Bristol-Myers Who? Why a Marriage Between Pfizer and Biogen Makes More Sense

Investors love to speculate on mergers and acquisitions (M&A), and one of the hottest topics of speculation recently has been whether someone will buy Bristol-Myers Squibb. Much of the focus has been on Pfizer buying Bristol-Myers.  Pfizer, of course, is the source of rumors about a buy since its mega-deals with AstraZeneca and Allergan fell through.

But analysts are now suggesting that rather than targeting Bristol-Myers Squibb for its immuno-oncology business, Pfizer might be looking at Biogen for its neuroscience emphasis. It would be an interesting choice.

Biogen is a dominant player in the multiple sclerosis (MS) market. It’s aducanumab for Alzheimer’s disease is more promising than most drugs for the disease are—which isn’t saying all that much, but even a modestly successful drug for Alzheimer’s would likely bring in billions of dollars. And earlier this year, the company’s Spinraza (nusinersen) was approved for infants with spinal muscular atrophy (SMA), and although uptake has been a bit slow, it shows signs of accelerating.

Alex Arfaei, an analyst with BMO Capital Markets, wrote in a note to investors, "Many have speculated that BMY is the target given Pfizer’s focus on oncology and Bristol’s setbacks. We’ve argued that Pfizer and Bristol-Myers is unlikely given significant uncertainty associated with Bristol’s immuno-oncology pipeline."

He goes on to say, "We argue that Pfizer cannot afford to remain on the sidelines in Alzheimer’s, as its peers (e.g. Biogen, Merck, AstraZeneca, Eli Lilly) have pivotal trials reading out in 2019-2020. Going back to the Wyeth acquisition, Alzheimer’s has been a priority for Pfizer, and the company is refocusing on it again with some Phase I assets. Yes, Alzheimer’s has been remarkably challenging for drug developers, but there are signs of significant progress, the strongest of which, in our view, is Biogen’s aducanumab. We believe the next wave of Alzheimer’s trials have a higher probability of success because they are in earlier stages of disease with better patient selection. Moreover, Pfizer can probably manage Biogen’s neurology franchise more efficiently, and capture significant operating synergies by leveraging Lyrica’s infrastructure. The rest of Biogen’s pipeline is also complementary. Pfizer does not need Biogen, but can Pfizer afford to be behind in immuno-oncology and Alzheimer’s? As Ibrance illustrates, being first matters, even in large markets."

Biogen has a market cap of about $66.76 billion. Bristol-Myers Squibb has a market cap of about $99.8 billion. Pfizer can handle a buyout of either one, but neither one is cheap.

The primary reasons for Pfizer to buy Bristol-Myers Squibb are:

Pfizer revenues would benefit. Jonathan Weber, writing for Seeking Alpha in September, noted, "the company could benefit from an acquisition that combines a growing top line and a strong pipeline."

Pfizer can afford it. It has a strong cash flow and more than $20 billion in cash.

It has access to low-rate debt. Its bonds trade in the range of 2 percent to 3 percent yield.

Bristol-Myers has 33 compounds in its pipeline for multiple indications. Its primary focus is oncology.

Will either deal happen? Who knows. Maybe. Unlike the AstraZeneca and Allergan deals, both Bristol-Myers Squibb and Biogen are American companies, with Bristol-Myers’ headquartered in New York City and Biogen in Cambridge, Massachusetts. That means no tax inversion deal, which Pfizer wanted so badly in the past, but which was an insurmountable obstacle for the U.S. government. That doesn’t mean much under the Trump administration, although predictability isn’t usually associated with this administration. It seems unlikely the Trump administration would get in the way of either a Pfizer-Biogen or Pfizer-Bristol-Myers Squibb deal.

The real question is whether or not Pfizer is interested.