Shares of the Summit, N.J.-based pharmaceutical company soared 25% higher on Thursday morning as Bristol-Myers offers about a 54% premium on Wednesday's closing value, valuing Celgene shares at $102.43 each, according to the announcement. By contrast, Bristol-Myers stock is barreling downward, losing some 12% in morning trading.
"Bristol-Myers Squibb's offer to buy Celgene for $74 billion is a best case scenario that should be immediately utilized by Celgene shareholders, who we would recommend take advantage of the recent deal announcement upside before the deal closes," Leerink Partners analyst Geoffrey C. Porges said on Thursday morning.
The deal is slated to be accretive to Bristol-Myers on the basis of Celgene's pipeline of cancer treatments and cardiovascular medicines.
"As a combined entity, we will enhance our leadership positions across our portfolio, including in cancer and immunology and inflammation," Bristol-Myers CEO Giovanni Caforio said. "Together, our pipeline holds significant promise for patients, allowing us to accelerate new options through a broader range of cutting-edge technologies and discovery platforms."
The company expects to realize $2.5 billion in annual synergies by 2022 from the deal.
To be sure, the opportunity hangs on a knife's edge as the reaction of Bristol-Myers' sliding share price will be pivotal to the profitability of the deal, which is a cause for caution.
"If Bristol's stock remains at a price of ~$44, then the premium falls to 41% and 55%, respectively," Porges explained. "Given this potential premium erosion, and the risk that Bristol shareholders may reject this deal if the BMY price drop sticks, we would recommend the current CELG upside of ~30% as an exit opportunity for CELG shareholders."
Additionally, the patent cliff that confronts Celgene's cancer drug cash-cow Revlimid hangs over the deal.
Wells Fargo analyst Jim Birchenough cited the drug as a "fundamental risk" to the deal closing and Celgene maintaining its newfound heights.
"Risks include failure to prevail in ongoing REVLIMID patent litigation, failure of diversification strategy beyond REVLIMID to emerge, or clinical trial failure for REVLIMID or later stage pipeline assets," he explained.
That is not to mention the significant challenge that Merck's (MRK) Keytruda offering presents to the flagship product.
Eliquis, a major cardiovascular offering from Celgene, also faces patent problems, adding uncertainty to the deal's close.
For those not willing to jump in and trade on the agreement with so many questions still hanging in the air, analysts were happy to look ahead to what this means for biotech buyouts in 2019.
"Is biotech consolidation on the way? We are very curious to see if this marks the beginning," Cantor Fitzgerald analyst Alethia Young wrote on Thursday. "We also wonder what this means for other large pharma including Amgen (AMGN) and their appetite to do larger deals."
The move could provoke a change in strategy among large biotech companies, as major companies may need to consolidate to compete with larger entities that mega-mergers these types of deals will create.
"We view this deal as a significant shift from current Biopharma strategy, but we can appreciate the rationale with large cap biotechs having been more single product/asset stories that are starting to mature in growth," Young added. "They make attractive targets for companies looking for financial engineering deals over time as well."
Prospecting new targets will be a primary push for pharma investors in 2019 and will remain a focus for Real Money as a result.
For more on the details of the deal, check out Real Money's sister site The Deal.