the date of announcement of the merger. Bristol-Myers aims to bolster its pipeline, especially for hepatitis C, through this acquisition. At the time of announcing the deal, Bristol-Myers said that the transaction is expected to hurt its 2010 and 2011 earnings by 3 cents and 7 cents, respectively.
Under the terms of the agreement, Bristol-Myers initiated a cash tender offer on Sept. 10 to buy all the outstanding shares of ZymoGenetics at $9.75 per share. The offer expired at midnight, New York City time, on Oct. 7, 2010. The duration of the offer, initiated through Bristol-Myers’ wholly-owned subsidiary Zeus Acquisition Corporation, was not extended.
The pharma giant purchased 94.9% (approximately 82.6 million shares) of ZymoGenetics shares through the cash tender offer. Bristol-Myers sealed the deal by purchasing the remaining shares of ZymoGenetics’ common stock via a “short-form merger” (without a vote or meeting of the remaining ZymoGenetics stockholders).
The merger has added 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 with 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, once launched, should augment Bristol-Myers’ 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.
Bristol-Myers’ Move 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.
Bristol-Myers in Neutral Lane
We currently have a Neutral recommendation on Bristol-Myers, which is supported by a Zacks #3 Rank (short-term Hold rating). Our biggest concern regarding 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.
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