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Bristol-Myers Squibb acquires Mirati Therapeutics in a$4.8bn bid to expand its oncology portfolio

Acquisition Overview  


Bristol-Myers Squibb Co. (BMS) has agreed to buy Mirati Therapeutics for $4.8bn in an all-cash deal, equalling $58 per share. This deal has been in the pipeline since March 2022, when the initial bid of $125 per share was rejected by Mirati, over double what has now been accepted as of 8th October 2023. Principally, this deal represents an expansion of BMS’s operations in the oncology market, given its currently aged portfolio that has faced significant headwinds due to generic alternatives. Although Mirati has multiple drugs in their pipeline, it seems that the pièce de résistance for BMS is Krazati, an FDA approved lung cancer treatment.  


Deal Structure  


BMS, through a subsidiary, will acquire all the outstanding shares of Mirati common stock at $58 per share. This represents a 52% premium to the 30-day volume weighted average price (VWAP) as of the unaffected 4th October close. Mirati stock price rose 45% between the 4th and the deal announcement on the 8th due to rumours that Sanofi may be acquiring Mirati, and thus wiped out BMS’s entire implied premium. In fact, as of Friday’s $60.20 close, the weekend of the deal announcement, the $58 per share purchase price represented a discount. $58 per share corresponds to an equity value of $4.8bn, and after accounting for $1.1bn of cash, an enterprise value of $3.7bn. Further, each stockholder will receive one non-tradable contingent value right (CVR) per Mirati share, which will entitle its holder to an additional $12 in cash, for a total value of $1bn, upon FDA approval of a new drug application for MRTX1719.  


Evercore Inc. and Morgan Stanley & Co. LLC are serving as financial advisors to BMS, and Kirkland & Ellis LLP is serving as legal counsel. Centerview Partners LLC is serving as financial advisor to Mirati, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.  


Bristol-Myers Squibb Overview  


BMS is a global bio pharmaceutical company whose mission is to “discover, develop and deliver innovative medicines that help patients prevail over serious diseases.” The company has faced significant headwinds in the recent past, with the stock falling 12.3% in the last month after pushing back a $10bn sales milestone by a year for new products that treat multiple diseases. Despite narrowly beating EPS and sales forecasts for Q3, BMS has been plagued by patent expiries for two of its biggest drugs, Eliquis and Opdivo, and thus has been battling competition from generics. BMS’s CEO Giovanni Caforio will retire in November, having been CEO since May 2015, and will be replaced by current CCO Chris Boerne. It seems that this shift signals BMS’s intention of focusing on the execution of product launches, as they attempt to revitalise growth in the face of increased competition.  


Employees: 34,300  

Founded: 1887  

LTM revenue: $45.18bn  

LTM EBITDA: $18.27bn  

Market cap: $103.81bn  

EV: $134.27bn  


Mirati Overview  


Mirati is a commercial stage biotech company whose mission is to “discover, design and deliver breakthrough therapies to transform the lives of patients with cancer and their loved ones.” The obvious parallel to the mission of BMS is perhaps exemplary of the cultural synergy that this merger may yield. Mirati has a focus on areas of therapy that have high unmet need, including lung cancer, and is currently advancing a pipeline of novel therapeutics targeting the genetic and immunological drivers of cancer. Currently, Mirati is in the process of rolling out its first product to patients, an FDA approved lung-cancer drug called Krazati, that seems to be the basis of most of the purchase price. Mirati stock has tumbled 76% in the last 3 years, and hasn’t posted profits in the last 12 months, despite this, revenue has grown at 21% for the last 3 years, compound. In order to turn this revenue growth into profits Mirati must scale its business efficiently, perhaps the merger is the solution shareholders have been looking for.  


Employees: 600  

Founded: 1995  

LTM revenue: $27.22bn  

LTM EBITDA: -$775.5mm  

Market cap: $3.88bn  

EV: $3.15bn  


Industry Insight  


In the US and Europe, the pharmaceuticals sector has posted positive performance over the last five years. In Europe, the sector outperformed the market, and in the US, it lagged the market, perhaps attributable to the extraordinary performance of mega-cap tech companies such as: Alphabet, Apple, Meta, Nvidia, Amazon, Microsoft and Tesla. With vaccine demand slowing and both inflation and interest rates at record highs, the pharmaceuticals sector faces strong headwinds. Analysts expect that Asia-Pacific will see the greatest growth rates in this respect, with production and sales expected to grow year-on-year by 5% in 2023 and over 6% in 2024 and 2025. The ending of China’s zero-Covid policy has provided a boost for pharmaceuticals globally, as has the reopening of its economy helped in reducing global supply chain pressures and increasing global access to active pharmaceutical ingredients (APIs) produced in China. Producers of generics are expected to benefit first, as emerging market economies’ healthcare systems improve, and household incomes rise. In the Americas, pharmaceuticals growth is forecast to be in the low single digits in the next two years, as Covid’s grip on the sector diminishes. The longer-term outlook is propelled by increased demand from an ageing population and hopes for a joint Covid/seasonal flu vaccine. In Europe, energy price headwinds seem to limit pharmaceuticals output growth. The cost of energy affects the industry directly through the cost of fuel and indirectly through increased costs of feedstocks and APIs. Inflation is restricting demand as consumers cut down on high-street spending. Production growth is forecast to slow to 4% in 2023, and 2% in 2024, following last year's 15% growth rate. Similarly, to the US, an ageing population provides tailwinds to the pharmaceuticals sector by supporting demand for chronic illness medications.  


Generative AI, the talk of every town, has significant implications for the pharmaceuticals sector. The sector is highly document-intensive, with clinical trials, studies and publications involving vast amounts of paperwork, getting an answer to a query can be a lengthy process. Generative AI’s ability to process complex data and provide relatively simple answers will increase efficiency monumentally. The technology team at BMS has already put tens of thousands of documents into their own large language model, and the results that they have obtained are “remarkably accurate”. This can reduce a process that usually takes days to complete to less than a minute. Further, computational pharmacology, the creation of medicines, may reap the benefits of the AI revolution as large language models are directly translated in protein expression. Protein motifs and domains, the functional building blocks of protein sequences that enable mechanical actions in the body, are in many ways similar to phrases in human language. As a result, a lot of work is being done to assess the utility of large language models in analysing protein sequences. BMS has created an internal version of ChatGPT to avoid issues relating to sensitive data.  


The Inflation Reduction Act will also have significant impacts on the pharmaceuticals sector, especially on BMS. The act is a multi-billion-dollar law designed to reduce inflation whilst also combatting climate change, amongst other things. The act seeks to limit the price of drugs in two ways: Pharmaceuticals companies must negotiate prices with health insurers, currently 10 drugs have been approved for this negotiation, with 70 more expected to be added by 2030. Also, the act introduces a price cap which is limited to the rate of inflation. Eliquis, BMS’s top-selling bloodthinner is one of the first 10 drugs on this program, and this will damage profits significantly. In the longer term, the price situation is not binary, patent-protected small molecule drugs are exempt from negotiations for 9 years after approval, and for 13 years in the case of bio pharmaceuticals. The largest impact is expected to be felt in the 2030s, as new drugs today fall under this legislation.  


Strategic Rationale  


This merger is expected to strengthen its position in the oncology market, expanding its portfolio and capabilities in cancer research and treatment. This comes at a time when BMS’s foothold in the oncology market is coming under heavy fire from generics, as patent expiries threaten to undermine BMS’s profitability. Earlier this year, BMS slashed its revenue outlook after sales of Revlimid, a blood cancer drug and its third largest revenue driver, plummeted 41% to $1.43bn. Further, its top-selling blood thinner, Eliquis, missed sales estimates by 5%, and its cancer immunotherapy drug Opdivo also failed to meet sales projections. To add insult to injury, Eliquis has been elected as one of the first ten drugs to be subject to Medicare drug-price negotiations under Joe Biden’s Inflation Reduction Act. In response, BMS has turned to new products to make up for sales shortfalls. Perhaps Mirati’s Krazati will be able to offset these deficits, and further down the line we may see MRTX1719 and PRMT5, two of Mirati’s early-stage drugs, joining the defence of BMS’s market dominance.  


For Mirati, on the other hand, the deal will enhance the commercial prospects of Krazati, its flagship lung-cancer drug, as Mirati will have access to BMS’s extensive resources and global reach. This merger has the potential of accelerating the roll-out of potentially life-saving therapies for cancer patients worldwide. Further, with the financial backing of BMS, Mirati will be able to assign more funds towards developing MRTX1719 and PRMT5 and increase the drugs’ viability of reaching the market.  


Long Term Prospects  


Faced by the ageing patents of its highest selling drugs, Eliquis, Revlimid and Opdivo, BMS’s merger with Mirati is a step in the right direction. The structure of the deal suggests that Krazati forms the basis of the merger, and so its commercial success will ultimately determine the prospects of this merger. The sales of Krazati will yield the initial return on investment, and this looks more likely with its main rival, Amgen’s Lumakras, having received negative feedback from the FDA. Despite this, Krazati was turned down by the EMA’s human medicines committee and faces headwinds in Europe.  

The real value drivers may in fact be the experimental pipeline drugs that Mirati has, PRMT5 and MRTX1719, given recent optimism for the drugs, but these are yet to be translated into tangible products that yield significant profits. The success of this merger is in the hands of Krazatipurchasing agents, at least for the time being.  


Written by Philip Repin-Millard (St Hilda’s college)  

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