over 3 years ago • 2 mins
Love was in the air on Monday after US pharmaceuticals giant Bristol Myers Squibb agreed to buy biotech MyoKardia – along with a potentially lucrative heart treatment – for $13 billion 💞
Bristol Myers – which bought cancer-focused rival Celgene for $74 billion last year – is a cancer treatment heavyweight: over 80% of its sales so far this year have been cancer-related. But just like all the world’s big pharmaceutical companies, Bristol makes drugs that treat everything from HIV to heart problems.
That’s where biotech MyoKardia comes in: its most promising drug treats a chronic condition that can cause an abnormal heartbeat 💊 And if it’s approved, it could become a “blockbuster” that transforms Bristol Myers from a cancer-focused pharma firm to a heart-focused one.
One big reason the pharma companies are so keen to strike deals is the threat of so-called “patent cliffs”. See, pharma firms can sell new drugs exclusively (and often at eye-watering prices) for about 20 years as a reward for spending billions to develop them 💵 But once that time’s up and the patent vanishes, competitors can make and sell cheaper copycats of the drug. Buying into companies with new products on the way, then, can help companies recoup the money they lost from their outgoing bestsellers with sales of their new rockstars.
Bristol Myers is paying $225 of cash for every share of MyoKardia out there – 61% more than the shares were worth on Friday. And judging by the fact MyoKardia’s stock jumped close to the takeover price, its existing shareholders might’ve been pleased with their windfall 🎉 But maybe more surprising was the rise in Bristol’s share price: buyers’ stocks normally drop when mergers and acquisitions are announced, given that they typically destroy value over time. The fact Bristol’s didn’t suggests its shareholders might actually think it’s onto a good thing…
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