Heading into 2022, large drugmakers are said to have more than $1.7 trillion in their M&A war chests. But after a huge buyout of its own, Bristol Myers Squibb is unveiling another use for its cash—and it's one that pharma often faces criticism for.
Bristol Myers' board has blessed a staggering $15 billion bump to the company's stock buyback program, bringing the drugmaker's multi-year repurchase total up to some $15.2 billion, BMS said in a release.
It marks one of the biggest buyback schemes in recent years, measuring up to Merck's $10 billion buyback plan in 2015 and Amgen's $15.67 billion spend in 2018.
Despite the large outlay on repurchasing shares, BMS says it plans to continue to prioritize business development.
“With significant free cash flow of $45 billion to $50 billion expected between 2021 and 2023, investment in business development continues to be a key priority for the company in driving innovation and sustained growth as we return capital to shareholders through the dividend increase and expanded share repurchase authorization,” Giovanni Caforio, chief executive officer at BMS, said in a Monday statement. “We remain committed to maintaining a strong investment-grade credit rating and reducing our debt,” he added.
The timing and amount of any share purchases will be determined at management's discretion, BMS said. Share repurchases can happen in a variety of ways, including privately negotiated deals, open market purchases, block trades, accelerated share repurchase transactions, or any combination of the above methods, the company noted.
Under the program, BMS isn't obligated to buy any amount of its common stock. The repurchase program can be suspended or discontinued at any time, the company said.
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Alongside the buyback boost, BMS' board has declared a quarterly dividend of $0.54 per share, a 10.2% increase from last year's quarterly rate of $0.49.
The moves follow Bristol Myers Squibb's massive 2019 purchase of Celgene for $74 billion—a deal that hasn't always worked out smoothly for investors, especially on the Celgene side of things.
Under a Contingent Value Rights (CVR) agreement tied to the Celgene purchase, BMS would have owed former Celgene shareholders $6.4 billion had it won FDA nods for three new drugs by particular deadlines. While multiple myeloma drug Abecma and multiple sclerosis med Zeposia nabbed green lights in time, lymphoma CAR-T drug liso-cel, now approved as Breyanzi, missed its 2020 approval deadline.
The delay sent the CVR payout down the drain. In light of the missed windfall, ex-Celgene shareholders in June sued BMS, accusing the New York pharma of "blatant misconduct" in allegedly delaying development of Breyanzi.
BMS, for its part, has spent less on buybacks in recent years than some of its Big Pharma peers. The company spent $300 million on buybacks in the first nine months of 2019, for instance, the same year it snapped up Celgene. That was $20 million less than it spent during the same period in 2018. Over the first nine-month stretch in 2019, BMS spent almost twice as much on R&D as it did on buybacks and dividends, with research and development costs hitting $4.06 billion.
The practice of enriching shareholders through stock repurchases—or buybacks—and dividends has garnered its share of critics, who argue the move is a short-term solution to the long-term question of how publicly traded companies can best return value for investors. Back in 2018, in the wake of the Trump administration's tax law, Ovid Therapeutics CEO Jeremy Levin, D.Phil, argued that drugmakers shouldn't buy back "a single share" at the expense of pipeline spending.
That criticism has done little to slow the pace of buybacks, however. When Donald Trump's Tax Cuts and Jobs Act went into law in 2017, Johnson & Johnson, Merck, Pfizer and Abbott Laboratories invested a combined $7 billion in stock buybacks and dividends, Oxfam reported at the time. And a 2018 report from New Jersey Senator Corey Booker's office pinpointed five pharmas—Pfizer, Merck, AbbVie, Amgen and Celgene—that issued $45 billion in buybacks shortly before and after the Trump tax cuts.
Now, BMS is rolling out one of the biggest buyback plans seen in recent years. Merck in 2015 added $10 billion to its program, authorizing the New Jersey pharma to shell out $11.7 billion. Amgen has also proved a big spender. In the first nine months of 2018, the company spent a whopping $15.67 billion on stock buybacks.
Meanwhile, 2021 hasn't been the biggest year for pharma M&A but companies should have plenty to spend on dealmaking next year. Eighteen large-cap U.S. and European biopharmas will have more than $500 billion in cash on hand by the end of 2022, SVB Leerink analyst Geoffrey Porges and his team wrote in a note to clients earlier this month. That cash could be used to strike deals, pay down debt or line shareholders' pockets through dividends or share buybacks, the team said.
With the potential for those companies to borrow extra capital, the theoretical firepower of the 18 drugmakers stands at more than $1.7 trillion, the analysts wrote.