BMS acquires Medarex for $2.1B

PRINCETON, N.J.—Bristol-Myers Squibb Co. (BMS) and Medarex Inc. have taken the wraps off a definitive merger agreement providing for the acquisition of Medarex by BMS for an estimated $2.1 billion.

The transaction has been unanimously approved by the boards of directors of both companies. BMS will pay $16 in cash for each share of Medarex, for a total of roughly $2.4 billion. After adjusting for the roughly $300 million on Medarex's books, the deal's value comes to $2.1 billion.

BMS sees Medarex as a strategic acquisition, says company spokesman Brian Henry.

"We greatly value the Medarex's scientific leadership, the platform technologies and the robust number of clinical and pre-clinical assets," Henry says. "The number of biologics in our pipeline almost doubled in this deal."

The companies had been in discussions "for a few months," Henry says, adding that BMS has been collaborating with Medarex since 2005 on ipilimumab and is looking "forward to extending that collaboration in a broader way."

James M. Cornelius, BMS chairman and CEO, says Medarex's technology platform, people and pipeline provide a strong complement to the company's biologics strategy, specifically in immuno-oncology. In a recent conference call, Cornelius said he "wouldn't rule out" a purchase three to five times the size of the deal for Medarex.

"We're not done with the String of Pearls," Cornelius said, in reference to BMS' ongoing strategy of transforming itself into a biopharmaceutical company by buying biotech drug compounds or companies in priority disease areas. "With its productive and proven antibody discovery capabilities, ability to generate interesting therapeutic programs and unique set of preclinical and clinical assets in development, Medarex represents what we're looking for in terms of our String of Pearls strategy. This acquisition is another important step in our biopharma transformation."

In the acquisition, BMS acquires Medarex's UltiMAb Human Antibody Development System, which produces high affinity, fully human antibodies for use in a broad range of therapeutic areas, including immunology and oncology. This validated technology platform has produced compounds that are now currently marketed therapies, including Simponi, Stelara and Ilaris. The agreement gives BMS royalties on a percentage of the sales of those three drugs.

The acquisition also includes Medarex's next-generation Antibody-Drug Conjugate (ADC) technology, which is a novel and proprietary platform that could open new fields in oncology drug development.

For Medarex, the merger offers an opportunity to realize the full potential of its development portfolio and UltiMAb technology platform, notes Howard H. Pien, the company's chairman and CEO.

"Medarex has evolved significantly over the past two decades from a research platform to a development company," he says. "We believe that this transaction represents a great opportunity to place our clinical programs and technology assets in the hands of one of the world's premier biopharmaceutical companies with the expertise, resources, motivation and dedication to bring innovative cancer treatment options to patients in need."

According to Henry, UltiMAb is a technology enabling production of fully-human antibodies, which have the potential to be better tolerated than currently available antibodies, and the ADC technology works on discovering and developing compounds that boost the patient's own immune response to attack tumor tissue.

"The platforms have been applied to discovery and development of antibodies that are aligned with our strategic areas in immunology and oncology," he says. "Historically, our capabilities have not been in these specific areas of protein-engineered antibodies, but these technologies and the scientific leadership at Medarex would expand our capabilities in this area so that we might pursue a broader range of targets."

Moreover, the agreement includes the rights to to seven antibodies in clinical trials under Medarex's sole sponsorship and three other antibodies being co-developed with other partners. Rights to pre-clinical assets in various stages of development by Medarex—in particular, monoclonal antibodies focused in oncology and immunology.

A key to the merger is the ownership and rights to ipilimumab, which, if approved, could be an important contributor to BMS' future growth. According to Henry, the companies have collaborated on the development of ipilimumab, an experimental drug for metastatic melanoma, which is in the third and final stage of testing typically required for U.S. Food and Drug Administration approval. The drug is also being studied in lung and prostate cancers.

Henry also notes that gaining full rights to a promising late-stage compound such as ipilimumab is an important part of the proposed acquisition. It isn't, however, the only attraction for this merger.

"It would also bring access to Medarex's scientific leadership, the potential to increase our leadership in biologics, expand our abilities in an emerging area of oncology research (immuno-oncology) and bring provide us access to validated technologies," he adds.

BMS is acquiring companies and forming partnerships to find new products to offset losses from Plavix, its top-selling medicine, when the anti-clotting drug faces generic competition in 2012. That raises the stakes for ipilimumab, according to many analysts.

"If melanoma success is achieved, we believe the deal will seem particularly, and strategically, smart," Catherine Arnold, an analyst at Credit Suisse in New York, said in a statement. "The acquisition of Medarex provides Bristol-Myers with new capabilities and future royalty streams."

Mitsuo Ohmi, a Tokyo-based health-care analyst at Japan Advisory LLC, told Bloomberg News the deal is a strategic buy for BMS to strengthen its biotech business.

"The premium looks high but it's a great deal for what Bristol is getting in the long run. It will take some time to see an earnings contribution from the takeover," he says.