Icahn has snapped up a Bristol-Myers stake. Could megamerger pressure be far behind?

Bristol-Myers added three directors to its board at an activist hedge fund's behest this week, including former Vertex CEO Matthew Emmens.

What a difference one failed trial makes. After Bristol-Myers Squibb’s immunotherapy Opdivo fell short in a key lung cancer study last fall, the company’s shares plummeted, analysts cut their sales forecasts by billions, and buyout rumors started surfacing.

Now, activist investors are plowing in.

None other than Carl Icahn disclosed a stake in Bristol-Myers Tuesday, the same day the company announced a board shake-up prompted by negotiations with another activist, the hedge fund Jana Partners.

Could Bristol-Myers go up for bid, then? Icahn has a history of pushing drugmakers to make big changes—and that often includes putting themselves on the block. Icahn’s stake was first reported by The Wall Street Journal.

A sale wouldn’t be surprising to some investors and analysts, who’ve been abuzz about a potential megamerger pairing Bristol-Myers with one of its Big Pharma peers. Last week, unnamed sources told Street Insider that Pfizer, Roche and Novartis were all weighing offers.

Given the fact that those pharmas are among the very few that could afford a Bristol-Myers buy, they’re obvious names that would surface in water-cooler talk on Wall Street. Pfizer, with its proven appetite for megamergers, easily lends itself to big-deal chatter. Plus, Pfizer in particular could soon have a much bigger war chest for acquisitions if President Donald Trump’s proposals for a repatriation tax holiday come to fruition.

Talk, however, doesn’t make a deal. Icahn might. With the activist in the mix, the prospect of a sale—or pressure for a sale—suddenly seems more real. Investors certainly thought so; when the WSJ reported Icahn’s stake just before Tuesday’s market close, shares shot up from $53.62 to $55.76.

That puts Bristol-Myers’ current market cap at about $92 billion, according to Yahoo Finance, and despite the price tag that would put on a deal, Leerink Partners analyst Seamus Fernandez wrote last month that the company’s assets could be worth the cost.

“[W]e believe Opdivo, Yervoy, and the burgeoning immuno-oncology pipeline at BMS is a high-value industry asset that cannot be ignored,” Fernandez wrote at the time.

That’s even after the failed lung cancer trial. Last August, Bristol-Myers reported that Opdivo hadn’t met its goals in a study in previously untreated lung cancer patients. That trial was widely expected to lead to a new FDA approval—and a big boost in sales as the drug became a first-line treatment.

It seemed to be a case of over-reach: The trial included patients with levels of a particular biomarker, PD-L1, of just 5% or more. By contrast, Merck & Co.’s similar trial of its rival drug Keytruda focused on those with PD-L1 expression of 50% or more. The 5% target would have allowed Opdivo to reach more patients than the higher target would. But now, lacking the data to support a new filing, Opdivo has suddenly been eclipsed in first-line lung cancer, and analysts figure Keytruda will not only claim that market but gain ground in patients who’ve failed on one previous treatment, a market where the two meds will still go head-to-head.

Analysts immediately cut billions from their long-term Opdivo sales forecasts. The company lost more than $35 billion off its market cap. Execs faced tough questions from investors and analysts wondering what it could do to make up the difference.

One of those answers was combination cancer treatments, including a pairing of Opdivo and Yervoy, already approved for melanoma, in lung cancer. But that hit a snag in January when Bristol-Myers said it wouldn’t seek accelerated approval for that indication. In announcing fourth-quarter earnings, the company cut its sales and earnings guidance.

Fast-forward to Tuesday, when Bristol-Myers said it had added three directors to its board, at Jana’s urging. Ex-Vertex Pharmaceuticals chief Matthew Emmens was one of them, as was a former CFO at Bausch & Lomb, the eye care giant now owned by Valeant, Robert Bertolini. The latter now serves on the board at Actelion, the Swiss drugmaker in the process of a sale-and-spinoff with Johnson & Johnson. The third, Ted Samuels, serves on the board of OTC specialist Perrigo.

Bristol-Myers also said it would step up stock buybacks with $2 billion in repurchases from Morgan Stanley and Goldman Sachs, with most of those shares changing hand at the end of this month. Morgan Stanley is serving as Bristol’s financial advisor, with Kirkland & Ellis and Covington & Burling serving as legal counsel.

And now Icahn. If he succeeds in pushing Bristol-Myers toward a megamerger, it would be the first such deal since 2009, when Pfizer bought Wyeth, Merck bought Schering-Plough and Roche picked up the share of Genentech it didn’t already own. Pfizer might have added another to its series of big buys in 2014, when it tried but failed to buy AstraZeneca for more than $100 billion, or last year, when tax inversion crackdown scuttled its $160 billion Allergan buyout.

Then again, Icahn could agitate for other changes—asset sales or swaps along the lines of Sanofi and Boehringer Ingelheim or GlaxoSmithKline and Novartis. Or he might simply push for board representation, at least for now.

Whatever’s next, it’s clear that Bristol-Myers’ trying times are far from over.