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Bristol-Myers Squibb: Losing Otezla Might Be Challenging

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Otezla

In the latest update on the pending merger with Celgene (CELG), Bristol-Myers Squibb (BMY) proposed plans to divest Otezla—Celgene’s top-selling non-biologic psoriasis drug. The divestiture is expected to pave the way for FTC approval for the Bristol-Myers Squibb and Celgene deal. Bristol-Myers Squibb expects the Celgene acquisition to close by the end of 2019 or early 2020 compared to the previous timeline of the third quarter. To learn more, read What Investors Should Know about BMY-CELG Deal.

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Share price movements

After the news, Bristol-Myers Squibb stock fell 7.42% and closed at $45.68—3.12% higher than its 52-week low of $44.30 and 28.28% lower than 52-week high of $63.69. Celgene fell 5.50% and closed at $93.47—59.53% higher than the 52-week low of $58.59 and 5.56% lower than 52-week high of $98.97.

The probable divestiture of Otezla raises concerns about the pricing of the Bristol-Myers Squibb and Celgene deal. The drug is one of Celgene’s major commercialized assets. Investors are concerned about the valuation that Otezla will secure in the divestiture considering Bristol-Myers Squibb’s urgency to complete the transaction.

The rationale for the Bristol-Myers Squibb and Celgene deal depends even more on Revlimid—an oncology drug. The drug is expected to face generic competition in the US. The deal also hinges on the five late-stage assets in Celgene’s pipeline. The divestiture might impact the combined company’s revenues, EPS, and cash flow projections. The divestiture could also impact the cost synergies expected to be realized by leveraging commercial efficiencies in the inflammation and immunology business.

Despite the announcement, analysts’ consensus recommendation for Bristol-Myers Squibb continues to be a “buy.” The company’s last closing price was 22.37% lower than its target price of $55.9. However, analysts’ consensus recommendation for Celgene is a “hold.” The last closing price was 4.47% lower than the target price of $97.65.

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