AstraZeneca to buy Bristol-Myers Squibb's stake in diabetes alliance for up to $4.3 billion

AstraZeneca announced Thursday an agreement to acquire Bristol-Myers Squibb's stake in the companies' diabetes joint venture for potentially as much as $4.3 billion, including an initial payment of $2.7 billion. The deal also includes up to $1.4 billion in regulatory, launch and sales-related payments to Bristol-Myers Squibb, as well as various sales-related royalty payments until 2025 and payments up to $225 million on the transfer of certain assets.

Pascal Soriot, CEO of AstraZeneca, said "together with Bristol-Myers Squibb we concluded that consolidating ownership of the diabetes portfolio would benefit both companies and allow us to better serve the needs of diabetic patients." He added that the deal "reinforces AstraZeneca’s long-term commitment to diabetes, a core strategic area for us and an important platform for returning...to growth." Soriot noted that while the joint venture is currently losing money, there is "substantial potential" in emerging markets for the products and the franchise should be profitable by 2017.

The purchase will give AstraZeneca global rights to diabetes therapies including Onglyza (saxagliptin), Kombiglyze XR (saxagliptin/metformin), Komboglyze (saxagliptin/metformin), Forxiga (dapagliflozin), Byetta (exenatide) and Bydureon (exenatide extended-release). AstraZeneca noted that it will record an impairment charge of approximately $1.7 billion in 2013 related to Bydureon, which the companies gained through an expansion of the diabetes alliance in 2012 following Bristol-Myers Squibb's $5.3-billion acquisition of Amylin Pharmaceuticals. The UK drugmaker indicated that the product "has delivered sales performance below...commercial expectations," although it added that it "continues to have confidence in [its] commercial future."

Commenting on the transaction, Panmure Gordon analyst Savvas Neophytou said "to us this looks a sensible deal," adding "even with a staged earn-out which could rise to $1.6 billion, the price would appear to be good business particularly as it also includes full rights to Onglyza and dapagliflozin." The latter drug was approved in Europe in 2012 for the treatment of type 2 diabetes, although the companies recently pulled the SGLT2 inhibitor from the German market over a pricing dispute with the country's authorities. An FDA advisory panel recommended approval of Forxiga earlier this month, with the agency scheduled to make a final decision by January 11, 2014.

AstraZeneca indicated that the deal, which has been approved by Bristol-Myers Squibb's board, is expected to close during the first quarter of 2014. The UK drugmaker noted that approximately 4100 Bristol-Myers Squibb employees dedicated to the diabetes business, including those at Amylin, will eventually transition to the company. AstraZeneca added that the deal will be neutral to earnings next year.

In November, Bristol-Myers Squibb revealed that it was halting drug discovery in diabetes, leading to speculation that the drugmaker planned to exit the collaboration with AstraZeneca. Citi analyst Andrew Baum later suggested that AstraZeneca could be interested in acquiring the stake.

"This agreement will allow us to further evolve our business model as a leading specialty BioPharma company and increase resources behind the opportunities that drive the greatest long-term value for patients, our company and our shareholders," remarked Bristol-Myers Squibb CEO Lamberto Andreotti. The executive confirmed that the funds from the sale will be used for acquisitions, although he said the drugmaker is "not going to re-enter into primary care." International Strategy & Investment Group analyst Mark Schoenebaum commented that "the deal makes a lot of strategic sense" for Bristol-Myers Squibb, as it "is becoming more of a biotech company." Meanwhile, Sanford C. Bernstein analyst Timothy Anderson speculated that Bristol-Myers Squibb may be raising money through the sale for a larger acquisition.

Bristol-Myers Squibb noted that the agreement includes the sale of the former Amylin manufacturing facility in West Chester, Ohio, and covers the purchase by AstraZeneca of a production plant in Mt. Vernon, Indiana approximately 18 months following the closing of the transaction. The drugmaker said it expects to receive $3.4 billion from AstraZeneca in the first quarter of 2014, which includes $700 million assuming regulatory approvals of Forxiga. Bristol-Myers Squibb added that for 2014, it predicts earnings in the range of $1.65 per share to $1.80 per share, with analysts expecting earnings of $1.93 per share.

For further analysis, see ViewPoints: AstraZeneca acquires Bristol-Myers Squibb diabetes JV – three key conclusions.

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