The healthcare industry has been continually witnessing a wave of strategic mergers and acquisitions, which could bring in major transformations in the spectrum of healthcare business. Post multiple series of consolidation between the pharmacy benefits managers and health insurers last year, biotech companies have been flourishing in the healthcare space as they have evolved as highly attractive targets for large firms after their valuations came down in the past few months.
This is apparently evident as Bristol-Myers Squibb, a leading American pharmaceutical company, agreed vis-à-vis acquiring Celgene Corporation for a valuation worth $74 billion, in terms of cash and stock deal. This proposed deal would be beneficial for either of the companies that are struggling in the cancer market (presently one of the largest pharmaceutical spaces) for innovation-oriented treatments.
Details of the Deal
As per terms and conditions of the deal, Celgene investors would be receiving one Bristol-Myers share and around $50 cash for every holding of Celgene, along with a contingent value of $9, in case three treatments in development get approvals at the right time.
The deal values Celgene at $102.43 each, a premium of around 53.7% to the closing price and would bring in together two of the global leaders in cancer drug businesses in the largest ever pharmaceutical deal. The combined company would be 69% taken by Bristol-Myers and will frame a specialty biopharma company dedicated for treatments in cancer, inflammatory, and cardiovascular diseases. It will also have a robust portfolio of around nine drugs with a surpassed valuation of $1 billion in case of annual sales.
The transaction would eventually translate into an overall cost savings of around $2.5 billion by 2022, with around 55% derived from cuts in expenses in terms of general, sales, and administrative, 35% via reduction in the research & development spending and around 10% from the manufacturing spectrum. Therefore, Bristol-Myers anticipates the deal to supplement 40% to its net earnings in the first year post closing.
The news has shed some light on multiple number of ETFs in healthcare, primarily in case of biotech and pharma, which could be in absolute favor of investors to leverage opportunity coming from the BMY-CELG deal. Investors should also keep a close track of the movement of ETFs in the forthcoming weeks.
In multiple cases, acquisitions are instrumental in terms of overcoming significant hindrances in achieving organic growth or growth obtained with the help of the existing assets. Otherwise, in case the existing business is not growing in significant terms, purchasing another business has become more of a common strategy to flourish and reap significant benefits through augmented cash flow.