Big Pharma Says Let's Make a Deal

By Lisa LaMotta  SEP 08, 2010 2:15 PM

Bristol-Myers gets a deal on a hep C drug and benefits Novo Nordisk in the process.


Just a few days ago Bristol-Myers Squibb (BMY) was one of the Big Pharma companies that had a great dividend, three late-stage drugs in the pipeline, and the money to overcome the loss of revenue from the upcoming generic competition that will face its best-selling drug, the blood thinner Plavix.

Now, Bristol is still all of those things, as well as the proud owner of a buffed up hepatitis C pipeline (subject to customary terms and conditions, of course). The New York-based pharma has entered an agreement to purchase ZymoGenetics (ZGEN) for $9.75 per share, or $885 million (approximately $735 million net of the cash that the pharma will acquire in the deal). Bristol is paying an 84% premium to ZymoGenetics stock price at the close of the market on Tuesday.

Prior to the announcement of the deal, Bristol had a partnership with the biotech for its hepatitis C treatment PEG-interferon lambda. In 2009 the Big Pharma paid $85 million upfront, as well as $20 million for a license fee for the drug. The deal also included the promise of a billion dollars more for clinical, regulatory, and commercial milestones. Now Bristol saves $265 million on its purchase of the drug and gets the added bonus of the other drugs that ZymoGenetics has in its pipeline (including its mid-stage melanoma treatment and its already-on-the-market drug that's used to control non-arterial bleeding during surgery).

Bristol-Myers “was basically able to get the rest of the company for free, based on the price they paid,” Pacific Growth Equities analyst Gregory Wade told Bloomberg.

While some critics theorize that Bristol bought the company because its own HCV compounds aren't showing the results they were hoping for in relapsers and non-responders, Leerink Swann analyst Seamus Fernandez speculates the ZymoGenetics compound will be a complementary addition to Bristol’s existing pipeline and may even become a treatment of choice.

"The acquisition of ZymoGenetics brings us full ownership of a promising investigational biologic that strengthens our very diversified Hepatitis C portfolio. Building on our leadership in virology, we are developing a strong portfolio to help patients with Hepatitis C," said Bristol Chief Executive Lamberto Andreotti. "In addition, ZymoGenetics brings proven capabilities with therapeutic proteins and revenue from a marketed specialty surgical biologic.”

But Bristol and ZymoGenetics shareholders aren’t the only people who are going to benefit from this acquisition. For the purchase to take place, Novo Nordisk (NVO) has to divest its 26% ownership stake in the biotech.

The world’s largest manufacturer of insulin has had a share in the biotech since 1988. The acquisition of its stake will provide it with $188 million that will likely go back to Novo shareholders.

"We continue to have adequate funds and a steady cash flow. Without preempting the evaluation that we will do together with the board, I can say that we have a long tradition of returning excess cash to shareholders in the form of dividends and share repurchases," Novo Chief Executive Jesper Brandgaard told Reuters. "Everything else being equal, one should also expect that this will be the case in this instance,” he added, making parallels to previous sales.

Some people speculated on Twitter that Novo was more than willing to sell its minority stake because it's in some sort of distress, but the criticism seems unwarranted. The company is the leader in the world’s insulin market and has been making a surprise splash with its GLP-1 treatment Victoza for type II diabetes. “Novo Nordisk is one of the most successful pharma companies on the planet,” says Miller Tabak analyst Les Funtleyder.
No positions in stocks mentioned.

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