With the Federal Trade Commission (FTC) sweating the details of Bristol-Myers Squibb and Celgene’s proposed $74 billion merger, all eyes were on the companies’ combined psoriasis portfolio, which regulators feared would corner the market. The feds found a solution: You can have your merger, but you don’t get to keep Celgene's blockbuster Otezla.
Bristol-Myers will sell the psoriasis pill as part of a consent decree with the FTC intended to speed up its Celgene merger, the company said. Otezla, which cleared more than $1.6 billion in global sales in 2018, was not considered one of the core assets in the merger, according to Credit Suisse analyst Vamil Divan. The divesture will likely delay the merger's approval until late 2019 or early 2020, overshooting plans for a Q3 approval this year, Bristol-Myers said.
"Bristol-Myers Squibb is committed to working with regulatory authorities around the world on the proposed combination with Celgene,” Bristol-Myers said in a statement. “The company is focused on realizing the promise of the transaction, and is continuing to work to complete the transaction on a timely basis.”
In snap reactions to the news Monday, analysts expressed a common thought: surprise. Jefferies analysts said targeting Otezla, which competes with five to seven major competitors in psoriasis and isn’t considered a “dominant power,” revealed the FTC’s tight strategy on pharma M&A.
“We believe this is a (potential) read-through that the FTC is being tougher on regulating competition,” the analysts said.
Divan said there could be multiple buyers for Otezla, but Bristol-Myers’ leverage in a potential sale would be limited with the mandatory nature of the castoff.
“The key for Otezla now will be what Bristol can obtain for the asset,” he said. “We believe sellers are often at a disadvantage when potential buyers know they need to divest a given asset, but there are many companies with drugs in the dermatology space that may look to bid on the asset."
Losing Otezla will certainly sting after the drug ramped up sales in the past year and held promise in other indications, including scalp psoriasis. In October, Celgene posted positive phase 3 trial data showing Otezla significantly improved patients’ symptoms over placebo at the 16-week mark.
Despite the loss of Otezla, Bristol-Myers leaned into its psoriasis pipeline after announcing the divestiture, touting its tyrosine kinase 2 inhibitor as a possible game-changer in the market. In September, Bristol-Myers said it was enrolling patients in a phase 3 study of the drug in plaque psoriasis after a phase 2 trial showed significant improvement in patients’ skin clearance over placebo after three months of treatment.
BMS' asset is also in phase 2 trials for both lupus and Crohn’s disease, providing a glimmer of hope for the drug’s sales success.
With the Otezla divestment out of the way, the stage could be set for an approval from the FTC later this year, Bristol said. The blockbuster merger, which faced steep backlash from a contingent of Bristol-Myers investors, was painted as “the natural next step” in the drugmaker’s M&A plans despite concerns the company was taking on too much risk.
In March, Wellington Management, Bristol-Myers' largest institutional shareholder, came out against the merger, panicking some investors and threatening to send the deal into a tailspin. Soon after, activist investor Starboard Value followed Wellington’s lead.
However, analysts didn’t see major signs of trouble in Wellington’s argument, saying the shareholders’ case against the merger lacked credibility. “We see Wellington's grounds for opposition as raising no specific or credible reasons why the deal should not go through,” Atlantic Equities analysts told investors after Wellington’s announcement. The activists eventually folded after proxy advisory firms showed support for the deal.