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Bristol Myers Squibb Surprises With A $13 Billion CV Takeover (NYSE:BMY)

BMY is taking over MyoKardia for $13 billion. MyoKardia’s lead drug could generate peak sales of ~$2 billion, there are other pipeline candidates aimed at treating CV diseases on top of that.

Bristol Myers Squibb (BMY) has turned into one of the biggest pharma players following its acquisition of Celgene a while ago. Now, the company makes its next play, acquiring MyoKardia (MYOK) for $13 billion. Thanks to the solid balance sheet strength of BMY and its substantial cash flows, financing this acquisition will not be a problem, and the deal should be accretive to earnings a couple of years down the road, thanks to the promising outlook for MyoKardia’s mavacamten.

Source: Stock Rover

BMY is the cheapest in the big pharma/biotech space, trading at an enterprise value to EBITDA multiple of just 7.7. The company also has one of the lowest forward free cash flow multiples and an industry-leading shareholder yield (dividends + buybacks). Last but not least, shares are historically cheap, showcased by the price to free cash flow ratio that is at the bottom of the 5-year range.

Takeover Of MyoKardia

Quick facts

On Monday morning, BMY announced that it would acquire MyoKardia for $13.1 billion, for a price of $225 per share of MyoKardia. This equates to a nice premium of well above 50% for MyoKardia’s shareholders, relative to Friday’s closing price of $140.

MyoKardia’s mavacamten

BMY’s management doesn’t make it a secret that the main reason for the takeover was MyoKardia’s most promising drug, which is called mavacamten. Mavacamten is a drug candidate that is currently in phase III testing for obstructive Hypertrophic Cardiomyopathy, and in phase II testing for non-obstructive Hypertrophic Cardiomyopathy. Currently, there is no specific medication for obstructive Hypertrophic Cardiomyopathy, thus this drug candidate is seeking to fill a gap and meet significant unmet demand by both patients and medical professionals.

According to top-line data from its phase III study EXPLORER-HCM, mavacamten has a sustained and significant positive impact in treating obstructive Hypertrophic Cardiomyopathy, showcased by improving patent parameters such as Cardiac Wall Stress and Myocardial Injury. Mavacamten has received accelerated review status by the FDA under the Breakthrough Therapy program, which shows that regulators see significant potential for meeting unmet medical needs. MyoKardia has already found licensing partners that will market the drug in China, which is usually a market that is not easy to break into for Western companies. On the other hand, China is one of the largest pharmaceutical markets in the world, thus finding a commercialization partner that will pay double-digit royalties could turn out as a relevant factor for the drug’s commercial success.

According to some estimates, the drug has a peak sales potential of $2 billion. in the obstructive HCM market, and another $600 million in the less significant non-obstructive HCM market. Combined, this would equate to peak sales of roughly $2.5 billion. Other estimates, however, are more conservative, seeing combined peak sales at around $1.5 billion. It is, of course, impossible to exactly forecast how high the revenues the drug will bring in could be, but it seems like an annual sales peak at something around $2 billion could be possible, which would put the acquisition at a valuation of ~6.5 times peak sales. That is surely not a low price to pay for a drug that is still investigated, but BMY’s management seems to have found something it liked a lot when doing its due diligence.

Strategic rationale, more pipeline candidates

BMY has made a major move in the oncology market with its Celgene takeover, and that made a lot of sense, as the oncology market is a large and fast-growing market. Cardiovascular diseases, on the other hand, are less of a growth market, but there is still a very large addressable market overall. Estimates put the total global cardiovascular market (drugs and other) at around $150 billion in the early 2020s. At that market size, even getting just a couple percentage points of that can pay off very handsomely for pharma and biotech players. The sub-section of the cardiovascular disease drug market is forecasted to grow by 4% annually going forward, which is not a very high, but still very solid growth rate. With Eliquis, BMY is active in the CV disease market already, but apart from that its pipeline is not very deep in this major therapeutic area, unlike, for example, its oncology pipeline:

Source: BMY

With just 2 phase II candidates, apart from Eliquis, BMY’s CV pipeline is looking a bit meager. A takeover that will strengthen its position in this therapeutic area could thus make sense for the company. The MyoKardia takeover will, on top of giving BMY mavacamten, give BMY access to several other candidates in the space, such as danicamtiv that is studied for primary dilated cardiomyopathy, currently in phase II. The drug has shown positive results in…

Jonathan Weber

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