After Bristol-Myers R&D cuts, will AstraZeneca amp up its share of diabetes JV?

When Bristol-Myers Squibb ($BMY) reported earnings last week, it seemed fully committed to AstraZeneca ($AZN) and their multibillion-dollar diabetes joint venture. Sales growth there helped make up for hundreds of millions lost to generic competition. But now, Bristol-Myers says it's getting out of the diabetes discovery business. Will the company back away from its diabetes partnership next?

Citigroup analyst Andrew Baum thinks it might. Baum figures that Bristol-Myers could sell a big share of the partnership to AstraZeneca for up to $6 billion. That would give Bristol-Myers more cash to plow into the biopharma specialty areas it has tagged for growth.

"Citi believes Bristol could seek to sell its share in the ex-U.S. part of the joint venture to AstraZeneca for around $4 billion to $6 billion, using the proceeds for work in core specialist driven areas and acquisitions," Baum wrote in a note to investors. "Citi would view any restructure of the joint venture as positive for Bristol-Myers."

Reworking the partnership would add heft to AstraZeneca's diabetes sales, one of the company's great hopes for future growth. Citi estimated that buying Bristol-Myers' non-U.S. share of the group would pump up AstraZeneca's earnings by 1% to 5% in the medium term, Reuters notes.

The two companies have been working together in a diabetes partnership for years, but in 2012, they stepped up that joint effort with a $7 billion, two-stage buyout of Amylin Pharmaceuticals. The deal added Byetta and Bydureon to the partnership's lineup of products, giving the companies a broad portfolio to treat various stages of the disease. As the deal closed, AstraZeneca ponied up an extra $135 million for an equal say in the partnership's management.

Obviously, a restructuring would require some work, though the U.S. operations could remain more or less intact under Baum's ex-U.S. scenario. The two companies set up a new home-away-from-home for "Diabetes Inc." earlier this year, combining their diabetes teams in one location about halfway between their two respective U.S. headquarters. Each company tapped executives to jointly run the new group.

Since then, the group has suffered some setbacks. Onglyza failed a key outcomes trial that Bristol-Myers and AstraZeneca had hoped would give their drug an edge over rivals--and add up to $1 billion to Onglyza sales. The new drug Forxiga (dapagliflozin), approved in Europe, lost out in the U.S. on its first go-round; it's up for a review by FDA's expert advisers next month for a decision date in January.

AstraZeneca isn't Bristol-Myers' only diabetes partner. In March, the company teamed up with Merck KGaA to push diabetes drug sales in China. The German drugmaker and Bristol-Myers plan to co-promote various formulations of Glucophage (metformin), a standard diabetes therapy that Bristol-Myers has been selling in China since 1999.

- see the story from Reuters

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