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What to Expect from BMY’s Celgene Acquisition

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Jan. 4 2019, Updated 1:35 p.m. ET

Strategic benefits

The acquisition of Celgene (CELG) by Bristol-Myers Squibb (BMY) brings together both the company’s leading franchises. The acquisition also brings together both the companies’ robust clinical pipelines. Bristol-Myers Squibb and Celgene together bring the leading oncology franchises together. Bristol-Myers Squibb’s leading oncology drugs include Opdivo and Yervoy, while Celgene’s leading oncology drugs include Revlimid and Pomalyst.

The acquisition also brings together the leading immunology and inflammation products on one platform. The leading immunology and inflammation products include Bristol-Myers Squibb’s Orencia and Celgene’s Otezla.

The combined company is expected to have nine products with annual sales figures of above $1.0 billion. Bristol-Myers Squibb (BMY) and Celgene hold a robust pipeline with significant potential in different disease areas such as oncology, cardiovascular diseases, inflammation, and immunology.

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The combined company presently has six products that could be launched in the near term. The products in clinical trials that could be approved in the near term include two investigational immunology and inflammation products, TYK2 and ozanimod, and four hematology products: viz. luspatercept, liso-cell, bb2121, and fedratinib.

The approval of the above drug candidates that are presently in trials could significantly strengthen the product portfolio of Bristol-Myers Squibb. The drug approvals could also significantly boost the revenue growth of the combined company.

The revenue growth of Bristol-Myers Squibb could boost the SPDR S&P Pharmaceuticals ETF (XPH). Bristol-Myers Squibb makes up ~4.36% of XPH’s total portfolio holding.

Financial benefits

The combined company of Bristol-Myers Squibb and Celgene (CELG) is expected to have strong returns. The acquisition transaction’s internal rate of return is expected to be much higher compared to Bristol-Myers Squib’s and Celgene’s cost of capital.

After the closure of the transaction, Bristol-Myers Squibb anticipates that the combined company will generate over $45.0 billion in free cash flow during the first three years.

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