Bristol-Myers Squibb Company
) will be selling its global diabetes business to long-time
), for an upfront payment of $2.7 billion. Bristol-Myers' shares
gained around 2.4% on the news and also reached a 52-week high of
$54.49. The company also provided its outlook for 2014.
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Diabetes Business Sale
Apart from the upfront payment, Bristol-Myers is also expected to
receive sales-based milestone payments of up to $1.4 billion
along with royalty payments based on net sales through 2025.
AstraZeneca will also make payments to the tune of $225 million
related to some asset transfer conditions.
The deal is expected to close in the first quarter of 2014.
Bristol-Myers will receive an estimated $3.4 billion in that
period, including the upfront payment and an additional $700
million assuming Forxiga (dapagliflozin) is approved in the U.S.
The FDA's decision on Forxiga, which is already approved in the
EU for type II diabetes, is expected by Jan 11, 2014.
Bristol-Myers' collaboration with AstraZeneca dates to 2007, when
the companies initially collaborated to jointly research, develop
and commercialize select type II diabetes candidates. Later, the
agreement was broadened to include other diabetes products.
The existing collaboration between the companies will now be
terminated and AstraZeneca will gain global rights to major
diabetes products like Onglyza, Kombiglyze XR/Komboglyze,
Forxiga, Byetta, Bydureon and Symlin. The agreement also includes
lipodystrophy candidate, metreleptin, which is under regulatory
review in the U.S. with a final decision expected by Feb 27,
Bristol-Myers will however continue to conduct and fund certain
clinical studies on Onglyza and Forxiga through 2016.
Bristol-Myers expects the deal to be earnings accretive in the
first few years. However, it believes that the effect will slowly
dilute in the latter half of the current decade. Assuming the
deal closes in the first quarter of 2014, Bristol-Myers expects
its 2014 non-GAAP earnings to be in the range of $1.65 to $1.80
per share. The Zacks Consensus Estimate of $1.91 is however above
the company's latest guidance.
Bristol-Myers also expects the transaction to positively impact
its gross margin. The company expects its 2014 research and
development expenses to remain flat on a year over year basis.
Meanwhile, the company's 2014 selling, general and administrative
expenses are expected to decline year over year mainly due to
lower commercial expenses.
We view the transaction as a clear step toward Bristol-Myers
evolving as a specialty care-oriented company. The diabetes
business was not doing particularly well especially products like
Bydureon, so we view this transaction as a positive. With
Bristol-Myers' global diabetes business sold off, we expect the
company's primary focus to be on its existing portfolio of
oncology, neurosciences, immunology, cardiovascular and virology.
Moreover, Bristol-Myers' important products like Abilify and
Sustiva are expected to lose their exclusivity in the coming
years. This will pose a challenge for the company in terms of
replacing lost revenues with new products. Bristol-Myers
currently has a lot of late-stage candidates in its pipeline,
with a probability of hitting the market in the coming quarters.
Bristol-Myers carries a Zacks Rank #3 (Hold). Some better-ranked
stocks include Zacks Ranked #1 (Strong Buy)