Bristol-Myers Gets Its Antibody Deal at Last

July 23, 2009 Bristol-Myers gets its antibody deal at last

Evaluate Vantage

On the same day that Eli Lilly was talking up the commercial prospects of pipeline candidates acquired through its $6.5bn purchase of ImClone Systems last year, a deal which hijacked Bristol-Myers Squibb’s plans to get its hands on an antibody technology platform, BMS has finally fulfilled its original objective with a $2.4bn swoop on Medarex.

As previously highlighted by EP Vantage, Medarex’s technology platform and broad portfolio of clinical stage antibody candidates made the New Jersey-based biotech a logical takeover target for BMS once the ImClone deal collapsed (BMS's alternatives to ImClone, October 7, 2008). As for Medarex it seems the $16 per share cash offer, a 90% premium, was simply too good to refuse as the company has struggled over the last 18 months to attract a market valuation in keeping with its obvious potential.

Taking no chances

Perhaps mindful of the lessons learnt from the failure to acquire ImClone, BMS is understandably seeking a quick and clean deal. BMS will launch its $2.4bn offer on July 27 and hopes to have the acquisition wrapped up within 30 days, assuming regulatory clearance is received and a majority of Medarex’s shares are acquired.

In addition, BMS has pointed out that the deal, which has been unanimously approved by the boards of directors of both companies, includes a “provision under which Medarex has agreed not to solicit any competing offers for the company”.

Whereas ImClone never approved of BMS’ advances, forcing the pharma giant to launch a hostile bid, which was eventually trumped by Lilly (BMS bows out of ImClone race, October 6, 2008), BMS is clearly hoping to avoid a repeat performance. With Medarex shares now priced at $15.86 in early morning trading today, it seems that investors are not currently expecting a rival bid to materialise.

Logical target

BMS’ move on Medarex has parallels with its attempt to acquire ImClone. At the time the decision was seen as a logical and natural extension of the two companies' existing relationship, with a commercial partnership over cancer antibody Erbitux and with BMS holding a 17% stake in the biotech group.

Whilst BMS’ relationship with Medarex is not quite as entrenched, the pharma giant already holds exclusive rights to Medarex’s most valuable pipeline candidate, ipilimumab, through a 2004 collaboration, and a 2% stake in the antibody company.

The acquisition of Medarex will give BMS full control over ipilimumab, a product with a chequered developmental history as a potential treatment of melanoma, but which received encouraging clinical news last month with impressive results in treating prostate cancer (Medarex buoyed by optimism but nervousness likely to creep in, June 23, 2009).

With consensus analyst forecast sales of $299m by 2014, ipilimumab is valued at $961m to BMS and $505m to Medarex, giving a combined potential net worth of $1.47bn, according to EvaluatePharma’s NPV Analyzer. BMS’ acquisition could be a sign of increased confidence in the product and timed to avoid having to pay substantially more for Medarex if pivotal phase III melanoma data, due by the end of the year or early 2010, is positive.

Aside from ipilimumab, BMS also gains access to Medarex’s UltiMAb antibody technology platform, which has now been formally validated following regulatory approval for three antibodies which use this technology, developed by Medarex’s partners: Johnson & Johnson’s Stelara and Simponi and Novartis’ Ilaris.

Medarex receives undisclosed, but likely to be low single digit, royalties on sales of these products. With Simponi and Stelara forecast to be $1bn blockbusters this will be a handy revenue stream; although in overall context of BMS not particularly significant. Medarex also has a reasonable clinical stage pipeline with seven proprietary antibodies in phase II and I trials, and three candidates being developed by partners.

Bolt-on acquisitions

In contrast to the mega-merger strategy of BMS’s US peers Pfizer, Wyeth, Merck & Co and Schering-Plough, BMS has adopted and is clearly keeping faith in its bolt-on acquisition strategy, the so-called “string of pearls”, a strategy more in line with BMS’ European counterparts.

With around $8.1bn in cash and equivalents at the end of June, boosted by the $1bn BMS pocketed from the sale of their stake in ImClone to Lilly, the pharma giant can easily cover the $2.4bn Medarex deal, still leaving the group with a decent war chest to attempt further deals.

Aside from the potential revenues that ipilimumab may bring in if the product defies the odds and reaches the market, the acquisition of Medarex is more about the antibody technology platform that BMS so clearly craved, and less to do with attempting to fill its patent hole.

Faced with a significant patent cliff when Plavix goes generic in 2011 and Avapro in 2012, if BMS intends to soften the blow further deals look likely.